Cons of Buying Pre-Construction
Higher Price Point Compared to Resale:
One major downside of purchasing pre-construction is that it often comes with a higher price tag per square foot compared to resale properties. This is because developers set prices based on what they predict the property will be worth when it’s finished in 2-4 years, rather than its current market value. They “future-price” to anticipate market growth.
Immediate Pre-Approval Requirement:
In the past, pre-approval for pre-construction purchases could be deferred until closing, but now developers usually require it upfront. They want assurance that buyers can close the deal, especially given today’s uncertain economic conditions and rising interest rates. So, expect to provide a pre-approval letter from a major bank early in the process.
Smaller Unit Sizes:
Pre-construction condos tend to be smaller than units built just a few years ago. Developers are prioritizing maximizing profits by fitting as many units as possible into their buildings. On the upside, they tend to compensate for the smaller size by offering higher-end finishes and more appealing amenities.
Larger Down Payment:
Pre-construction typically requires a 20% down payment, unlike resale properties, where first-time buyers might only need 5-10%, depending on the property’s price. This higher deposit is non-negotiable due to how new developments are financed, making pre-con more challenging for buyers without significant savings.
Pros of Buying Pre-Construction
More Time to Save for the Deposit:
A key advantage of pre-construction is the flexible payment schedule for the down payment. The 20% is usually divided into multiple payments spread out over time, often over several years. This gives buyers the opportunity to gradually save up, which can make the larger down payment more manageable.
Less Competitive Environment:
Unlike the resale market, where bidding wars are common, pre-construction sales don’t involve multiple buyers fighting for the same property. The price is fixed, and as long as you act quickly, you can secure a unit without the stress of competing offers. Early access through a well-connected agent also gives you a better selection of available units.
Customization Options:
Pre-construction buyers have the luxury of customizing their units. You can choose your own flooring, countertops, cabinetry, and paint colors, which is a significant benefit over resale homes where you inherit the previous owner’s choices. This allows buyers to create a space that fits their specific tastes.
Potential for Property Appreciation:
One of the biggest draws of pre-construction is the potential for property appreciation before the building is completed. Over the 2-4 years from when you sign the contract to when you close, property values may rise, allowing you to gain equity without making mortgage payments. This can lead to significant financial gains, provided the market continues to grow.