Pre-Construction Condos vs Resale
Pros and Cons of Presale vs Resale
When purchasing a property there are most notably two different options: pre-construction (often condos) and resale.
There are advantages and disadvantages to each type of property, and in this blog we go through the most notable pros and cons when analyzing pre-construction condos vs resale properties.
This blog will also help you to understand the different tax implications of pre-construction vs resale, high return on investment considerations for presales, and ultimately help determine whether a presale or resale purchase will be best for you.
Keep reading for more details on pre-construction condos vs resale!
The definition of a pre-construction property (also known as a presale property) is that it is a property that you are purchasing before it has finished building. It is common for a presale to be sold before the permits are even received from the city, and move in dates are typically 2-5 years away from when sales first start to the public. In this case the buyer would be purchasing directly from the developer/builder.
A resale property means that the property is already built and is move in ready. In this case, you are purchasing from someone who has already lived in the property.
There are a number of factors that need to be taken in to consideration when determining whether a presale or resale purchase is more appropriate for you.
Considering Pros and Cons of Buying a Resale Property
Buying a resale property is the most straightforward way to buy a condo, and decreases the amount of guesswork involved that you may find with a presale.
Resale Property Advantages:
TANGIBLE You can see what you’re buying, and you’re able to walk through and feel how big the bedrooms, living room, kitchen, etc. are. It’s a tangible product.
MOVE IN SOONER With a resale property you’re able to move in anytime that you can negotiate with the seller – it could be 1 week it could be 6 months! Resale move in dates are a lot sooner than presale move in dates (given you’re buying at the time initial sales release or shortly thereafter). In this case you get to move in as soon as you close.
STRAIGHTFORWARD MORTGAGE The mortgage process with a resale property is a lot easier, because you know the current interest rates, your current income, and what your monthly payment will look like. If you’re pre-approved (which you should be when searching for homes), you can get your appraisal done and mortgage right away! When purchasing a resale you won’t have to worry about market shifts prior to closing.
SMALLER DEPOSIT A typical deposit for a resale property is 5% of the purchase price, and is due one time upon subject removal. This is a much smaller amount than presale deposit structures.
NO GST PAYMENT For resale properties you do not need to pay an additional 5% Goods & Services Tax (GST) at completion.
MORE AFFORDABLE Because of the smaller deposit, most of our clients find that resales are more affordable. Additionally, because resales come in all ages (i.e. 1980s, 90s, 2000s+) they have a greater range of affordable options for all types of consumers. The lack of GST also makes this an affordable option.
Resale Property Disadvantages:
NOT BRAND NEW/NO OPTION FOR CUSTOMIZATION If the unit has been lived in for more than a couple of years, you might need to set aside money for renovations.
PRICES NOT FIXED This can be an advantage or a disadvantage. The price isn’t fixed, so there is a possibility you can end up in a bidding war and have to go over the asking price. Alternatively, if you are not in a multiple offer scenario then you may be able to negotiate for lower than the list. (Selling prices for condos purchased pre-construction from the builder are mostly fixed.)
PROPERTY TRANSFER TAX EXEMPTION LOWER THRESHOLD The property transfer tax exemption for eligible Canadian citizens/permanent residents is for a purchase price maximum of $500,000. (the PTT exemption for newly built homes for eligible purchasers is $750,000)
Buying Pre-construction Property Pros and Cons
As you can guess, you are buying a not-yet-built condo directly from the builder before construction begins.
Pre-construction Condo Advantages:
CUSTOMIZATION & ORIGINAL OWNER BENEFITS You are first owner of the unit and you will have the option to customize certain things (such as appliances, colour scheme, cabinetry, flooring).
DEPOSIT DUE OVER A PERIOD OF TIME The deposit is typically done as a structure over a period of time. For example, the first deposit is due by the 7 day rescission period, the second in 60 days, and the third in an additional 120 days. This is a benefit rather than just giving a large deposit all at once.
MORE TIME TO SAVE UP YOUR DOWN PAYMENT You have more time to save up for your condo. You pay the builder a series of payments as a deposit, and the remainder of the down payment is not due until the completion date which can typically be 2-5 years down the road. If you have enough cash funds to cover the larger deposit, then this may be a large benefit to you if you know your income will be higher over the next years – allowing you save more down.
HIGHER PROPERTY TRANSFER TAX EXEMPTION THRESHOLD The property transfer tax exemption for newly built homes is a purchase price maximum of $750,000 – which is more than the $500,000 for eligible purchasers in resale. If you qualify for the exemption this will allow you to purchase at a higher amount but still avoid the property transfer tax.
Pre-construction Condo Disadvantages:
NOT BUILT YET/NOT TANGIBLE You are buying based only on a floor plan without seeing the finishes, the layout or outside view of the building. All of the measurements that the developer provides you are estimates and subject to change, so you’ll never be 100% sure of what you are purchasing.
RISKS WITH MORTGAGE RULE CHANGES OR INTEREST RATE HIKES You can’t be certain whether the interest rates will rise significantly, if you’ll lose your job, or if the government will impose a new tax or mortgage rule that will affect your purchasing power. Buying a presale condo is risky because you cannot lock your mortgage in at the time of purchasing, and you’ll have to be confident that you can complete when the project is done. If you have job uncertainty or are thinking of switching jobs, careers or changing to employed for self, then a pre-construction condo is probably not the best option for you.
HIGHER DEPOSIT RATES The deposit usually adds up to 15 to 25% of the purchase price by the time of occupancy, depending on the builder’s deposit structure. (whereas resale is usually 1 time deposit of 5% of the purchase price)
HAVE TO PAY GST Unlike a resale, a pre-construction sale is subject to GST which is an additional 5% at completion. However, if you are planning on living in the property and meet all the requirements, you might be eligible for a GST rebate for properties under $400,000.
DATE NOT SET IN STONE, MUCH LONGER MOVE IN DATES Nothing is guaranteed. A condo building usually takes several years to complete. There is always a chance that the builder won’t sell enough units to proceed with construction, or can’t finish construction for some other reason, so you don’t get your condo. If you need to sell your current home to purchase the presale, it can be hard to line up the dates perfectly as developers typically have rights to delay occupancy.
How to Buy a Pre-construction Condo with a Good Return on Investment
When buying any property, you’ll always want to consider LOCATION. A property that is next to a skytrain in Vancouver and close to amenities is going to be more desirable than a remote location with difficult access to transit. Many of the new development projects are located in growing areas, so make sure to pay attention to what other development is coming in to the area for a long term play!
You’ll also want to be aware of the unit surroundings and view. What is your unit going to be looking at, and will it be blocked by any structures? If you are a ground floor unit what is the security or access from the road, and is there any common property surrounding you that would compromise your privacy? As per the previous point, if you have a view now and you’re paying for that then you may want to determine whether your view will be blocked in the future by upcoming developments, as your view may turn in a 2 year construction site!
Additionally, not all developers are the same; each developer has a different approach and standard when it comes to design, build, and finishing of their pre-construction properties. When looking at a new unit to purchase, make sure to do research on the developer, check their portfolio for past projects or even better – go visit the building and see it for yourself!
Lastly, make sure to pay attention to the unit the amenities offered and the maintenance fee that is estimated. Is there a pool, gym, yoga studio, or all of the above? Is there a 24-hour concierge? Is the maintenance fee significantly higher than the rest of the buildings in the area, and if so, is it rationalized based on the amenities that are offered comparatively? Keep all of this in mind as it will affect your resale value down the road.
Is Presale or Resale a Better Investment?
Resale is always the safest option, and if you are a first time home buyer we often recommend that you stick with a resale purchase to start.
It’s important to find a property that matches your goals, lifestyle, and is comfortably within your budget. A property that is in the right location and has good market growth potential, regardless of whether it is presale or resale, will be a great investment. Overall, it matters what you’re buying just as much as for what price – and a great realtor will be able to walk you through to ensure that you are safe, protected, and satisfied with your purchasing decision!
I say often because I always recommend that if you’re thinking of purchasing that you book a call with myself or one of our team members to discuss your unique goals and situation. The market is always changing, and every buyer’s situation is unique – ultimately, there is no cookie cutter answer on whether presale or resales are a better buy.
If you’re looking to purchase a property and would like guidance on what option would be best for you, then give us a call. We’re happy to walk you through the pros and cons and give our opinions on what’s appropriate for you. Start a conversation by calling 604-765-0376. Prefer text? 604-319-0200 or email [email protected]. We’re here to help.