Benefits of Investing in Pre-Construction Condos
With the recent announcement of mortgage reforms and their impacts on pre-construction purchases, now is a good time to consider the benefits of investing in pre-construction properties. Beginning December 15, 2024, the expansion of 30-year amortizations for insured mortgages will apply not only to new builds but also to all types of homes, including pre-construction properties. This shift significantly lowers monthly payments for investors, making it easier to manage the financial commitment. Additionally, investors purchasing pre-construction homes will benefit from the new provision, which allows them to switch lenders without requalification, ensuring access to competitive rates without the added barrier of a new stress test.These changes may make pre-construction properties more accessible to a broader range of buyers. Investing in pre-construction condos offers a range of benefits that appeal to both seasoned investors and those looking to enter the real estate market. Lower Capital RequirementOne of the key advantages of pre-construction condos is the lower capital requirement. Unlike traditional real estate purchases, where the entire purchase price is typically paid upfront, pre-construction condos allow investors to pay in stages. Investors are generally required to put down a deposit, often around 20% of the purchase price, spread over a set period of time. This phased approach reduces the immediate financial burden and makes it easier for investors to enter the market without needing access to large sums of capital all at once.This staggered payment schedule makes pre-construction condos accessible to a broader range of investors, including those who might not otherwise have the means to make a significant real estate investment. The ability to lock in a property with just a portion of the total price is particularly appealing in rapidly appreciating markets, where property values rise while the investor is still making payments on the deposit.LeverageLeverage is another powerful benefit of investing in pre-construction condos. With a relatively small initial investment, investors can control a much larger asset. By the time the condo is completed, the investor could see an increase in the property’s market value, making the return on investment substantial. This magnifies the potential for profit, as the appreciation occurs on the total value of the property, not just the initial down payment.Flexible Payment StructurePre-construction condos offer a more flexible payment structure compared to other types of real estate investments. The down payment is often spread out over several months or even years, giving investors ample time to manage their finances. For example, instead of requiring the full 20% upfront, developers may break the payment into smaller installments, such as 5% at signing, another 5% six months later, and so on. This flexibility is ideal for investors who want to enter the market but may not have all the funds available at once.Potential for AppreciationInvesting in a pre-construction condo allows the buyer to lock in a price at today’s rates, which can be significantly lower than the market value upon completion of the project. Depending on the location and market conditions, property values often increase over the construction period. By the time the condo is finished, its market value may have appreciated considerably, yielding a significant profit for the investor. Pre-construction condos can be particularly profitable in areas experiencing high growth or development. Customization OptionsPre-construction condos also offer the opportunity for customization. Depending on the stage of construction, investors may be able to select specific finishes, layouts, and features for their units. This degree of personalization can enhance the property’s appeal to future buyers or renters, as it allows for a level of uniqueness not typically available in pre-owned properties.Less Immediate MaintenanceNew construction generally requires far less maintenance than older properties. Pre-construction condos come with new appliances and modern construction materials, and are built to meet the latest building codes and energy efficiency standards. Additionally, new condos often come with warranties that cover certain aspects of the building for a set number of years.Access to Exclusive OpportunitiesFinally, working with experienced brokers or developers can grant investors access to exclusive pre-construction projects that are not widely marketed. These opportunities often come with incentives, such as discounted prices, preferred unit selection, or more favourable payment terms. Securing a unit in a sought-after development early on can provide an edge in competitive markets and increase the chances of a higher return on investment.Getting AdviceWith the right strategy and market knowledge, investors can benefit from both the short-term gains of rising property values and long-term rental income, all while maintaining the flexibility and security that come with investing in new real estate developments. However, it’s important to fully research all opportunities. Getting expert advice from financial advisors and real estate professionals helps investors assess the potential of a pre-construction project and determine whether it fits with their overall investment goals.
The problem with condos: How realtors can help guide these buyers
We know the majority of real estate agents love selling homes because they love architecture or helping and working with people. For many agents, there is nothing more satisfying than helping people find their first home or a new home, and they often wear many hats other than just helping to buy or sell properties. The public asks a lot of their agents but maybe not enough when it comes to selling condominiums. Assessing the property value of a condominium is so much different than a single-family home. Be your client’s first line of defense in a potential condo purchase with warning signs Buyers are purchasing a unit in a corporation run by a board of directors voted on by its owners — do real estate agents take this complex situation into consideration when selling a condominium unit? Agents can be the first line of defense when showing potential condominium owners new units by helping them identify the signs of a bad board of directors — and to do this, they don’t have to review documents. A condominium board has a fiduciary responsibility to the owners and the corporation itself, so they are directly responsible for a neglected building. The first time I walked into the building of my first condominium I was a little surprised that the entry system had not been updated. There was no fob system either, just the same old lock and key system installed over 20 years ago. A little ping in my head went off, and I remember thinking how odd it was — it’s not a huge expense to introduce a fob system into a building so what did this mean? This was the first red flag I should have considered because the problems didn’t stop after I stepped into the building. Bring up potential issues as you view a property Real estate agents can help potential buyers by identifying a few potential red flags, which can be communicated while showing the property. Depending on the number of warning signs, it may be necessary to consider an additional review of documents. Buyers can see the red flags but they often don’t register because buying a home is overwhelming. We all know the only thing most buyers see is that fantastic kitchen or large patio, for example. Everything else just fades away and any practical signs are often overshadowed by those great features. If a realtor can help identify some of these flags, they can assist potential owners in making sure they don’t get stuck in a really bad condominium building with a unit that happens to have a great kitchen. Watch for these common red flags These little signs will allow you to possibly make a suggestion to your buyer that a more detailed review will be needed: 1. Little to no upgrades. If you’re walking into a time warp, it’s a sign that the board is not working well together. Why the building hasn’t been upgraded should be something you think about before your client buys. 2. Meeting minutes. A lack of minutes isn’t necessarily a flag but it could be something to consider. The board may be very efficient and do a lot of governing by emailing each other so they don’t meet every month, or maybe it’s because the board is dysfunctional or undemocratic and doesn’t hold meetings. 3. Neglect. Have a look in the corners of the common areas, elevators and back alley to see how often the building has been cleaned. Buildings need a good commercial cleaning and a power wash on the inside and outside every couple of years — if it’s not done, that’s a pretty good sign something is not working in the corporation. 4. No welcome or information package. The more services a building provides, even for small buildings, the more important these types of documents become. They should include items such as passwords, garbage policies, recycling and any number of helpful things an owner should know about their building. If there isn’t anything provided, it’s a sign that there is very little organization from the board and you may need to dig deeper. Best to take it one step at a time While it’s a big thrill to sit and write the offer for a unit on the spot, if the building is exhibiting several reg flags it’s worth the extra effort to first wait and check out how the building and corporation function. If the owner isn’t interested in the time or expense of a detailed document review then it’s prudent to at least suggest taking a second look. Have the buyer bring a friend or family member to the building that isn’t wearing those rose-coloured glasses and can point out some of the flaws. Selling a condominium should take a little extra attention and more work because of the nature of communal living. Ensuring your buyer is investing in the best building is your first priority. There are too many problems with boards and property managers that affect the health and well-being of an owner, unlike what they’d experience in a single-family home. Working to safeguard and protect your buyer in picking the right condominium in a building where the board operates in the best interests of its owners should be at the top of the list.
Federal Competition Bureau investigates CREA’s rules over potentially inflated commission rates
The federal Competition Bureau is investigating whether rules set by the Canadian Real Estate Association (CREA) are pressuring home sellers to pay higher commissions to real estate agents, the National Post reports. The inquiry, launched in June, is looking into two potentially “anti-competitive” practices, per federal competition law, that could be inflating commission rates. Competition Commissioner Matthew Boswell’s investigation centres on two specific practices: CREA’s “Buyer Broker Commission” rules and the newer “Realtor Cooperation Policy.” Boswell is looking for the Federal Court to approve an order mandating CREA to provide records dating back to January 2019, including information about why the rules and policy being investigated were developed. First potential breach: ‘Buyer Broker Commission’ rule The “Buyer Broker Commission” rule requires sellers to offer part of their agent’s commission to the buyer’s agent in order to list a property on MLS. The Bureau suspects this rule may push sellers to offer higher commissions, as agents might steer buyers toward listings with higher-than-average payouts. The National Post cites a statement from Bureau spokesperson Rosalie Leblanc: “We want to determine if these rules discourage agents from competing on commission rates and incentivize them to prioritize listings with higher commission offers, which might not always align with the buyer’s best interest. There are also concerns that these rules could pressure sellers into offering higher commissions to buyer’s agents to avoid their listings being overlooked by the buyer’s agents.” Second potential breach: ‘Realtor Cooperation Policy’ The Bureau is also scrutinizing the “Realtor Cooperation Policy,” introduced in January, which mandates that most residential listings must be posted on MLS within three days of being publicly marketed, or agents could risk having their CREA membership revoked. The Bureau is concerned the policy could disadvantage non-MLS services and smaller brokerages, which may struggle to meet the fast turnaround time, having fewer resources than larger providers. As well, it notes that services “differentiating themselves from an MLS system on privacy or by offering different features” could experience challenges. Bureau investigator Adam White wrote in a court-filed affidavit: “Large brokerages have a greater number of agents working for them, and thus these agents can advertise listings to a larger network of agents without contravening the Realtor Cooperation Policy. Conversely, smaller brokerages with only a few agents working in them will have less of an opportunity to advertise listings outside of an MLS system.” CREA: ‘Pro-competitive & pro-consumer … increasing transparency & helping realtors better serve buyers & sellers’ In a statement to REM, James Mabey, chair of CREA, says it’s unaware of any determinations or conclusions made at this time (this is also noted in the National Post article.) Rather, as part of its investigation, he says it’s typical for the Competition Bureau to seek a court order, as it’s currently doing, to produce records and provide written responses. Mabey notes the organization is cooperating with the Bureau as part of this investigation phase, and that CREA believes its rules and policies are “both pro-competitive and pro-consumer, including by increasing transparency and helping realtors better serve Canadian property buyers and sellers.” Mabey references realtors’ long history of serving their clients by being knowledgeable about developments in real estate, actively updating their education and committing to the Realtor Code. He also cites the professional services realtors offer, including “posting property information to an MLS system and handling every element of the transaction, including market analysis, pricing advice, advertising, making and receiving offers and much more.” He continues: “CREA’s realtor members know the benefits of an informed consumer and promote transparency and innovation within the industry. They use their collective voice to champion the interests of Canada’s property owners, buyers, sellers and renters. And, they contribute to a cooperative tool known as MLS systems — efficient, collaborative marketplaces that help connect realtors representing buyers and realtors representing sellers — to the benefit of both realtors and their clients.” Mabey also notes that the industry is built on a foundation of cooperation, expertise and care. “Every day, realtors in every corner of this country are helping Canadians navigate their real estate aspirations and realities,” he adds. “As the world around continues to change — from our housing needs to the market and economic conditions — what realtors stand for hasn’t. Realtors have and will continue to be there to support their clients through it all.” So far, Boswell has not found any wrongdoing against CREA.
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