Is Presale Condo A Bad Investment?
Are Presale Condos a Bad Investment?
The answer is not necessarily. It depends: On your level of risk tolerance and your cashflow.
The most popular form of making profits in a rising real estate market, there is no guarantee that the market will continue to rise in the period between purchasing and completion of the building.
There are a lot of things that can go wrong that might put this specific real estate investment in a “risky” category. In the following blog we go over risks that are associated with a Presale Condo
Why People Buy a Presale Condo as an Investment?
The main reason why investors choose to buy presale condos is because they can lock in prices at lower levels than if they were to buy after completion of the building.
In a rising real estate market like (surrey & Vancouver in British Columbia), presales are a popular form of making profits as people believe they can sell them for more than they paid for them.
This is often true, but there is also no guarantee that the market will continue to rise in the period between purchasing and completion of the building.
7 Risks That Make Presale Condos a Little Less Attractive
1. They're not Tangible
Presale condos are not built yet, so they are not tangible, unlike buying a house or land. You are buying based only on a floor plan without seeing the finishes, the layout or outside view of the building.
All of the measurements that the developer provides you are estimates and subject to change, so you’ll never be 100% sure of what you are purchasing.
2. Presale Condos Might have Some Delays
Condo projects often have delays in construction and completion dates, which means that your unit may not be ready when promised. If this happens and you have already moved into your unit, it could mean having to pay rent until your unit is ready for occupancy.
3. Developer’s Reputation Matters
Purchasing a presale condo also involves a lot of trust and faith in developers — if something goes wrong with their project (e.g., bankruptcy), then it could be difficult for purchasers to recoup their money or even get their deposits back.
If possible, try speaking with past customers about their experiences with this developer’s projects.
4. Envisioning Floor Plans Can Be Difficult
Purchasing a floor plan. Purchasing presale requires a bit of imagination and vision. There can be changes to the floor plan during construction. A slight variance allowance will be indicated in the Contract of Purchase and sale and disclosure statement by the developer.
Having an experienced realtor represent you in the purchase from the developer will assist in deciphering what you are purchasing.
5. Mortgage Approval: Might or Might Not Happen
A mortgage cannot be granted until completion. Therefore, when you’re purchasing a presale, lenders can provide a pre-approval. However, another assessment will have to be completed upon completion to ensure lending for the property.
6. GST & Property Transfer Tax Constraint
Not Necessarily a risk but some buyers are not prepared or not made aware of the fact that Federal tax is required on new construction and will be payable at the time of completion.
Presale homes under $800,000 are also exempt from property transfer tax, provided by the fact that the presale purchaser is a Canadian citizen or permanent resident of Canada.
In BC, first-time home buyers can claim an exemption if they haven’t owned another property in Canada within the last four years before buying their current home.
However, this only applies if you live in your new home for at least one year after closing day — which means that if you buy a presale condo during construction and don’t move in until it’s complete (which can take several months), you won’t be eligible for this exemption because it’s not considered your “first” residence (even though it would have been your only residence if you had moved into
7. Profits are Not Always Guaranteed
Although a lot of investors have made some handsome profits while assigning their presale properties but profits like any other investment in real estate are never guaranteed.
There are a lot of things that can go wrong like market fluctuations, inflation, recession, a pandemic etc. that can change the course of this presale real estate transaction.
Therefore, we advise everyone to use their due diligence, do an extensive market research and most importantly hire a realtor that can help you guide what’s the best investment decision as per your budget
In a rising market, presale condos can be a great investment. However, investing in any real estate is risky and should be done with caution.
It’s important to do your homework before buying into a new development by researching projects by the same developer and study their track record before committing yourself to any deal.