How Pre-Construction Works
Timeline
| Phase | Timing |
|---|
| Sales launch | 3-5 years before completion |
| Deposit payments | Over 1-3 years |
| Construction | 2-4 years |
| Interim occupancy | Move in before registration |
| Final closing | Registration with title |
Typical Deposit Structure
| Payment | Timing | Amount |
|---|
| Initial deposit | Signing | $5,000-$10,000 |
| 30 days | 30 days after signing | 5% |
| 90 days | 90 days after signing | 5% |
| 180 days | 180 days after signing | 5% |
| At occupancy | Move-in | 5% |
| Total deposit | Before mortgage | 15-20% |
Remaining 80-85% is mortgaged at final closing.
Pros of Pre-Construction
| Advantage | Explanation |
|---|
| Lower initial investment | Only 15-20% during building |
| Potential appreciation | Value may increase during construction |
| Time to save | 3-5 years to prepare |
| New building | Modern amenities, lower maintenance |
| Customization | Choose finishes (some developers) |
| First pick | Best units at launch |
| Assignment potential | May sell assignment before closing |
Appreciation Example
| Factor | Amount |
|---|
| Purchase price (2024) | $600,000 |
| Deposit (20%) | $120,000 |
| Appreciation (3%/year × 4 years) | 12%+ |
| Value at closing (2028) | $672,000+ |
| Equity gain | $72,000+ |
You gained $72,000 with only $120,000 invested (60% return on deposit).
Cons and Risks
| Risk | Explanation |
|---|
| Delays | Often 1-2+ years late |
| Cancellation | Project may not proceed |
| Final product differs | May not match showroom |
| Closing costs increase | Taxes, fees may rise |
| Market downturn | Value could drop |
| Rate changes | Higher rates at closing |
| No rental income | No cash flow during wait |
| Occupancy fees | Pay before owning |
Delay Impact
| Scenario | Impact |
|---|
| 2-year delay | Living situation affected |
| Rate increases | Higher mortgage payments |
| Continued renting | 2+ years extra rent paid |
| Life changes | May no longer need unit |
Cancellation Risk
| Outcome | What Happens |
|---|
| Deposit returned | Held in trust, returned in full |
| Lost appreciation | Market may have risen |
| Cost to buy elsewhere | Prices typically higher |
| Opportunity cost | Lost years of equity building |
Costs at Closing
Closing Cost Surprises
| Cost | Amount |
|---|
| Development charges | $5,000-$20,000 |
| Levies | $1,000-$5,000 |
| Tarion enrollment | ~$1,000-$2,000 |
| Utility meter installation | $500-$2,000 |
| Appliance packages | $0-$5,000 |
| Additional closing costs | $7,000-$35,000 |
These are ON TOP of regular closing costs (land transfer tax, legal, etc.).
Hidden Development Charges
| Charge | Range |
|---|
| Toronto development charge | $20,000-$40,000+ |
| Education levy | $2,000-$5,000 |
| Parkland levy | $3,000-$10,000 |
| Other municipal | Varies |
Read your Agreement of Purchase and Sale carefully.
Interim Occupancy Period
What It Is
| Feature | Details |
|---|
| When | Move in before registration |
| Duration | 3-18+ months |
| You pay | Occupancy fee (not mortgage) |
| You don’t own | Title not registered yet |
Occupancy Fee Components
| Component | Monthly |
|---|
| Interest on balance | $1,500-$3,000 |
| Property tax estimate | $200-$500 |
| Maintenance fee | $300-$800 |
| Monthly occupancy fee | $2,000-$4,300 |
You’re paying rent essentially, building no equity.
Assignment Sales
What Is an Assignment?
| Term | Meaning |
|---|
| Assignment | Selling your contract before closing |
| Assignor | Original buyer (you) |
| Assignee | New buyer |
| Profit | Difference between your price and sale price |
Assignment Example
| Factor | Amount |
|---|
| Original purchase | $600,000 |
| Market value at assignment | $700,000 |
| Your deposits paid | $120,000 |
| Assignee pays you | $220,000 ($120K + $100K profit) |
| Your profit | $100,000 |
Assignment Considerations
| Factor | Details |
|---|
| Developer approval | Usually required |
| Assignment fee | $3,000-$10,000+ |
| Taxes | Profit is taxable (possibly as income) |
| Marketing | Need to find buyer |
| Timeline | Before registration only |
| Restrictions | Some developers prohibit |
Pre-Construction vs Resale
| Factor | Pre-Construction | Resale |
|---|
| Price | Often higher (new) | Reflects current market |
| Timeline | 3-5 years to close | 30-60 days |
| Deposit | 15-20% over time | Need full down payment |
| Certainty | Unknown final product | See what you’re buying |
| Customize | Limited choices | Already finished |
| Rental income | None during wait | Immediate |
| Appreciation risk | Both up and down | Less speculative |
When Pre-Construction Makes Sense
| Situation | Why |
|---|
| First-time buyer | Time to save larger down payment |
| Investor | Leverage appreciation with small deposit |
| Specific building | Want new amenities/location |
| Long-term view | Can handle delays |
| Assignment strategy | Plan to sell before closing |
When Resale Makes Sense
| Situation | Why |
|---|
| Need to move soon | Immediate possession |
| Risk-averse | Know what you’re getting |
| Rental income wanted | Start cash flow immediately |
| Rising rates | Lock in mortgage now |
| Uncertain market | Less speculative |
Due Diligence Checklist
Research the Developer
| Check | Why |
|---|
| Track record | Complete projects on time? |
| Quality reputation | Builder reviews |
| Financial stability | Can finish the project? |
| Previous projects | Visit if possible |
| Tarion record | Any claims against them? |
Review the Agreement
| Review | Critical Items |
|---|
| Price | Fixed or can increase? |
| Closing date | Firm or can extend? |
| Deposits | Schedule, refundable? |
| Specifications | What’s included/excluded? |
| Assignment clause | Allowed? Fees? |
| Cancellation terms | When/how can developer cancel? |
| Development charges | Capped or unlimited? |
| Occupancy fees | How calculated? |
Hire a Real Estate Lawyer
| Lawyer Should | Before You Sign |
|---|
| Review full APS | Explain risks |
| Explain capped costs | Uncapped costs are dangerous |
| Check developer liabilities | What can change? |
| Verify trust deposit | Money protected |
Tarion Warranty (Ontario)
Coverage
| Protection | Details |
|---|
| Deposit protection | Up to $20,000 freehold, $20,000 condo |
| Delayed closing | Compensation if late |
| 1-year warranty | Defects in work/materials |
| 2-year warranty | Water penetration, electrical, etc. |
| 7-year warranty | Major structural defects |
Limitations
| Limit | Amount |
|---|
| Deposit insurance max | $20,000 |
| Additional protection | Some extended warranties available |
| Not covered | Market value changes |
Questions to Ask
| Question | Why It Matters |
|---|
| What’s the expected closing date? | Plan your timeline |
| What causes closing delays? | Understand risks |
| Are development charges capped? | Avoid surprise costs |
| What’s the occupancy fee? | Know your costs |
| Can I assign? | Exit strategy |
| What finishes are included? | Know what you’re paying for |
| What’s the maintenance fee estimate? | Monthly costs |
| What’s the developer’s track record? | Reliability |