Amanda Beattie was looking forward to moving into her first home, a condo being retrofitted into an old industrial building in the west end of Toronto, in early 2016. But, back in December, she received a letter from the developer telling her that they weren’t able to get zoning approval and that the project was being cancelled. Included with the letter was a cheque for the deposit she’d made.
“There was no warning that there was any issue with zoning when I bought it,” says Beattie. The letter happened to arrive the same day as her office holiday party. “I had many, many glasses of wine at the party,” says Beattie, with a laugh. “I’m really soured on the whole idea of buying pre-construction now.”
Unfortunately, Beattie’s experience is not uncommon. Many condo developments fall through because of zoning or financing issues, often months or even years after the first wave of buyers put their money down. And that’s just one of the risks with buying a condo in the pre-construction phase.
Future Financial Concerns
There are a couple of financial advantages to buying a condo pre-construction. For one, the price of the units rise as a development gets closer to completion. And many first-time buyers take advantage of the fact that they only need a minimal deposit to secure their claim, with several months – or even years – to build up the remaining funds for closing costs.
But the lag time between initial deposit and move-in can actually turn into a negative if the economy or your personal financial situation takes a nosedive. Mortgage pre-approval rates are typically only held for a few months. The rate and amount you qualified for may not match your circumstances at closing time if you’ve lost your job in the interim. And economists have long-been predicting a rise in mortgage rates. It’s almost inevitable that the interest rates will be higher three or four years down the road for anyone putting down a deposit on a building that the developer is not even close to breaking ground on today.
In Beattie’s case, the sales rep she bought her would-be condo from made no mention of any concerns with getting the property’s zoning switched from commercial to residential. It was only after she made her deposit that she started reading some chatter about a potential problem online.
In my own experience, before my wife and I bought our first house, we shopped around on the condo market. I still recall a salesman in the showroom telling potential customers not to worry about the abattoir just upwind from the development site, adamantly insisting, “They’re shutting that down soon.” Fifteen years later, the abattoir is still up and running, a summer’s breeze away from trendy condo hotspot Liberty Village.
That’s not to say that all developers will try to mislead buyers, but if you are considering buying an under-development project, you should do some extra research on the developer’s track record and any potential issues with the project site.
Buying Site Unseen
Buying a condo from plans can lead to nasty surprises once the bricks and mortar are up. When Kelly Huang moved into his first condo, purchased while the building was under construction, he discovered that several of the cabinets in the kitchen “were so small you couldn’t even fit a normal dinner plate in them.”
The dimensions of the laundry room barely left space for a broom or ironing board. “That was not obvious from the floor plan,” he says.
Another issue was the placement of an air vent adjacent to the bedroom window, making it difficult to find curtains that would allow proper airflow but still provide privacy. “It was impossible to find curtains that covered up the window due to the odd shape,” says Huang, adding: “I faced directly east, so the sun would peep through the crack between the blinds every morning.”
Friends who’d purchased in the same building were in for an even bigger shock. They knew their unit faced a central courtyard. But it was only when they moved in that they realized that their apartment was constantly in the shadows of their building and the one across the road.
Weigh the Pros And Cons Of Concept
Buying a pre-construction condo can certainly be a great way to save money, plus you get to have a hand in choosing the fixtures and finishes. But a wise buyer knows they should do some extra research on the developer and any potential issues with the site before putting their money down.