WHAT'S THE PRICE GAP BETWEEN PRE-CONSTRUCTION AND RESALE IN TORONTO REAL ESTATE?By CondoWong Monday, November 11, 2019
Are pre-construction condos cheaper than resales
What do you think?
The answer is NO.?
Pre-construction condos are NOT cheaper than resales.
What’s the price difference?
Before I answer that question, let’s go through the 4 reasons why pre-construction condos are more expensive than resales.
#1 Time is Money
A pre-construction condo typically takes 4 years to construct.
During these 4 years, labour cost, material cost and government charges are going to increase.
10%? 20%? We don’t know.
It’s hard to predict because there are too many factors that can affect the cost.
Developers will have to make their best judgement call to factor in the increase.
Remember, developers don’t get to touch your 20% deposit at all until the building is complete.
All the deposit money will be sitting in the lawyer’s trust account.
Developers will have to use their own funds during the 4 years of construction.
So it makes sense that buying into the future will cost you more because time is money.
#2 Modern High-Tech Designs
People like to buy new stuff.
Husband: It’s a 1 bedroom unit. You get a kitchen, a bathroom and a bedroom. I’m fine with either old or new…
Wife: Look at this modern finishing! Brand new everything...
Wife: Wow, this spa is so cool, it’s like a 5-star hotel. Don’t you want to work in this modern high-tech co-working lounge?
Husband: You think those are free? There’s a price to pay!
See, that’s exactly why pre-construction are more expensive because they are designed with the future in mind.
You won’t find any of those modern amenities in the market today.
#3 New Home Warranty
Every builder in Toronto must be registered with Tarion and enrol every new home to the Tarion New Home Warranty program prior to the start of construction.
When you purchase a pre-construction condo, your unit will be covered under the new home warranty for 7 years from the occupancy date.
Major defects will be covered up to a maximum of $300,000.
#4 Rent Control
If you purchase a unit that was completed before November 15, 2018, you must obey the rent control guideline of around 2% increase per year.
If you purchase a unit that was completed after November 15, 2018, then there will be no limit on how much you can increase your rent each year.
In other words, any pre-construction units on the market right now won’t be subject to rent control.
It makes sense that pre-construction is more expensive than resales, right?
So what’s the price difference?
Let me give you the 10% rule.
Let’s say today’s market price for a brand new, ready for move-in 1 bedroom unit in downtown Toronto is $700,000.
If you purchase a pre-construction 1 bedroom projected to complete 5 years later in 2024, the price will be roughly 10% more expensive.
If you purchase a resale 1 bedroom unit that was occupied 5 years ago in 2014, the price will be roughly 10% cheaper.
Simply put, there is a 10% price difference every 5 years.
You can use this 10% rule to help you decide whether you should buy into the future or buy from the past.
If you have any questions that you'd like me to answer, you can also schedule a call with me.
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