Pre-Construction Versus Resale Investment

The Toronto real-estate market has changed rapidly over the last three years. In August of 2014, the average PSF (price per square foot) for Toronto condos was $428, or $299,600 for a 700 square foot condo. Today, the average Toronto condo PSF is up roughly 55% to $666.

Month by month, as affordability shifts, the Toronto condo market has been absorbing the displaced demand for resale freehold houses, pushing buyers from one marketplace to the other.

In the past, Canadian buyers steeered clear of pre-construction projects because of misunderstood price discrepancies. Pre-construction on average costs 10% more than resale condos, causing many buyers to reject an opportunity that seems unjustly overpriced. It’s the basic risk vs. reward rule of all financial investments; the higher price is a premium for a future market value.

Some factors to consider with resale versus pre-construction:

  • In addition to the pricing imbalance, resale may be more appealing due to the immediate rental income versus interest argument. If you purchase a resale condo today and start renting it, you will immediately start paying down the principal on your mortgage.
  • There are development fees for pre-construction condos which are usually capped by the builder/developer as an incentive. Development fees are paid by the original purchaser, so they don’t apply to resale.
  • Financial reasons aside, when you purchase a resale condo, you can see and touch your unit, so there are no surprises. With a pre-construction condo, you have to be prepared for numerous risks, such as construction delays, project cancellations, disappointing views or finishes etc.
  • Getting into a pre-construction investment affords you greater selectivity than resale (directional exposure, i.e. north, south, east or west facing; and design finishes).

Whether you choose resale or pre-construction, landlords’ fees are the same:

  • Maintenance fees
  • Property tax
  • Land transfer tax (calculator)
  • 15% non-resident speculation tax
  • Utilities are normally paid by the tenant (included in maintenance fees for some buildings)

For more information on pre-construction or resale opportunities, whether for investment or personal use, please contact me anytime. To receive resale listings the minute they come on the market or to gain VIP, front of the line access to the best pre-construction opportunities, please fill out the form below: