Toronto’s real estate market is fiercely competitive. Prices are ever-rising, and prime listings vanish in days.
On average, listed condos stay an average of only 21 days on the market as of August 2023, a decline of 13% from the previous year.
Pre-construction condos might be a worthwhile option in this case. Instead of buying a completed unit, you secure a condominium before the construction of the building begins.
It’s a hot trend right now in Toronto. But you might want to analyze the pros and cons before venturing into this investment strategy. Below are insightful tips that’ll help you make an informed decision.
Pre-construction condos are advantageous in several ways, from financial benefits to customization possibilities, potential value appreciation, and affordability. Below is a detailed outline of the pros.
- Potential for appreciation
Pre-construction condos have a huge potential for appreciation. Remember, you invest in the condo way before the actual construction begins. So, by the time the units are ready for occupancy, the value will already have soared.
The average purchase price for a condo in Toronto is CAD$735,000 as of August 2023, an increase of 2.2% from the previous year. You can weigh these averages against your investment and calculate the profit you’ll likely get.
There’s high demand for condos in Toronto, especially those in prime locations, like near transit lines, employment centers, and social amenities. The city has a generally booming economy, with the population growing constantly. These factors, together with low interest rates, push up the demand for housing and, consequently, the prices.
Thus, if you invest in a preconstruction condo now, you’ll likely rake in decent profits a few months or years later, whether you sell or rent it out. You may consult Toronto-based real estate experts like for deeper insight into the profit potential for pre-construction condos.
- Customization opportunities
Investing in a pre-construction condo means you can customize it as you wish. For instance, you can choose your preferred flooring material, be it hardwood, ceramic tiles, or laminate. You can also specify the cabinetry layout, including the size and number of compartments. This gives you the chance to express your sense of style and tailor your future home to your style.
Customization isn’t all about personal satisfaction. It’s also a strategy to boost the condo’s value. If you choose high-end finish materials, the rental or sale value will certainly be higher than another condo in the same building with inferior finishes.
- Lower initial investment required
The down payment and installments for pre-construction condos are typically lower than that for completed units. Thus, it’s a more manageable investment option for investors with less capital but with the desire of owning real estate property. Instead of investing a lot of money at once, you can spread it over several months. It allows you to budget your expenditure in relation to your income, saving you financial strain.
Aside from being manageable, this arrangement is also appropriate for those investors who are skeptical about pumping in huge sums of money upfront.
Investing in pre-construction condos isn’t without challenges. Understanding the potential downsides is critical so you can make an informed decision. Below are two significant negatives you may want to consider:
- Project delays and cancellations
If there’s a delay in the completion of the project, your financial plans can be significantly derailed. Perhaps you’re waiting for the certificate of occupancy to rent out your condo. If the stated timelines aren’t met, the anticipated rental income won’t be a reality. Your capital is tied up in a project that doesn’t generate revenue as expected.
Besides delays, the entire project can also be canceled. You can wait for several months or years for the groundbreaking, only to get news that construction won’t take place. It may be due to financial difficulties on the developer’s part, making the project unfeasible.
Legal issues could also arise, perhaps disputes over land ownership or zoning violations, leading to a stop of all construction activities. Lastly, an unprecedented economic downturn may compromise the project’s viability.
In such scenarios, you may get back your deposits minus some penalties. Or you may be forced to pay more to keep your unit. Several developers have in the past cancelled sale agreements. Then there’s the emotional toll to grapple with. The thought of starting all over again with another project can be stressful.
It’s wise to do extensive research before investing to settle on high-potential projects with a likelihood of timely completion.
- Uncertainty with the final product
As you’re buying an unfinished product, there’s no guarantee the final building will match the advertised one. The developer may run into cash crunches and opt for lower quality finishes. Changes in the floor plans could also arise due to unavoidable engineering constraints.
Such changes can be disappointing. Moreover, they can have a financial implication. For instance, inferior finishes may lower the condo’s value, meaning you’ll get less money when selling or renting out your unit. In essence, investing in a pre-construction condo is betting on the developer’s ability to stick to their promise. Failure to deliver leaves you with a house that deviates from the envisioned one.
Again, thorough research on the developers’ reputation may save you these heartaches.
Investing in pre-construction condos in Toronto is primarily advantageous due to the huge profit potential. Moreover, the aspect of being able to customize your condo makes the investment worthwhile. However, uncertainties in the finished product and potential project delays or cancelation are risks you’ll have to take.
Your winning point is carrying out extensive research to determine a particular project’s feasibility. Consulting real estate professionals with a profound grasp of Toronto’s market dynamics will also help. What’s most important, at the end of the day, is to make a well-calculated and informed decision.
Jake Steinman at Meta Realty Inc. is a seasoned real estate expert specializing in Toronto’s dynamic property market. With over a decade of experience, he guides investors through the intricacies of pre-construction condo investments. Outside the office, Jake enjoys exploring Toronto’s cultural scene.