Buying a presale condo in Vancouver has been a favourite option for both, home owners and investors for quite some time. A presale condo is introduced to the market before the construction of the building is completed, and sometimes before it even begins.
Alec Abbott from the West Haven Group has put together a list of presale benefits and drawbacks that will help you make an informed decision.
Presale benefits
1. Owning a brand new home
Buying a presale condo means being the very first owner of a brand new home. You don’t have to worry about having to fix issues that previous owners might have not addressed. This is one of the biggest presale benefits.
2. Custom finishes
When buying presale, you typically have the ability to customize colours and finishes of your home. You can choose the colour scheme, as well as upgrade your floors and appliances. As a result, you won’t need to spend additional time on renovations, and your home is fully ready and customized to your liking. In some cases, you will also be able to secure additional storage or parking.
3. No need to take out a mortgage right away
Buying presale gives you some time to save up a larger down payment, since you don’t have to pay the full amount right away. Typically, you would only need to pay a 5% – 10% deposit at the time of purchase, with another 10% – 15% paid in instalments until the construction is completed.
4. Opportunity to build equity
Since the price of your condo is locked in at the time of signing the contract, you get an opportunity to benefit from a rising market if the price of your condo goes up when construction is finished.
5. 7 day rescission period:
As a buyer, you do have the right to cancel the contract to purchase the property for 7 days after the offer has been accepted, which gives you an extra time to ensure the decision you’re making is right for you. This is another one of the great presale benefits.
6. Your home is under warranty:
When buying presale in Vancouver, you get a 2-5-10 warranty for your new home. Home warranty insurance on new homes includes a minimum of 2 years on labour and materials (some limits apply), 5 years on the building envelope, including water penetration, and 10 years on the structure of the home.
Presale drawbacks
1. 5% GST
All presale condos are subject to a 5% GST, which is not included in purchase price. It is important to keep that in mind and budget accordingly.
2. Higher purchase price
Since the price of a presale condo is based on its assumed future value at time of completion, the purchase price can be higher than the price of a similar condo that has already been built.
3. The price is firm, regardless of market conditions
When buying presale, you are obligated to pay the price agreed upon at time of purchase. If the Vancouver real estate market falls, and the value of a condo goes down at time of completion, the buyer is still obligated to pay the original price. At times when the market is unstable, it can lead to financial losses, especially if the condo was bought as an investment.
4. Mortgage not guaranteed
If you need to take out a mortgage at a time when your condo is almost complete, and the market value of it went down, you might run into issues. The amount of money you can borrow will be based on the current market value, but since you still have to pay the original price, you will have to make up the difference yourself.
5. Unexpected changes and substitutions
During the course of construction the developer has the right to make certain changes to the floor plan, appliances and building materials within certain parameters (+/- 3%) without compensation. Always make sure to contact your lawyer when signing the presale contract.
6. Construction delays
The completion date provided by the developer is only an estimate, and it can get pushed back during the course of construction due to multiple factors.
Like everything in life, there are pros and cons to everything. When making an investment, knowledge is power and so we hope you are now able to make an informed decision for whether purchasing a pre sale condo is right for you.
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