The housing shortage is a problem that’s been brewing across Canada for several years now, especially in big cities like Ottawa. There are only so many homes, and there more buyers that want them than there are houses for sale. The recent real estate slowdown brought on by rising interest rates is a welcome relief to many buyers. However, it is likely a temporary reprieve.
As the population grows and more immigrants arrive, the housing demand will only intensify.
Is Pre-Construction The Answer?
The government believes that new construction will help solve the problem and has made it the focal point of the latest federal housing strategy. Under the plan, they are helping to fund 1.5 million homes throughout Canada over the next 10 years.
Say what you will about the government, but for once, it looks like they are true to their word. In 2021, more new homes began construction than at any point in the last 50 years. In Ottawa, more than 10,000 new projects started, including single-family homes, townhouses, semi-detached houses, condos and apartments.
The Benefits Of Buying Pre-construction
It might sound crazy to buy a house that doesn’t even exist yet. But it can be the perfect solution for those who have time to wait. For young first-time buyers, it is a fantastic way to plan ahead and secure their future. Plus, under the First Time Home Buyer Incentive Plan, the federal government offers as much as 10% for your down payment through its shared equity plan. The benefits of a pre-construction project are many:
- There is nothing quite like a brand new build. You’re the first person to live there, and nothing has been touched. Everything is pristine, modern, and updated with the latest and most innovative technology, which also results in lower utility bills.
- Believe it or not, a brand new pre-construction project can actually cost less than an older home. The price you see is the price you pay, and there are no bidding wars that escalate and drive up the cost. In addition, you’re buying at today’s value of the home. By the time you move in, the value will likely appreciate, meaning you’re building equity on the property even though it doesn’t yet exist. Of course, the market is unpredictable, and it doesn’t always happen this way. However, property values tend to rise over time.
- You may not need the entire down payment right away. Typically, the purchase of any home, new-build or resale, requires a 20% down payment. However, many pre-construction projects allow you to make installments, so you only need 5% upfront to lock in your new home.
- Maintenance costs will be lower. Since everything in your home is brand new, you don’t have to worry about expensive repairs or upgrades for a long time.
- Your home comes with a Tarion warranty. All newly-constructed homes must provide a seven-year warranty from the date you take possession. You can sleep soundly knowing any major defects are fully covered.
Invest in a pre-construction unit, and you’ll be counting the days until your move-in date. Unfortunately, you might be counting for a long time. Now that you know all the benefits of buying a pre-construction, it’s only fair to consider some disadvantages.
- You may have a long wait. The most significant drawback of buying pre-construction is the time. It can take years from the time you buy your home to the time you finally get to move in. Delays are common, and projects occasionally get cancelled altogether. You should only consider investing in pre-construction if you can make other arrangements if your move-in date gets pushed back.
- The price is the price, with little room for negotiation. The pre-set price is both a benefit and a drawback, depending on which way the market turns. Unlike resale homes, builders rarely offer any concessions. Still, a real estate agent experienced in pre-construction might be able to get you some upgrade incentives or discounted parking.
- New builds are subject to HST. Resale properties aren’t taxed, so buyers are sometimes surprised to find out there is HST on their pre-construction home. However, you may qualify for a tax credit that could save you money on your tax return.
- The closing costs can be higher. Pre-construction units have additional closing costs you never have to worry about when buying resale, such as interim occupancy fees, development charges, and utility hookups. The good news is that first-time buyers can save as much as $4,000 on land transfer taxes. Before committing to your purchase, talk to your real estate agent about getting those fees capped, so there are no surprises on moving day.
Buying pre-construction isn’t for everyone. However, for the right buyer with time to spare, it can be the perfect solution to the competitive resale market.
