Pre-construction condos can be a great way to enter Toronto's real estate market, but the process of buying and financing them is very different from buying a typical resale home. Our guide covers how to find and buy a pre-construction condo, the different stages of a project from Friends and Family to Platinum and VIP, how you can finance a pre-construction condo, GST/HST tax implications, and much more.
You can find a pre-construction condo unit through brokers, brokerage firms, and condo developer websites. Generally, brokers and brokerage firms will have access to projects not available to the public yet while the units posted on developer websites are ones that had trouble selling. Buying a pre-construction unit works slightly differently than for a conventional house. Your down payment is typically split into 4 equal payments spread over several months. When you sign your agreement to purchase the unit, you will not own it for multiple years. Instead, the agreement lets you own the unit when the building is completed. However, you can live in the unit for months before the building is completed during the interim-occupancy stage.
Decide where you want to live. Location is the most important factor in any real estate decision and there are many places that you can get a condo within the GTA.
Find a broker or brokerage with experience in pre-construction. Look for a broker that has Platinum Access to upcoming projects. Although no single broker has Platinum Access to every project, brokers often share units between each other. You can apply for the Platinum Stage of many different projects through a very well-connected broker.
Tell them what location you want to live in so they can focus on projects in that area. You can then further narrow your choice down by giving them certain specifications like the square footage, building features, etc. This will help your broker find a condo project that suits you.
Sign a contract that gives you future ownership of the condo unit once the building is registered with the city. You will most likely have to make a $5,000 down payment at signing as well.
10 days after signing the contract, you will have to pay an initial down deposit to secure your unit. This initial deposit is part of your total down payment and is usually 5% of the condo unit price. You will also need to get pre-approved for a mortgage loan. Banks will only guarantee the mortgage principal amount, so you will have to wait until about 3 months before the closing date before you can lock in a mortgage rate.
Continue to make deposits. While you are given the key, you still do not own the unit. However, you can live in the condo unit during the occupancy period and with the builder’s permission, you can also rent out the unit to someone else. At this point, you do not make mortgage payments, but you will have to pay monthly occupancy fees.
Once the building is completed, pay the final closing costs and start making monthly mortgage payments. At this stage, the ownership is transferred to you and it is officially your property.
Since you are buying an unbuilt condo unit, the developer needs time to finish the project. You receive ownership of the unit when the building is completed and registered with the city, but you can move in about 3-6 months before this date. This period is called the occupancy period or the interim-occupancy period.
The occupancy period starts when your municipality declares the building as “fit for occupancy”. During this period, you live in the unit without owning it. With the builder’s permission, you can also rent this unit out to tenants. The occupancy period typically lasts for 3-6 months, but is shorter if you live on higher floors since these units are constructed last.
During the occupancy period, you will also be required to pay occupancy costs or interim occupancy fees, which are monthly payments to your developer. You are effectively renting the unit from the developer until you receive ownership. You can use your tenants’ rent to cover this fee if you rent the unit out. The Condominium Act prohibits developers from profiting using this fee, but you can still profit by collecting rent payments.
There are hundreds of condo developers in the GTA. There are not many major differences between developers. There are no limitations or guidelines on how to build condos. Instead, it is best to look at a developer’s past projects. This will give you a good indication of the quality and prices of the condo units. Large and experienced developers will also have higher quality buildings because of their resources and experience. The top 6 developers in Toronto are: Tridel, Concord Pacific, Daniels, Great Gulf, Menkes, and Pinnacle International.
Developers have two main methods of distributing their units:
Units are typically distributed in 4 stages, but this can change between projects:
|The Friends and Family Stage||Private||Developer’s Discretion|
|The Platinum Stage||Platinum Level Brokers||About 2 - 3 Weeks|
|The VIP Stage||VIP Brokers||About 3 months - 2 Years|
|The Public Stage||Public||Indefinite|
During this unofficial stage, developers give the first 10-12 units to personal connections at a discount. The duration and timing of this stage is decided entirely by the project developer.
The price at the Family and Friends Stage is discounted at the developer’s discretion. Developers test market conditions by using these units to determine what prices should be set at later stages.
The Friends and Family Stage is private. It only includes certain VIP real estate brokers, employees, project contractors, and the developer’s family and friends.
At the Platinum Stage, also known as the Very Very Important Persons (VVIP) stage, developers issue units to Platinum Level brokers or VVIP agents. This is the most sought-after stage because home buyers receive a generous discount. Typically, this stage lasts a couple of weeks, but it is up to the developer’s discretion. Developers typically release about 10-50% of their inventory and brokers have as short as a few days to distribute units to their clients. Once the project is launched, home buyers must finalize their deals within a short period of time.
Condo units at the Platinum Stage are generally cheaper because the project is still in its early phases of being sold. The lower price is the most attractive feature of buying a condo unit at the Platinum Stage.
The Platinum Stage is limited to the developer’s network of about 10-50 real estate brokers (20 on average). Considered Platinum Level, these real estate brokers have pre-existing relationships with the developer. To buy a pre-construction condo unit at the Platinum Stage, contact a broker with Platinum Access. Developers also share units between each other, so a well-connected broker can have access to many more Platinum Stages.
The Very Important Persons (VIP) Stage is the last private round of offerings to home buyers and usually lasts between 3 months and 2 years at the developer’s discretion. Developers will release about 50-100% of their inventory. Condo units often sell out by the end of this stage. There are usually incentives associated with units sold during the VIP stage.
The VIP Stage offers a smaller discount than the Platinum Stage. Developers will also periodically increase the price at their discretion. The primary benefit of getting access at the VIP stage is that you can buy units before they are publicly available.
Real estate brokers have access to the VIP Stage if they have sold for the developer before. Condos are sold on a first-come, first-serve basis through brokers and brokerage firms. You can buy a pre-construction condo at the VIP stage by speaking with any real estate broker with VIP Access.
Any units that have not been sold during the previous 3 stages are sold during the Public Stage. Developers will list units on their websites, but brokers can help you find the best units and search for other projects at the Platinum Stage or the VIP Stage.
This is the most expensive stage to buy a pre-construction condo. Developers may still increase or decrease the price at their discretion, but this is generally the final unit price.
Units are available to the general public. Home buyers can see units specifications and prices directly on the developer’s websites. You can also talk to a real estate broker that can help you find the best deals and options.
When looking at different units, you should consider multiple factors. There is little risk associated with getting a unit, but the quality of your unit can vary. Here are some things to consider:
Down payments for pre-construction condos are not one-time lump sum payments like a regular mortgage down payment. Pre-construction down payments are usually split into 4 equal payments of 5% of the unit price with a $5,000 deposit at signing. Most projects will follow this general guideline, but it is entirely up to the developer.
This structure is not fixed and only a reference for home buyers. Developers may change the down payment requirements or reduce the frequency of payments as part of promotions. For example, a developer may say that for a limited time, the minimum down payment requirement is only 10% or that deposits are delayed by a month.
During the occupancy period, you will also be required to pay occupancy costs or interim occupancy fees (rent), which are paid a monthly basis before you own the condo unit. These payments are determined by the developer and are effectively rent payments that let you live in the unit until ownership transfers to you. The Condominium Act prohibits any profit-seeking activities using this fee, so you are not paying any extra money to the developer.
There are two ways to sell your pre-construction condo unit. The method that you use depends on the timing of your sale.
Before you own a condo unit, you enter into an agreement that gives you ownership when the building is completed. At this point, you do not own the condo unit, but you are given a unit assignment (future ownership of a specific unit). You can sell this to another home buyer, which gives them the future ownership and payment obligations associated with the condo unit.
When the occupancy period ends, the developer will register the building with the city. A date and time is then set that determines when you can transfer ownership of the property. The key difference is at the time of sale, you own the property and are selling a personal asset.
Depending on how you sell your unit, you may have to pay more taxes or you may be eligible for a tax rebate. If you have any questions regarding HST taxes, Capital Gains taxes, or Selling Your Unit, speak with your real estate broker.
In rare cases, a developer might not finish the condo project even though you have already bought a pre-construction condo unit. If this happens, your deposit is partially protected.
Tarion is a not-for-profit organization established by the Ontario Government that protects home buyers. Their deposit protection insures deposits if your purchase agreement is terminated by the builder. This includes if the developer goes bankrupt, they fundamentally breach your purchase agreement, or you have a statutory right to treat your purchase agreement as terminated.
Your deposit must be returned within 10 days following the termination of your agreement by the developer. If it is not returned, Tarion provides deposit insurance of up to $20,000. In this case, you must contact a lawyer to submit your claim.