While there are benefits to buying pre-sale, there are also risks and pitfalls to avoid.
One of the most significant risks of buying a pre-sale condo is the lack of information available to buyers. Since the property has not yet been built, buyers may not have a clear idea of what the finished product will look like. Developers may provide floor plans and renderings, which are often subject to change. Buyers may also not have a clear idea of the surrounding area, including amenities and transportation options, which can impact the property’s value.
Not far behind in the risk scale is the potential for the developer to cancel the project. If the project is cancelled, buyers may lose their deposit and be left without a unit. Additionally, if the real estate market declines, the unit’s value could decrease between the time of purchase and completion of construction, which could lead to financial losses for the buyer. The real estate market is unpredictable, and there is no guarantee that the property will increase in value.
Add to all that delays in construction and changes to building plans are not uncommon for pre-sale condos. Delays could mean the buyer has to wait longer to move into the unit, which could be inconvenient if they are renting or need to move for other reasons. Additionally, if there are significant delays, the buyer may have to pay additional costs for interim housing or storage of their belongings.
While developers may provide a timeline for completion, many factors can impact the construction process. This can include issues with permits, labour shortages, and weather conditions. Changes to building plans can also affect the final product, which may not meet buyers’ expectations.
Another risk of buying a pre-sale condo is financing. Since the property has not yet been built, traditional mortgage financing may not be available. Buyers may need to secure financing through the developer or a private lender, which can come with higher interest rates and fees. This can also make it harder to secure financing, as lenders may be more hesitant to lend money for a property that does not yet exist.
Legal issues can also arise when purchasing a pre-sale condo. Buyers should ensure that the developer has a good and reputable track record. In some cases, developers have gone bankrupt before completing a project, leaving buyers with unfinished properties and lost deposits. Ensuring that a lawyer reviews all contracts and agreements to protect buyers is also essential.
Regulatory changes and market risks can also impact the value and overall experience of buying a pre-sale condo. Changes to zoning laws or building codes can impact the final product, while changes in the housing market can impact the property’s value; thus making it harder to sell the property in the future or lowering the return on investment.
The purchase agreement is a legally binding contract that outlines the terms and conditions of the purchase. Reviewing the contract carefully and working with a lawyer to protect your interests before purchasing is essential. Ensure you understand the contract, as it outlines the purchase terms, including price, deposit amount, completion date, and the buyer’s rights and responsibilities. Buyers should pay particular attention to the cancellation clause, which outlines the circumstances under which the developer can cancel the project and what happens to the buyer’s deposit.