June 20, 2019 | new condos
New certainly has its pluses. The biggest advantage is simple: New has not been used before. For new condos, that means the floors are new. The fixtures are new. The kitchen and the washroom are new. There is no wear and tear. And if you buy early enough, you can even choose the finishes to your liking not having to live with other people’s poor design choices.
At first glance, buying a resale condo may feel like getting your cousin’s hand-me-down clothes. They are lived-in. Maybe a little dated. And if the condo has been around long enough, they may be in need of a little refresh in the hallways and lobby. As far as I’m concerned, buying new or buying resale may come down to where your condo is located, what developer is building your condo and what layout you have. There are some newer condos I would recommend, and some I would not. Same goes for resale.
If I’m going to generalize, though, I would say new is not the way to go right now. You will get more bang for your buck with resale.
Financially speaking, new condos have become much more expensive than resale. Here is a graph below showing just how much more expensive I’m talking about.
Note the widening gap in the past two years where new is costing buyers far more than before when compared to resale. It tells me that new construction is a little overpriced right now.
As many know, the developers often price their units based on estimates of how much the unit MAY be worth at the end of construction. So, if a project is planned to be done in 2024, then the prices are often estimates of what the unit will be worth then.
On top of being more expensive, you do have some additional costs. To start, most new construction requires 20% down, usually in 5% installments staggered throughout the preconstruction phase, though usually 15 % in the first 180 days, then 5% on closing. Resale can be purchased with as little as 5% down.
Then there are development or education fees. This is essentially a tax the government passes on to the developer who in turn passes it on the the buyer. These costs can vary widely depending on the location of the development and the size of the unit. These only apply to new construction.
Then there are the occupancy fees. The occupancy period is essentially a time when you are renting the condo from the builder before you own it. The occupancy period could last up to 12 months. So, you may be living in your new condo, but you won’t own it right away. Once the building registers, you will have your title and then start paying the mortgage. In newer condos, things like a locker and a parking space are often for sale way above the market value of a resale condo. Lockers may sell for $8000, but resale in a nearby building goes for $5000. Parking is also often overpriced in many new construction. Also, understand the cost of your unit can go up with each upgrade you do. You can make it your own, but it’s going to cost you. All advertised prices are the baseline prices.
Then there is the built-in risk of buying new: Some condos don’t make it to the finish line. In other words, some condos may even be sold out, but the builder decides to cancel the project. Even if you receive your deposit back with interest, you may have waited years for your new condo to arrive before the cancellation. During that time, the real estate prices will likely have gone up. Now, any unit you buy after the cancellation will cost more, and the interest you made on any deposit will not make up for the difference.
Of course, it’s not all about financials. There are other less appealing aspects to buying new. When you buy resale, you can move in to the property within a few weeks to a few months. With new, you could be waiting years. It’s almost a certainty that the condos won’t be done the year they claim. Your life may change a lot by then. You could have a kid, get a dog, get married, take a job in Barcelona. A lot can change over 3-4 years.
There are times when buying new makes sense. If you are an investor and you believe the rents will increase to bring you to a positive cash flow by the time you arrive at the closing date. You could be right. This has been the case many times over the past 20 years, but it will not always be the case. If you are buying a new condo for yourself, you may want to live in a very specific neighhbourood in a very specific condo where new is the best option. There are some condos, like the Junction House, that has its appeal because of the design and the location.
Any way you see it, new is not always the best solution. In fact resale can be very appealing right now until new condo prices come down.