How to Buy a Pre-Construction Condo in Toronto

The A to Zs on what you need to know about buying a new-build condo.

By Emily Southey | 17 minute read

If you’re interested in buying a pre-construction condo in Toronto, then you’ve come to the right place. Buying a new home is a major decision, especially in the case of pre-construction when it hasn’t been built yet. Continue reading to learn more about the benefits of buying pre-construction condos and to discover our step-by-step guide to buying a new-build condo in Toronto.

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Toronto Pre-Construction Condos

Whether you’re buying a single-family home or a condo in Toronto, you will likely have the option of purchasing one that is already built (a resale) or one that is in the process of being built (a new build). Pre-construction condos in Toronto are typically bought directly from a builder or developer before the building is constructed. However, they can also be purchased from an original buyer who never moved into the property. When shopping for pre-construction condos, you will usually have the opportunity to tour a model unit and see a detailed floor plan and 3D digital renderings. Buying a pre-construction condo comes with many benefits. For example, they are often cheaper than their resale counterparts. Further, buying a new build condo means you will be the first person to live in the unit and you may even be able to customize certain details of the property, such as the kitchen cabinets or countertops. However, purchasing a pre-construction condo also comes with risk, since you’ve never seen the unit in person and the project could be delayed. Below, we’ve put together some key information that is unique to purchasing a pre-construction condo in Toronto. This information includes the required down payment, the 10-day cooling-off period, and the occupancy fees.

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Down payments for pre-construction condos

One of the key differences between buying a pre-construction condo and a resale condo in Toronto is the required down payment. When buying a resale condo, Canadian homebuyers can put down as little as 5% of the purchase price. However, on a pre-construction condo, homebuyers are typically required to make a down payment of no less than 20% of the purchase price. This is a huge difference and could be a dealbreaker depending on your savings. That said, the down payments for pre-construction condos do not need to be paid at once the way they do with resale properties. Rather, the hefty down payment is paid in small instalments according to an agreed-upon payment schedule. An example of a payment schedule for a pre-construction condo in Toronto is as follows: The 20% down payment is the equivalent of $5,000. Five percent of the 20% is due within 30 days of the closing date, another 5% within 90 days, another 5% within 180 days, and the final 5% at occupancy. Ultimately, fee structures vary by the developer. In some cases, deposits might be higher at the beginning of the project and get lower as the project goes on.

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Cooling-off period

After you’ve put down a deposit on a pre-construction condo in Toronto, what follows is the cooling-off period. The cooling-off period is the name given to the stretch of time (usually between seven and 14 days) that the buyer has to rethink their decision. During this time, buyers should get their finances in order and make sure they are ready to move forward with the condo purchase. This is also the time to have your purchase agreement reviewed by a real estate lawyer. Please note that cooling-off periods vary in length depending on the province or builder. For example, in Ontario the cooling-off period is 10 days, whereas in British Columbia it is as short as seven days. In most other Canadian provinces, the cooling-off period is determined by the builder or developer.

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Closing costs for pre-construction condos

The closing costs for pre-construction condos are a little different than typical closing costs. While they are still out-of-pocket expenses, some of which overlap, there are several fees that are specific to condo purchases. Closing costs that are common in all real estate purchases include home inspection fees, land transfer taxes, mortgage default insurance, legal fees, and sales tax. In general, experts recommend that homebuyers allocate 1.5% to 4% of the total purchase price to closing costs. However, when you buy a pre-construction condo in Toronto, the percentage might be even higher to account for the additional expenses. Additional closing costs for pre-construction condos may include utility hookup fees, development and educational levies, the new home warranty plan enrolment fee, assignment fees (if you turn around and sell the unit before final closing), builders adjustments, occupancy fees (more on those below), and harmonized sales tax (HST). Unlike resale condominiums, new condos in Toronto are subject to HST. However, if you plan on living in the unit yourself, you might qualify for an HST rebate. But if you’re buying the pre-construction condo as an investment property, you may not be eligible unless you rent it out for at least one year. Please note that in Ontario, HST is 13%.

Occupancy fees for pre-construction condos

If you purchase a pre-construction condo in Toronto, you may be required to pay occupancy fees. Occupancy fees must be paid anytime a homebuyer moves into the unit before the rest of the building is complete. If you decide to move in early, it is known as an occupancy period. During the occupancy period, you won’t be able to start making mortgage payments because the project is not yet complete. To make up for this, the builder or developer will likely require you to pay an occupancy fee for each month that you live in the unit until the project is complete and you officially take ownership. Occupancy periods and fees are specific to Ontario and are governed by the Ontario Condominium Act. The occupancy fee structure is designed in such a way that the builder will only ever break even through occupancy fees. Any interest made on the monthly payments must be paid back to the buyer and taxes are then recalculated at the end of the occupancy period (if there is a surplus, this money is also paid back to the buyer).

Since occupancy fees are often cheaper than the rent a buyer is paying in their current property, moving in early and paying occupancy fees is an appealing prospect to many buyers. Please note that during the occupancy period, the bare necessities (for example, elevators) will be in service, however, most of the building’s amenities ( fitness centre, gym, spa, terrace, etc.) will not be available. Further, since the building is still under construction, occupants should prepare for lots of noise.

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Additional fees to consider

It’s important to remember that beyond the closing costs, occupancy fees, and down payment mentioned above, there might be a few other fees to budget for that are specific to pre-construction properties. For example, additional fees are likely to apply if you purchase a new condo with upgrades or extra features. The advertised cost of a pre-construction condo is usually for the base model. Adding anything extra will cost you more.

Overall, Toronto homebuyers must be prepared for the costs (beyond the purchase price or mortgage payments) that come with buying a pre-construction condo.

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Tips for Buying a Pre-Construction Condo in Toronto

If you’re ready to take the plunge and buy a new pre-construction condo in Toronto, consider the tips below.

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Don’t overspend

The first (and most important) tip for buying a pre-construction condo is choosing one you can afford. This is a great rule of thumb for all real estate purchases. You should only decide to buy a condo once you’ve saved enough money for the deposits and mortgage payments. If you aren’t sure how much you can afford with your current savings, contact a mortgage lender and get pre-approved for a mortgage. Getting pre-approved for a mortgage will give you an idea of how much money a mortgage lender will loan you should you decide to buy a condo.

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Choose a developer with a good reputation

Before buying a condo, be sure to research the developer behind the pre-construction condo project. In fact, the developer or builder’s reputation should be a major factor in your decision.  After all, it is the developer that ultimately controls the construction of your unit, so making sure you find one with a solid track record is crucial. Beyond researching the project developer online, your REALTOR® might also have first-hand experience they can share. If they’ve worked with the builder in the past, they may know of any major red flags. For example, if the developer has a low completion rate, this likely means that they’ve cancelled projects in the past, which increases the odds their current project will also be cancelled. Even with deposit protection, you could still lose part of your deposit if the project is cancelled. Plus, you’ll have to start your condo hunt all over again. Therefore, when choosing a developer, look at their completion record and past developments. If there is little information on the developer or their past projects, or you stumble upon lawsuits relating to past projects, it’s likely a sign to move onto a new condo unit.

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Find the right REALTOR®

A third tip for buying a pre-construction condo in Toronto is to find the right REALTOR®. Not all REALTORS® are created equal. Experience is the most important asset when it comes to choosing a REALTOR®. You want to find a REALTOR® who knows the market and the neighbourhood but who also has experience with pre-construction properties. This way, they can advise you on which areas, new projects, and developments might be best suited to your needs and budget. Of course, REALTORS® also play an invaluable role in the homebuying and negotiation processes. Choose a REALTOR® you are comfortable with, whom you can trust, and whose communication style aligns with yours. Please note that REALTORS® who are often at model condo units usually have a special relationship with the builder or developer. For this reason, it’s best to avoid hiring a REALTOR® at a model home as they may not be as objective as someone unaffiliated with the project.

Visit the model unit and the construction site

When buying a pre-construction condo in Toronto, make sure to visit the model unit, as well as the project construction site. Model units allow homebuyers to picture themselves in the condo before it is built. As you walk through the unit, be sure to ask which features come with the base model and which cost extra, as many model units feature more expensive upgrades. After touring the model unit, we also recommend travelling to the construction site. Whether the project is already underway or not, doing so allows you to scope out the neighbourhood, noting nearby schools, shops, restaurants, and grocery stores. When on a site visit, remember to ask about any upcoming plans for the area. For example, if a new shopping mall, park, or school is in the works, or a new condo building is going up right across from yours, it’s important to be aware of it in order to make your decision.

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Choose upgrades carefully

Upgrades in pre-construction condos can be expensive. The advertised price is usually the base model, and additional features can quickly add up. It also must be noted that some developers price upgrades way above the market average as a way of increasing profits from buyers. If you’re considering purchasing an upgrade, research how much a certain upgrade or renovation would cost if you hired a third-party contractor. This will help you determine whether the builder is charging a premium. If they are, you may ultimately decide to still purchase the upgrade for the convenience, but at least you will have all the facts.

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Read through the purchase agreement

The purchase agreement, also known as the Agreement of Purchase and Sale (APS), is the official document you will sign when you purchase your pre-construction condo. An APS is a legally binding document. It details the conditions of the sale and the obligations of both parties. Specifically, it may include information like the earnest money deposit, closing costs, purchase price, real estate taxes, contingencies, date of possession, and more. Since a condo is a major purchase, you must review the purchase agreement carefully. More importantly, your REALTOR® and real estate lawyer should also review the document. They can make you aware of anything that looks fishy or language that is too vague.

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Nine Steps to Buying a Pre-Construction Condo in Toronto

Buying a pre-construction condo can be complicated. Thankfully, we’ve broken the buying process down into nine easy steps. Follow the steps below to purchase a pre-construction condo in Toronto.

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1. Get pre-approved for a mortgage

The first step to making any real estate purchase is getting pre-approved for a mortgage. Mortgage pre-approval is the process by which a lender verifies that you qualify for a mortgage loan of a specific amount. Mortgage pre-approvals are based on the information and documentation provided, like proof of income/employment, proof of assets, identification, and information about any debts or financial obligations. When you get pre-approved for a mortgage, the lender will specify a term, interest rate, and principal amount. The principal amount is the most important piece of information as it can help homebuyers understand what they can afford.

Please note that a pre-approved mortgage is the maximum amount you may get for a mortgage; it doesn’t guarantee that the mortgage lender will loan you that amount. You will only know how much you are approved for once you’ve officially submitted your mortgage application. The finalized mortgage amount depends on many factors, such as the purchase price of the pre-construction condo and the down payment. The higher the down payment, the more likely you will be approved for a better mortgage rate. And since pre-construction condos usually require a minimum down payment of 20%, this could translate to an advantageous loan.

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2. Settle on your budget and location

The second step to buying a pre-construction condo in Toronto is to determine your budget and settle on your preferred location. As mentioned in step 1, you can use your mortgage pre-approval to determine what you can afford. Next, it’s time to settle on a location. Each neighbourhood in Toronto is unique, so you will need to choose one that suits your lifestyle and budget. For example, living in the Entertainment District might sound exciting but it’s also one of the most expensive areas in the city. Alternatively, living somewhere like midtown, Leslieville, or Liberty Village might offer all the benefits of the city centre but with greater affordability. If you need help deciding on a neighbourhood, ask your REALTOR® for their recommendations.

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3. Find a REALTOR®

The next step is to find a REALTOR®. Choosing a REALTOR® is no easy feat, with so many options out there. When looking for a REALTOR®, be sure to interview at least three before hiring one. Ideally, you should find a candidate with experience in pre-construction condos and the local Toronto real estate market.