Pre-Construction vs Resale

Pre-Construction vs Resale


Team Mundi

Published in

Pre Construction

10 May 2021

Resale Property Advantages:

  • TANGIBLE You can see what you're buying and walk around the house to get a sense of how large the bedrooms, living room, kitchen, and other rooms are. It's a physical object.
  • MOVE IN SOONER With a resale property, you can move in whenever you want, depending on the terms you agree with the seller – it may be one week or six months! Resale move-in dates are much earlier than presale move-in dates (assuming you purchase at or shortly after the initial sales release). In this scenario, you are able to move in as soon as the transaction is completed.
  • STRAIGHTFORWARD MORTGAGE Since you know the current interest rates, your current salary, and what your monthly payment will be, the mortgage process for a resale property is a lot simpler. You can have your valuation and mortgage completed right away if you're pre-approved (which you should be when looking for a home). You won't have to think about market fluctuations until closing if you buy a resale.
  • SMALLER DEPOSIT A traditional resale property deposit is 5% of the purchase price, and it is paid only once upon subject withdrawal. This is a fraction of the amount needed for presale deposit structures.
  • NO GST PAYMENT You would not be required to pay an additional 5% Goods and Services Tax (GST) when purchasing a resale property.
  • MORE AFFORDABLE Many of our clients find that resales are more competitive due to the smaller deposit. Furthermore, since resales are available in a variety of ages (i.e. 1980s, 1990s, 2000s+), they provide a wider range of affordable choices for all forms of buyers. This is also a cost-effective choice due to the absence of GST.

Resale Property Disadvantages:

  • NOT BRAND NEW/NO OPTION FOR CUSTOMIZATION You will need to set aside money for repairs if the unit has been occupied for more than a couple of years. - PRICES NOT FIXED This can either be a benefit or a drawback. Since the price isn't set, you could find yourself in a bidding war and have to pay more than the asking price. If you are not in a multiple offer situation, you might be able to negotiate a price that is lower than the list price. (Selling rates for condos purchased from the builder prior to completion are often fixed.)
  • PROPERTY TRANSFER TAX EXEMPTION LOWER THRESHOLD For registered Canadian citizens/permanent residents, the land transfer tax exemption is limited to a purchase price of $500,000. (The PTT exemption for qualifying purchasers of newly constructed homes is $750,000.)

Pre-Construction Advantages:

  • CUSTOMIZATION & ORIGINAL OWNER BENEFITS You will have the ability to customize some aspects of the property since you are the first owner (such as appliances, color scheme, cabinetry, flooring).
  • DEPOSIT DUE OVER A PERIOD OF TIME The deposit is usually made in the form of a foundation that is built up over time. The first deposit, for example, is due within the 7-day rescission timeframe, the second within 60 days, and the third within 120 days. Rather than making a big deposit all at once, this is a profit.
  • MORE TIME TO SAVE UP YOUR DOWN PAYMENT You've got more time to put money aside for your property. You make a series of payments to the contractor as a deposit, and the remainder of the down payment is not due until the project is completed, which may take anywhere from 2 to 5 years. If you have enough cash on hand to cover the greater deposit, this could be a significant advantage to you if you anticipate a higher income in the coming years, enabling you to save.
  • HIGHER PROPERTY TRANSFER TAX EXEMPTION THRESHOLD For newly constructed properties, the property transfer tax exemption is capped at $750,000, which is higher than the $500,000 for resale buyers. If you apply for the exemption, you'll be able to buy for more money while still avoiding the property transfer fee.

Pre-Construction Disadvantages:

  • NOT BUILT YET/NOT TANGIBLE You're making a purchase based solely on a floor plan, with no knowledge of the building's finishes, architecture, or exterior view. All of the measurements provided by the developer are estimates and subject to change, so you'll never know exactly what you're getting.
  • RISKS WITH MORTGAGE RULE CHANGES OR INTEREST RATE HIKES You can't predict whether interest rates will rise dramatically, whether you'll lose your employment, or whether the government will enact a new tax or mortgage regulation that will affect your purchasing power. Purchasing a presale condo is risky because you cannot lock in your mortgage at the time of purchase, and you must be assured that you will be able to complete the project when it is completed. A pre-construction property is probably not the best choice for you if you have work insecurity or are considering changing employment, occupations, or being self-employed.
  • HIGHER DEPOSIT RATES Depending on the builder's deposit structure, the deposit will amount to 15 to 25% of the purchase price by the time of occupancy. (whereas resale normally requires a one-time deposit of 5% of the purchase price)
  • HAVE TO PAY GST A pre-construction transaction, unlike a resale, is subject to GST, which is an additional 5% at completion. If you plan to live in the property and follow all of the criteria, you might be eligible for a GST refund.
  • DATE NOT SET IN STONE, MUCH LONGER MOVE IN DATES Nothing is certain. The construction of a condominium building usually takes several years. There is always the possibility that the contractor will not sell enough units to continue with construction, or that construction will be delayed for other reasons, and you will not receive your condo. It can be difficult to set up the dates exactly if you need to sell your current home to buy the presale because developers normally have the right to postpone occupancy.
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