Investment Opportunities In Yorkville's Condo Market
Should You Buy New Construction Or A Resale Unit In Toronto
I’m not opposed to buying new condos off plans in Yorkville and Toronto (depending on the quality of the project). However from an investment standpoint, I just think there are better and faster opportunities for appreciation in Yorkville's Resale Condo Market.
Its More Expensive To Buy A New Condo
Years ago if you bought a unit off plans by the time the condo building was built and registered you could turn around and sell it and make a decent profit. At that time buying new was cheaper than buying an existing unit.
Lower purchase prices for pre-construction condos were a Buyer's reward for taking the greater risk of investing in a condo development that was not yet built.
But in today’s market that is no longer the case. Prices for new construction condos in Toronto are now more expensive than units currently available for sale in the resale market. In some instances up to 30% more expensive. The major reasons for this reversal have to do with the increase in construction costs and the higher land prices developers now have to pay.
Essentially when you buy a pre-construction condo from a builder in today’s market you are buying a future that the unit will be worth what you paid when the building is finished and registered.
Hidden Fees & Extra Costs Add Up
There are a lot of hidden fees when buying off plans. Many of which are difficult to re-coup after the building is built and you decide to sell your unit. Here are some of the more major ones:
You Have To Pay Interim Occupancy Fees
The interim occupancy fee is a monthly fee a buyer has to pay to the builder for occupying the unit before the building has registered and ownership has transferred to the buyer. The fee is comprised of interest on the balance of money owed to the builder, estimated monthly common expenses and 1/12th of the estimated annual property taxes.
Note interim occupancy fees are not optional. The buyer is required to pay them whether or not he decides to move into the unit prior to registration. Also these fees are not credited towards the purchase price of the unit nor do they go towards paying down the mortgage for the unit.
HST (Harmonized Sales Tax)
If you are buying a new condo as an investment and it is not your primary residence it is subject to 13% Harmonized Sales Tax.
Contributions To The Condo's Reserve Fund
Buyers of new condos are required to pay one to three month's maintenance fees at closing to help build up the condo's reserve fund.
Levies are one-time taxes that the Buyer has to pay and include developmental levies, education development charges and park donation levies. They can add up to 1% of the purchase price.
Buyers have to pay for things like the installation of utility meters, Tarion enrollment fees, legal and administrative charges from the builder, as well as the cost of excess deposit insurance for deposits over $20,000.
On the other a hand if a buyer purchases a re-sale condo all of these charges go away as none of these extra fees and taxes would apply.
Timing & Appreciation
When you factor in builder delays, it now takes about 5 to 7 years from when a developer starts selling to the public to when the condo is actually built and registered in Toronto.
With all the new condos being built in Toronto the time-line for appreciation has changed.
There is very little appreciation at the stage when the condo unit is completed and newly registered. At this point a buyer would not only have paid the purchase price for the unit as well as hidden fees from the builder but he would have also had to pay at least 3-6 months of interim occupancy fees (in some cases it could be 12 months or even longer) and HST as well if the unit was purchased as an investment property.
On top of this, all Toronto buyers regardless of buying new or resale have to pay both the provincial land transfer tax as well as a second land transfer tax to the City of Toronto. On the purchase of a $800K unit this double land transfer tax amounts to almost $25K. All of these expenditures negatively offset any gains made in appreciation of the unit thus far.
When the building finally registers it is also the time when you see the most units in the building come up for sale on the MLS. The sellers are made up of buyers who bought off plans years ago and now want to sell and builder’s unsold inventory. Usually 10%-20% of the units in the building are for sale at this stage and that greater supply brings puts downward pressure on prices and eats into the appreciation.
Because of all these factors we are now starting to see natural appreciation take place a year or two after the building has registered, once all the speculator and leftover builder inventory has been sold.
Will the Toronto condo market still be strong in 5 to 7 years time when your new condo is finally completed? That is a long time to wait when you can purchase a unit in the re-sale market now and start enjoying it or renting it out in real-time while it is appreciating.
Now that we have so many completed condos in Toronto, the market is becoming very micro-local in that you could have two condo buildings on the same street but each having very different sales activity and appreciation levels.
Each building essentially is its own mini real estate market. Value can be easily determined when buying resale condos as the MLS provides real estate agents with the sold history for the units in the building.
When buying new, value is more difficult to determine. How do you really know what the unit is truly worth? Builders do not disclose sold prices for units and therefore the sales history for the project is not published anywhere. At this point you won’t know if you paid more or less than your neighbour for the same floor plan.
Many consider that the big advantage buying a new condo is the structured deposit schedule where the deposit is paid off over time in 4 or 5 instalments. This means that the buyer does not have to come up with the full deposit all at once.
However when buying a resale condo the buyer only needs to come up with 5% of the purchase price as a deposit. New construction condo deposits are much larger as they end up totalling a minimum of at least 20% of the purchase price over time.
A typical deposit structure for a pre-construction condo could look something like this: $5,000 down on signing, 5% in 30 days, 5% in 120 days, 5% in 240 days, 5% at interim occupancy.
The builder could be holding on to your large deposit over several years (some builder’s pay interest on the deposit while others do not). Considering the extended time it takes for the building to be completed, you have to ask yourself if that deposit money could be working better for you in other investments as opposed to being tied up with the builder for a period of 4 years or longer.
There Are Still Good Buying Opportunities In This Market
There are still prime opportunities available in this market to purchase without having to wait years nor pay extra in builder’s fees or taxes.
Contact Me to find out more about these “sweet spot” opportunities in the Yorkville Condo Market.
Victoria Boscariol is a real estate agent in Toronto Canada with Chestnut Park Real Estate Limited Brokerage. With over 20 years experience, Victoria has been helping people successfully buy and sell condos and houses in Yorkville and downtown Toronto. As a Certified International Property Specialist (CIPS) she has worked with Buyers from around the world moving to Toronto from China, Russia, Brazil, India, South Africa, United Arab Emirates, Jordan, Cyprus, Italy, Germany, The United Kingdom, Australia and the United States.
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