Buying a pre-construction unit

The residents of a Midtown NY high-rise were promised a building of “premier luxury caliber” — but all they got was a crumbling, leaky mess, a $67 million lawsuit charges.

I don't advise buying a condo that has not yet been built.

I believe that it makes more sense to purchase a five or six year old condo. By then the major construction defects will have surfaced and you will be able to see if the new board seems competent and you can tell if this is an owner-occupied building where people take pride in their building or if it is actually a rental building with 300+ small-time landlords.

Buying new is risky

Buying a condominium that has not yet been built has its risks.

If you plan to live in your condo, you must be willing to accept delays and then you may have to move in to a building that is still under construction.

New buyers in an Ottawa newly built condo had plenty of complaints and this woman is Mississauga was surprised when she saw that her new ground floor premium-priced condo had a natural gas installation placed in front of her windows.

Some developments never get built so after waiting for two years or more, the purchasers get their deposits back and then have to scramble to find somewhere else to live. (by then prices may have risen.)

Some builders are now selling pre-built units with "future-value pricing". This is not the price the unit would sell for today but the price that they think it will be worth once the building is finished. So there is little hope of buying a pre-construction unit and once it is ready for occupancy, flipping it and making a profit.

Then there are developers who build junk, stack the first board with cronies and leave the owners with unpaid bills and a shoddy building.

Then there are adjustments; also called levies. They use to add up to $1,500 or so but now they can add up to $30,000 to the price of a unit. When you sign a sales agreement, have your lawyer put a cap to the adjustments and yes, you need a lawyer to read the sales agreement and disclosure documents.

David Fleming in one of his postings talks about a buyer of a one bedroom plus a den condo being hit with over $50,000 in closing costs.

It can take five years for any expensive construction defects to show themselves. By then the warranty period has expired and the owners will be stuck with paying for the repairs.

One man's experiences
Preet Banerjee
excerpt from Globe & Mail  15 Oct 2013

While I love the condo my girlfriend and I moved into, there have been some issues that I would be quite concerned about if I was an owner.

The building is relatively new, but tenants who have been there almost a full year are only now enjoying some amenities. Others, like the party room, gym, and outdoor spaces, were perpetually delayed. A few unit owners I’ve met in the elevators are upset, since they have been paying maintenance fees during this time.

There appear to be further problems on the horizon. In the underground parking lot, cars have slowly sunk into the asphalt under their own weight.

Re-paving will soon be needed, which will likely be time-consuming, inconvenient and expensive. Maintenance fees for newer buildings seem to have a funny trend of shooting up after a few years.

Preet Banerjee, a personal finance expert, is the host of Million Dollar Neighbourhood on The Oprah Winfrey Network.

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