Buying presale in Metro Vancouver is a wonderful alternative for individuals looking for a house. A presale occurs when a developer sells units in a development before it is constructed, and in most cases, before work even begins. You are obtaining ownership of your unit in the future property as a buyer of a presale unit. While you are responsible for the entire purchase price, you are not required to take out a mortgage during pre-construction and construction (while the building is being built), but you must pay a deposit.
The total deposit for a presale condo in Vancouver typically varies between 15% to 25% of the entire purchase price, which is paid in instalments throughout the duration of the construction period. The instalment term, also known as the payment schedule, is often spread out over 1-2 years, giving you more time to save for your deposit.
The first 5% of deposit is always required at the time you buy the pre-sale and or when you submit your contract to purchase and the remainder of the deposit amount is due in installments over the course of the construction. However, deposit arrangements differ depending on the presale project.
Why would somebody purchase a condo that does not yet exist?
The answer is truly dependent on your goals, but there are three crucial aspects that all potential purchasers of presale condominiums in Greater Vancouver should be aware of:
- Presale condominiums allow you to take ownership of a brand new property as soon as it is finished.
- Purchasing a presale condo in Greater Vancouver allows you to select a house with a plan type and number of bedrooms that meets your demands, as well as a colour palette that matches your preferences, methods that you cannot find in a resale market.
- When you buy a presale condo, you lock in the price on the purchase date, which is a huge advantage in a hot real estate market. All of this without the expense of mortgage payments, property taxes, or maintenance costs until the project is completed.
Advantage of purchasing presale
You can cancel within 7 days
- There is a seven-day cancellation (rescission) period. The Real Estate Development Marketing Act requires a seven-day time following the acceptance of a contract for a purchaser to perform their due diligence, which includes reviewing the disclosure statement and confirming this is the best buy for their unique requirements before committing to the acquisition. The contract becomes solid and binding after seven days.
Your deposit is safe
- Your deposit is help in trust, and not sent to the developer until the completion of the property. This means that should a problem arise with construction or the developer declares bankruptcy, your deposit will be returned in full.
You'll know your purchase
- The developer will provide you with a Disclosure Statement, which outlines important information regarding the property, such as what's included in your purchase, the size of your unit and what the property will look like upon completion.
More time to save up for your down-payment
- You have more time to save up for your condo. You pay the builder a series of payments as a deposit, and the remainder of the down-payment is not due unitl the completion date, which can typically be 3-5 years down the road.
Higher property transfer tax exemption threshold
- The property transfer tax exemption for newly built homes is a purchase price maximum of $750,000 - which is more than the $500,000 for eligible purchasers in resale. if you qualify for the exemption, this will allow you to purchase at a higher amount but still avoid the property transfer tax.
Disadvantages of purchasing presale
Not built yet/not tangible
- You are buying based only on a floor plan without seeing the finishes, the layout or outside view of the building. All of the measurements that the developer provides you are estimates and subject to change, so you'll never be 100% sure of what you are purchasing.
Risks with mortgage rule changes or interest rate hikes
- You cannot be certain whether the interest rates will rise significantly, if you'll lose your job, or if the government will impose new tax or mortgage rules that will affect your purchasing power. Buying a presale condo is risky because you can't lock your mortgage rate in at the time of purchasing, and you'll have to be confident that you can complete when the project is complete.
Have to pay GST
- Unlike resale, a pre-construction sale is subject to GST, which is an additional 5% on the full purchase price at completion. However, if you are planning on living in the property and meet all the requirements, you might be eligible for a GST rebate for properties under $400,000.
Completion date not set in stone
- Nothing in life is guaranteed. A condo building usually takes several years to complete. There is always a chance that the builder won't sell enough units to proceed with construction, or can't finish construction for some other reason. If you need to sell your current home to purchase the presale, it can be hard to line-up dates perfectly as developers typically have rights to delay occupancy.
Nonetheless, buying a presale property can be a great way to get into the Greater Vancouver real estate maket with a lower entry fee in the form of deposit and a future completion. The best way to decide whether buying a property presale is the best option for you is to discuss the benefits and drawbacks with your mortgage specialist and a real estate agent who specializes in presale development.