South Vancouver Island is growing rapidly—Langford is one of the fastest growing cities in all of BC—and with all this new development comes pre-sale opportunities.
After a developer purchases property, gets their plans via council, and receives their permits, they offer pre-sale opportunities to help generate funds for the building process.
Pre-sales can be a great way to get into the market, but there is a level of risk to consider when deciding if a pre-sale purchase is right for you.
Pros:
There are quite a few advantages to buying a pre-sale.
First, as construction is generally a few years away, pre-sales are most often offered at a lower price point than what’s currently on the market and ready to move into.
Additionally, you don’t pay for the unit until you move in. In Victoria, we have a strong history of appreciation, which means by the time occupancy is granted it is likely you will already have equity in your home.
Your only upfront cost is the deposit, this ranges between 5%-10% of the total purchase price that is held by the developer and will make up part of your total purchase price on completion. This gives you the advantage of locking in a property with a few years to work on your down payment and financing prior to completion.
With pre-sales, you’re also given an automatic seven-day recission period before finalizing the deal, meaning we have seven days to get a mortgage broker involved to ensure you’re financially on track before moving ahead.
Furthermore, if the unit is assignable, you could decide to sell the unit before completion and, if the market has appreciated, keep the profit without spending any additional money.
Another big advantage to pre-sales is the Property Transfer Tax (PTT) exemption. If you purchase a unit that’s under $750,000, you will be exempt from the PTT which would save you as much as $13,000 that would be paid up front.
Finally, your unit is covered under the 2-5-10 home warranty insurance that is required on new builds. With this, you’ll conduct a deficiency walk-through prior to completing on the property to ensure any issues will be corrected before moving in—offering you added peace of mind.
Cons:
As mentioned in the beginning of this post, there are a few concerns associated with pre-sales that are important to consider.
First, the property is not built yet, and a lot can happen between now and completion. If the developer goes bankrupt, it is very tough to recoup your losses. There is a high level of due diligence that comes with building and development permits, so this is extremely uncommon, but it is a scenario to be aware of.
Real estate in Victoria has a history of appreciation so it is a relatively safe area to investment in; that being said, if market prices decrease significantly, you’ll have a unit that is overpriced, and you would need to take a loss if your plan was to sell. If you are planning on holding on to the property for several years, market changes aren’t as big of a concern because any price decreases in the market are likely to trend upwards again in the long run.
Developers will have clauses that protect them in certain scenarios, giving them the ability to change aspects of the building without the need for buyers’ approval. For example, they could change appliance packages, finishes, etc. They would not be permitted to make changes equating to a lesser value, but if you had personal preferences that were non-negotiable, it would be important to be aware of the relative clauses that could impact those aspects of the building.
Also, if the building is delayed, developers are allowed to push out the completion times/occupancy permits. Generally, you don’t want to give notice on your rental or confirm a move-out time until you are guaranteed the move in date with your new purchase.
Lastly, it’s important to consider how your future could change. It’s always a good idea to have a contingency plan to account for possible changes to your financial situation or life circumstances that may unfold between signing the documents and the completion date.
We’re here to help.
All in all, pre-sales can be a great way to purchase your first home or invest in the real estate market.
Different developments and developers will have unique aspects to their pre-sale contracts, so it’s important to be well-informed on the various specifics around the opportunities you’re most interested in.
As your real estate agent, I will ensure we get all the information you need to make the best decision for you. I’m always happy to answer any questions you may have regarding the pre-sale process and new and upcoming development opportunities, contact us.
Thank you for being here,
Alex Hughes* and Ricki-Lee Jewell, Victoria, BC Real Estate Agents
*Personal Real Estate Corporation
