June 2016 marked a slow down in the Vancouver real estate market; prices have had downward pressure in the single detached house sector as well as the attached condominium market. The new foreign buyer’s tax was implemented in August 2016 and new mortgage rules came into effect in October.
One sector of the market that remains busy is Vancouver presales.
What is a Presale?
This is where a developer will sell condos in a development before construction has begun or while the development is under construction. One may often read a disclaimer on the advertising of presale developments that states “this is not an offering for sale”; this means that the buyer is purchasing the rights to the future condo that will be completed and ready to be occupied (certificate of occupancy permit issued by the City of Vancouver ).
What are the benefits of buying a presale condo?
- Purchasing in a newly built development.
- New construction will achieve higher rental price.
- No or very few restrictions at time of ownership (rentals or pets).
- New condos built by reputable developers will have lower maintenance costs.
- There is a warranty protection on presales condos – British Columbia 2-5-10 year Warranty Insurance (Home Warranty Insurance on New Homes). The warranty does not start until the developer gets its’ occupancy permit at time of the development’s completion.
- There are no mortgage payments from the time of purchasing the presale to the date of the development’s completion (certificate of occupancy). This period can be anywhere from 2 to 5 years. During this time the condo will likely appreciate in value.
Important facts about presale condos
- The presale condominium market is governed by the Real Estate Development Marketing Act which protects the Buyer.
- There is a seven day rescission period from the day of an accepted contract to purchase. During this time the buyer can do their due diligence to read the developer’s Disclosure Statement, and inquire about any details or concerns. If the buyer wants to cancel the contract to purchase during the seven day rescission period they can do so without any costs. This is a BC provincial law.
- The developer must provide the buyer with a Disclosure Statement. The Disclosure will contain all the important information on the development. It is very important to carefully read this statement.
- Disclosure Statement information link.
- There will be a deposit structure. The most common deposit structure is 5% of the purchase price at the time of acceptance of the contract to purchase followed by two or three more payments of 5% over a predetermined period of time over the course of construction. The total deposit will be 15% or 20% of the purchase price. The deposit is placed in a lawyer’s trust account and cannot be accessed by the developer. If the developer does not complete construction or the developer files for bankruptcy, the deposit will be returned to the buyer. Further information can be found at Home Owner’s Protection Policy.
- GST is paid on the purchase price that is payable at time of completion and/or when the development is finished (certificate of occupancy has been given to the developer). A GST rebate equivalent to 36% of the GST paid is available for new homes priced up to $350,000 and a partial rebate on new homes priced up to $450,000.
- Presale condos and houses under $740,000 are exempt from Property Purchase Tax (PPT) https://wowa.ca/calculators/bc-property-transfer-tax. To qualify the buyer must be a Canadian Citizen or a permanent resident and living in the house for one year (link). First time buyers’ are exempt from PPT when purchasing a condo or house under $450,000 with a slight rebate up to $575,000. Above $575,000 PPT is 1% on the first $200,000 and 2% on the balance up to $2,000,000. The PPT is 3% on amounts greater than $2,000,000 (more PPT details).
I highly recommend having a real estate agent represent buyers purchasing a presale condo. It does not cost the buyer anything because the developer pays the selling fee to the real estate agents brokerage company. The buyer can have their real estate agent guide them through the process from reading the Disclosure Statement, assessing the overall quality of the development to choosing the best floor plans and finishing’s.
What are the disadvantages of buying a presale condo?
- GST is payable on the purchase price payable at time of completion.
- Mortgage rates can change from the time of the initial acceptance of the contract to purchase and the date of the development’s completion. This time can be anywhere from 2 to 5 years. Another mortgage assessment will be done at the date of the development’s completion. Interest rates may have increased during the 2 to 5 year development period and banks will only guarantee mortgage rates for up to 120 days.
- Purchasing a condo from a floor plan requires vision and experience. In the Disclosure Statement, the developer is allowed to make small variances to the floor plan during construction if needed.
An experienced real estate agent and a mortgage specialist can be an asset for buyers purchasing a presale. I have been helping buyers in this area for many years and I have also worked for developers marketing presale condos in Vancouver. Contact me by phone or email and I will be happy to help you with any of your questions.
Written by Don Urquhart Vancouver real estate agent since 1987