Purchasing a Pre-Construction Condo - What You Need to Know

Thinking of getting into the pre-constrcution market? Here are a few things you need to know!

Interim Occupancy

All new condos, when first completed, have what is called an “Interim Occupancy” period, which is the first step of your condo possession. During this time, the builder finishes construction while also organizing an orderly move-in for what could be hundreds of individual unit owners.
During Interim Occupancy, you do not hold title to your condo as of yet, although you may be living there and enjoying your new home and its amenities.
Throughout Interim Occupancy, the developer will charge an Interim Occupancy Fee, which is stipulated by the Condominium Act to ensure that the builder does not make a profit and only covers their expenses.

This fee is made up of three parts:

  1. interest on the unpaid balance of the purchase price of the condo
  2. an estimate on the municipal taxes of your unit and
  3. the maintenance fees.

It is in the builder’s best interest to keep this interim period as short as possible, as they only profit once this phase is complete. If you require a mortgage on your new purchase, the mortgage will begin after interim occupancy, once you have title to your condo.

"Cooling Off" Period 

By law, all purchase agreements for newly-built condo units come with a 10-day “cooling off” period.
This means that you have the right to cancel your purchase within 10 calendar days from receiving a copy of the fully executed purchase and sale agreement from the developer, or the disclosure statement - whichever comes later. This law was put in place to protect you and to ensure no buyer’s remorse if purchased during the hype and excitement on launch day, but applies to all purchases done at any time.
If you decide to cancel and return the unit, your deposit will be returned to you, in full.

During these 10-days, we strongly suggest that you have the documentation reviewed by a lawyer.
We offer our clients the opportunity to sit down and review the agreement with our lawyer - at no charge to you!
In addition to reviewing the documentation, you should also obtain a mortgage pre-approval, if necessary.
Although the lending institution may not be able to hold the rate for more than 90 days, undertaking this crucial step will give you an idea of what you qualify for and what to expect upon possession.

Closing Costs

Closing costs for a newly-built condo are very similar to purchasing a re-sale unit, although are applied to different categories. We advise you to set aside up to 3% of the purchase price for closing costs. These include: Development levies, builder adjustments, land transfer tax, Initial reserve fund deposit, lawyer fees, home insurance, among other costs.

If you are an investor, and do not intend to live in the unit:

HST Implications 

Harmonized Sales Tax (HST) is a combination of the GST (5%) & PST (8%) taxes and is applicable to all new construction in Ontario.
When purchasing a condo that is in the development stages, you will be asked to declare your intended use of the unit – personal or investment.
If you or a family member is planning to occupy the unit, you would declare the unit for personal use.
If you are purchasing the unit to lease out or for speculative reasons, you would declare the unit as an investment.
If the condo is intended for personal use and the condo will be a principle residence for you or a family member, then the HST will be included in the purchase price, and the builder will credit you the rebate upon closing.

A popular practice by builders is that they will include the rebate into a discounted purchase price, therefore no rebate would be provided on closing.
If you are purchasing the unit with the intention of selling it immediately, for profit, or as an investment and you never occupy the unit yourself, the builder will charge HST on the purchase price, and will remit this amount to the Canada Revenue Agency (CRA) on your behalf. You may apply for a HST rebate to reclaim a portion of the taxes paid, depending on the purchase price, up to $450,000.

You are strongly advised to seek legal advice from a Chartered Professional Accountant (CPA), Real Estate Lawyer and/or Tax Lawyer.

Maintenance Fees

Maintenance Fees for a pre-construction condo are typically set by the developer, based on a study and budget that have been prepared to estimate the operational costs of running the Condo Corporation once it is registered.

 Base Maintenance Fees are calculated on your suite size only. If you prefer/purchase a suite with a larger balcony, you are not paying Maintenance Fees on the additional square footage.

In addition to base Maintenance Fees, which are calculated based on your suite size, you also pay a set monthly fee for your parking and locker, if applicable. This portion of the Maintenance Fee is a set monthly rate, as most parking stalls and lockers are typically the same size. Keep in mind that the monthly fee for the parking spot is separate from the monthly fee for the locker and applies to each parking spot / locker which you own.

If you don’t own parking or a locker, these fees do not apply.

Property Tax

In Mississauga and Etobicoke, annual property taxes for pre-construction condos typically amount to approximately one percent (1%) of the unit’s purchase price. The actual property tax is not known, as the municipality utilizes the services of Municipal Property Assessment Corporation (MPAC) to assess the condo and in turn each individual suite, only once the Condominium Corporation has been registered.

Any information provided is not to be construed as expert legal advice. We recommend that you seek expert advice from a real estate lawyer, a tax lawyer, a chartered professional accountant (CPA) and/or a licensed mortgage broker.

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