HomeNews1Tips to get a new condo in Toronto with a great deal

Tips to get a new condo in Toronto with a great deal

Tips to get a new condo in Toronto with a great deal

Toronto’s condominium market is in trouble.

 

Prices are down, sales are at multidecade lows and more owners are selling under duress as an increasing number of pre-construction buyers find themselves financially under water.

 

Bad news for sellers — but potentially good news for buyers looking to get in the housing market.

 

During the pandemic, many Ontarians bought unbuilt pre-construction” condos in the hopes of selling them for a profit once they were completed a few years down the line.

 

At the time, it seemed like a good idea, because interest rates were low. (When you purchase this type of unit, you put down a deposit, and it’s held by the developer until it has been fully built and registered under your name.)

 

But with condos now ready for occupancy, the market is unsteady and buyers are waiting on the sidelines.

 

“People are really hemmed in by high interest rates and high prices,” said Clay Jarvis, lead writer and spokesperson at NerdWallet, a personal finance website.

 

The original purchasers are now stuck with fully built pre-construction units that they can’t afford. To get rid of the condos, they need to sell them on “assignment,” which allows them to transfer the rights and obligations of the original purchase agreement to another buyer.

 

Some are dropping the listing price and selling at a loss — a “distressed” sale — in the hopes of piquing buyer interest.

 

It’s a buyer’s market, says Harsh Dara, a realtor with property.ca, and there are pre-construction condo deals out there for those who are willing to do their research.

 

We spoke to experts to find out how to get a great deal on a preconstruction condo, without getting burned.

Choose your condo wisely

There are plenty of fully built pre-construction condos on the market today, says Dara.

 

One of his current listings is a two-bedroom unit located near the Wellesley subway station in Toronto. It’s listed at $978,990 — the same price it was bought for in 2019, before the pandemic hit.

 

“The person is selling at cost just because of the situation they are in,” Dara says, “and also because the market is in such a state.”

 

If it sells at this price point, the seller would be able to keep his deposit, he adds, but won’t make any money.

 

Some sellers haven’t been so lucky.

 

World Class Realty Point broker Hasan Zia has one listing from a pre-construction buyer so desperate to unload the condo-townhouse, he is willing to walk away from a $94,000 deposit on a $947,900 two-bedroom unit in Scarborough. It is now listed at $854,000.

 

When he bought the property back in 2021, the buyer was hoping to flip it for a profit. Now, failure to reassign the agreement means he would be on the hook for the remaining $853,900 purchase price.

 

For pre-construction buyers, “the market has gone south and the interest rates have increased,” Zia says. “So they are in a situation. They’re completely stuck.

 

“On the flip side, it is an outstanding opportunity for anyone who is willing to buy.”

 

Builders are also offering “unprecedented incentives” such as discounts up to eight per cent on purchase prices and mortgages with lower-than bank interest rates to attract buyers, says Zia.

Enlist the help of the experts

If you’re bold enough to purchase a preconstruction condo through an assignment sale, it’s important to work with an experienced agent, Dara says. You’ll also want to hire a lawyer who’s an expert in the field to review both the original and the assignment agreements.

 

Familiarize yourself with the original APS, or agreement of purchase and sale. It’s important to know when the property was originally bought, and for how much, says Zia.

 

It’s also helpful to know what incentives, discounts and price reductions the original buyer is offering, if any, and how these factors affect the overall value of the property.

 

Finally, you’ll need to be aware of various closing dates: the assignment closing date, the occupancy date, and the final closing date.

Your builder will become your landlord — for a while

 

There will be a period of time when a pre-construction condo is in limbo: it’s been built, the owner has the key, but the property is still under the builder’s name, not the owner’s.

 

Until the property is registered under the name of the new owner, the builder still owns the place, and essentially serves as “landlord” of the property. The original buyer of the condo is the “tenant.”

As such, the builder will expect the buyer to pay “rent,” or occupancy fees. These monthly payments range, but can be high, says Dara, “so make sure (they’re) part of your cash-flow calculations.”

 

If you choose to purchase an assignment, the occupancy fees will be passed on to you. You’ll want to make sure the original purchaser is in good standing with the builder, and that all payments are up to date, says Zia. Your lawyer could help with that.

 

If you want to lease out the unit while it’s in limbo, you’ll need to get permission from the builder. Your lawyer can check the contract to see whether you have the right to lease.

 

Beware of extra fees

Watch out for the “assignment fee.” In most cases, it’s covered by the seller, but if you’re not careful, you might have to pay it. Check with your lawyer. You’ll also need to set aside some money for closing costs, such as land transfer taxes and legal fees.

 

There are development charges, too, which are levied by the city. They can be pricey, ranging from $25,000 to $30,000, or higher, says Dara.

 

“A lot of realtors don’t know about (those),” he adds. You’ll need to check the original purchase agreement to see whether the development charges are capped or not and whether the cap carries over to the new agreement. Your lawyer should check the original agreement to see if the cap is transferable.

 

On top of all that, you may also need to pay an HST rebate up front.

 

You’ll be able to claim it back on your taxes if you’re qualified. You may also need to pay capital gains taxes when you eventually sell the property.

Act fast

If you want to cash in on some assignment deals, you may need to act fast depending on what happens with interest rates and the real estate market, says Dara.

 

Later in the year, the market could pick up, owners might decide to hold on to their pre-constructions rather than trying to get rid of them.

 

“With a couple more rate cuts, things could change quite significantly,” he says. “By the end of this year … the market might be in a better position than it is now (and) you’ll see the deals drying up.”

 

 

 

 

This article was first reported by The Star