Pre-construction condos have been popping up all over GTA, and over the past few decades most people have done very well financially by buying pre-construction condos. Assignments, pre-con flipping, investment units have become the staple of condo purchases vocabulary, and majority of owners and investors alike reaped the benefits of buying pre-construction units.
The key word is most, not all.
Recently at least 9 condo projects in GTA have been cancelled, the biggest of them being Cosmos Condominiums by Liberty Development Corporation, a project featuring a sold out 1153 units, as well as few smaller ones such as 68 units Kennedy Gardens in Scarborough, or 168 units Museum Flats in Toronto. The project cancellations are fairly rare, and you want to make sure you are not one of the few unlucky ones buying into the wrong project.
What can I do to protect myself?
- Purchase from a reputable developer, confirm that they had no cancellations in the past, have successfully completed many comparable projects in the last few decades, and have been in business of building condominiums for a long time. Make this is part of your due diligence process, similar to having a home inspection when buying a resale, ensuring the builder can deliver on the promises made and fulfill the contract.
- Use a 10 day cooling off period to have the agreement of purchase and sale reviewed by a lawyer familiar with pre-construction condos. If in doubt, back out prior to the cooling off period expiring.
What can I lose?
- In all cases it is lost opportunity cost. Quite likely it will take a fairly long time before you realize the project is not going to be completed, even if you get your deposit back you have already lost time (years in many cases), and in rising markets you have lost potential capital gains. Liberty Development Corporation was selling their Cosmos units for $540 per square foot in 2016, recent projects in the area were selling for $700 per square foot, that’s approx. 30% in capital gains which could have been realized. That is also the additional amount you would have to pay for a similar unit right now, an additional amount that would have to be financed.
- In some cases, the buyers lose the deposits, or are able to receive only a fraction of the amount invested.
What are the reasons for project cancellations?
- Most common is financing difficulties.
- Other reasons include management inexperience, market correction, and raising construction costs.
- Fraud.
- In rising markets there may be reasons for developers to cancel the project and re-launch at higher prices.
Pre-construction condos have been a great investment for many home owners and investors, let’s make sure your next condo purchase is a successful and profitable venture.
Please contact me if you have any question regarding selecting developer for your next new condominium purchase.
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