Buying a pre-sale property

Image result for presale property

Both the real-estate and construction sectors are hot commodities in Metro Vancouver. New developments are spurting everywhere and everyday. Clever marketing makes it sound and look very attractive to buy a piece of property without actually seeing the finished product. But is it really the case? Let’s explore!

A pre-sale or an off-plan is an agreement between a buyer and a developer, where a developer agrees to supply a property by a certain date in the future. The buyer agrees to pay an initial deposit and then, once the property is built, complete the purchase. Deposits are usually paid in installments over a number of months or years. This is what helps the developer with obtaining further financing.

The major advantage of a pre-sale is that the property will be brand-new and in most cases customized to the buyer’s tastes. The property will also have warranty protection, usually 2-5-10 years . If something goes wrong during that period, it can be fixed at no costs to owners. An important advantage is also the building of equity.¬†As house prices rise so does the contract on the property.

Pre-sales are hugely popular with investors. Pricing is usually a bit lower and they can usually see a profit before the property is built, and because it is brand new, they can rent it for a higher price. There is also a 7-day rescission period, in which the buyer can decide to opt-out.

Now, on to the disadvantages, as yes, there are a few.

  • GST is mandatory, 5% on top of the purchase price, which could mean thousands of dollars more
  • You may not qualify for a mortgage on a pre-sale. A lot of lenders are reluctant to pay for something that does not exist. A lender may also agree to fund only what the property is worth when built. It could be less than your purchase price.
  • Since the property will take a few years to be built, a lot can happen during that time: changes in your circumstances, in the real-estate market, in mortgage rules….you have to be aware of this before committing.
  • There could be delays in construction or in delivery date and you will be required to pay occupancy fees, even when you don’t live in the property. Nothing you can do about that!
  • Once you have signed, you can’t back-out of the purchase. Reassigning the contract could be difficult.
  • You most likely won’t be able to sale your property before the developer has sold all the units/lots.
  • The end-result could be different from what you asked.

As with everything, you need to do your own due diligence and research before buying a pre-sale and assess your risk tolerance. Be sure you have a lawyer or a realtor review the documents from the developer. The majority of developers will try to discourage you from having a lawyer or a realtor assist you. Don’t get fooled by this.

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