Canary District Living: Home
06 January 2019
Canary District Living

In Toronto’s market, securing real estate early by buying pre-construction can sometimes prove to be more financially beneficial than buying resale. This can sometimes be described as speculative buying. Speculative buying is considered high-risk but potentially high reward.

Here are some fine prints of a pre-construction contract that is may not be known to a first-time purchasers. These are some items you should ask know prior to purchasing a pre-construction home:

1. Tarion Warranty Enrollment Fee

When buying a newhouse orcondominium in Ontario, it is best to buy one from a builder that is registered with Tarion. Tarion was chosen by Ontario’s Ministry of Consumer Services to carry out the Ontario New Home Warranties Plan Act and Regulations.

A builder registered with Tarion provides the consumer with security and they will be the mediator to purchaser-builder disputes.The consumer is obligated to purchased this warranty for their new home. The price varies depending on the price of the home. Check to see how much your enrollment fee will behere.

2. Interim Occupancy

With buying pre-construction, there are two closings. There is a big difference between final occupancy and interim occupancy. Interim occupancy is when the purchaser can move into the unit but doesn’t yet own it. Final occupancy is when you take title and become the owner.

A condominium, for example, cannot be registered until it is about 60-80% occupied. This phase is to assist the builder in organizing a smooth move in for purchasers while still being able to complete construction. Units on lower floors get to move in quicker but have to wait longer for the building to register. Therefore units on higher floors will pay less in occupancy fees.

It’s mandatory for the purchaser to pay monthly occupancy fees(also known as phantom rent) to the builder during this phase. Occupancy fees do not go towards your mortgage payments,hence the amount is not financed by your lender. This period ends when the building gets registered and the title is transferred to the purchaser.The occupancy period can vary anywhere from 6 months to 1 year depending on how quickly the city can process the condo registration. Upon acceptance of the Purchase Agreement,your lawyer will help you calculate the occupancy fees.Typically, the amount will be comparable to mortgage carrying cost, pro-rates property tax and maintenance fees to contribute to the Builder’s operation cost before the condo is registered.

3. Development Charges

The Ontario government collect funds from the developer to build the proper infrastructure required for the incoming population. Items include but not limited to: roads, schools, sewage, hospitals and more.The developer can pass some or all of this cost onto the purchaser. These costs have been increasing each year. As a purchaser, it is crucial to know the amount in order to prepare for your closing costs.

When you’re looking into buying pre-construction homes, make sure the developer has the costs capped to prevent surprises.Some developers are also willing to negotiate development cost.

4. HST

If you’re an investor you will need to pay HST out of your own pocket to the builder. You will be reimbursed through the “GST/HST new residential rental property rebate” program. In order to do so, you need to provide the CRA with a lease agreement of one year. Remittance will be a portion of the HST paid and will take a few months. Other stipulations apply.

As an end user, the builder pays the HST. You do not have to go through the hassle as an investor would. The CRA has been cracking down on fraudulent end users on MLS. Buyers beware.

5. Non-resident tax speculation

You need to read this if you are a foreign buyer. Foreign purchasers have been a great driving force in pre-construction condominium sales.

As of April 21, 2017, the NRTS was passed and is governed by the Ontario Ministry of Finance. Anyone without Canadian citizenship or at minimal permanent resident status is subject to 15% tax on their purchase. This applies to properties within the Greater Golden Horseshoe Region.

6. Condo Reserve

If you purchase a brand new condominium, at final closing a few months of maintenance fees will be collected. The purpose is to build the condo reserve to pay for common element repairs.It depends on the condo corp but it can vary in the number of months of maintenance fees collected. This is collected at final closing by your lawyer.

This article has been a brief summary to some importants things to know before buying a pre-construction home. I hope you’ve found it informative and useful. It’s highly recommended to work with a seasoned realtor who is familiar with pre-construction and to hire a lawyer as soon as you sign the paperwork with the builder. Lawyers will review your agreement within the 10 day cooling period to sift out any other additional fees in the fine print. When you have the knowledge, you will be able to make smarter purchases.


Author Jenny Bui. Contact Jenny at hello@canarydistrictliving.ca or browse more listings at canarydistrictliving.ca