Condos in Downtown Toronto have become a prime choice for home buyers and investors, especially regarding pre-construction units. Purchasing a pre-construction condo can be an exciting opportunity with the potential for significant returns. Still, it also comes with a fair share of risks. Here's a comprehensive look at the pros and cons of buying a pre-construction condo in Downtown Toronto.
Pros of Buying a Pre-Construction Condo
1. Potential for Appreciation
One of the most significant advantages of buying a
pre-construction condo is the potential for property appreciation before moving
in. Since you're purchasing at today's price but taking possession in the
future, your unit may increase in value by the time it's ready for occupancy.
This can result in significant financial gains. As Downtown Toronto's housing
market continues to grow, buyers can build equity without having to make
mortgage payments until the property is complete.
2. Customization and Modern Design
Pre-construction condos offer buyers the opportunity to
personalize their living space. Developers often allow buyers to choose from
various finishes, flooring, cabinetry, and colour schemes, creating a home that
reflects their unique style. Additionally, new condos come with modern layouts,
energy-efficient appliances, and smart home technology. Many buildings also
include contemporary shared amenities like fitness centers, coworking spaces,
and rooftop lounges.
3. Flexible Payment Structure
When buying a pre-construction condo, you don't need to pay
the entire down payment upfront. Developers typically offer a staggered payment
schedule, where you pay in installments throughout 12 to 24 months. This makes
it more affordable for buyers who simultaneously need access to a sizeable down
payment. This also allows buyers to plan and save while securing a property
that will only increase in value over time.
4. Lower Initial Maintenance and Repairs
Since pre-construction condos are brand new, they require
minimal maintenance for the first several years. All appliances, electrical
systems, and materials are new, which means fewer breakdowns and repair costs.
Furthermore, in Ontario, pre-construction condos are protected under the Tarion
Warranty Program, which provides coverage for structural issues and
significant defects for up to seven years.
5. Strong Investment Potential
Investors are drawn to pre-construction condos because of
their potential for high returns. By purchasing a unit early, they can benefit
from property appreciation before the project is complete. In Downtown Toronto,
where demand for rental properties is high, owners can rent out their condos at
premium rates. With the city's growing population and the housing shortage,
pre-construction condos are considered a wise, future-proof investment.
6. Early Access to Premium Units
When you buy during the early phase of a condo development,
you have access to the best units. Buyers can choose higher floors, better
views, and larger layouts before they are made available to the general public.
Early access also means you can secure units at lower prices, as developers
often increase prices as construction progresses.
Cons of Buying a Pre-Construction Condo
1. Construction Delays
One of the most significant drawbacks of buying a
pre-construction condo is the risk of delays. Construction timelines can be
affected by weather, labour shortages, supply chain disruptions, and permit
issues. What was initially promised as a two-year timeline can stretch to three
or even four years. This can be frustrating for buyers who have plans to move
in or rent the unit on a specific date.
2. Market Uncertainty
The real estate market can be unpredictable. While property
values in Downtown Toronto have historically increased, there is always a
chance of a market downturn. If prices drop before the condo is complete,
buyers may be locked into a purchase price that is higher than the market
value. Economic changes, interest rate hikes, and regulatory changes can also
affect a buyer's ability to secure financing when closing.
3. Limited Customization Beyond Finishes
While you can choose finishes like flooring and cabinetry,
significant structural changes are usually off-limits. Buyers can't modify the
layout, reposition walls, or change the size of rooms. This can be limiting for
people who want complete control over their living space. Additionally, what
you see in brochures and model suites might only partially match the final
product, as changes can be made during construction.
4. Higher Deposit Requirements
Unlike resale condos, which often require a 5-10% down
payment, pre-construction condos usually need 20-25% of the purchase price,
paid in installments. This higher deposit structure can be challenging for
buyers who need immediate access to such large sums of money. Although the
staggered payment schedule provides some flexibility, buyers still need to have
a solid savings plan.
5. Interim Occupancy Fees
Before officially taking ownership of the condo, buyers may
have to pay "occupancy fees" to the developer. This happens during
the interim occupancy period — the time between when you move into the unit and
when the building is officially registered. Occupancy fees are similar to rent,
and they do not count toward your mortgage or equity. This period can last
several months, leading to unexpected costs for buyers.
6. Risk of Developer Default
While it's rare, there is a risk that the developer will
default or cancel the project due to financial issues, rising construction
costs, or changes in the real estate market. When this happens, buyers are
entitled to a refund of their deposit. Still, the time and opportunity cost can
be significant. To avoid this risk, it's essential to research the developer's
track record before signing a purchase agreement.
7. The Final Product May Differ from Plans
When you buy a pre-construction condo, you're often relying
on artist renderings, floor plans, and marketing materials. However, the
finished product may not match the glossy images shown in brochures. Layouts
may be altered, new developments may obstruct views, and some materials may be
replaced with alternatives due to supply issues. If you have specific
expectations, this can be a frustrating experience.
8. Additional Closing Costs
Buyers of pre-construction condos face higher closing costs
than those purchasing resale properties. In addition to legal fees, title
insurance, and land transfer taxes, buyers must also pay development fees,
which often need to be noticed during the purchasing process. In addition, new
condos are subject to the Harmonized Sales Tax (HST), which can increase
closing costs by tens of thousands of dollars. These extra costs can catch
buyers by surprise if they need to be fully aware of all the fees involved.
Should You Buy a Pre-Construction Condo in Downtown
Toronto?
Buying a pre-construction condo in Downtown Toronto offers
unique benefits, but it's not a decision to be made lightly. Potential property
appreciation, the ability to customize finishes, and staggered deposit payments
are attractive features for buyers. Investors looking to build equity or secure
rental income will also find substantial opportunities in this market.
However, buyers must be prepared for potential delays,
higher deposits, and unpredictable final results. It's essential to review the
developer's track record carefully, seek advice from a real estate lawyer and
budget for closing costs. Buying a resale condo might be a better choice if
you're looking for an immediate move-in option or prefer a fully finished
product.
Ultimately, Condos in Downtown Toronto remain a top
choice for investors and homeowners due to the city's growing population, high
rental demand, and strong potential for long-term appreciation. By weighing the
pros and cons, buyers can make informed decisions that align with their
financial goals and lifestyle preferences.
