Many condos in Toronto are sold before a shovel is even put in the ground. This is obviously considered the Pre-construction phase. When you purchase a condo from a builder during the pre-construction phase, you will usually sign a pre-construction purchase contract that will include the price and terms and conditions of the planned development. As the building gets built however, often many aspects of this initial contract my need to be altered based on delays or plan changes. It is safe to say that the initial timelines for most new condos are quite aggressive in nature. It is quite common for move in dates to be delayed by 3-6 months.
Pre-construction condo purchased usually require around a 20% down payment, which is often structured as follows;
- When you make your offer to purchase it is accompanied with a deposit. Your deposit is deducted from the first payment, which is due 30 days after acceptance.
- The remaining three portions of your down payment are due at 4, 9 and 18 months, however this may vary a bit depending on the builder.
The pre-registration phase is when your new condo is built and ready to be moved into. This period is known as interim occupancy. During interim occupancy you can move into the condo however at this time you are only paying rent, which is often also known as a phantom mortgage. Even though you are now living in the condo you do not technically own it until the building has been registered. During interim occupancy, you are required to have homeowner’s insurance, and arrange for utility hook-ups as if you own the condo. Your appliance warranties also kick in upon occupancy.
Interim Occupancy Fees
The monthly payments you make during this phase do not apply to your mortgage. The phantom mortgage or occupancy cost is paid to the builder and is determined by the interest portion of the balance owing on the purchase price (usually payable on the registration date) based on a one-year mortgage rate of the Bank of Canada, plus the estimated maintenance fees for the condo, plus its portion of the estimated real estate taxes.
Here is an example of how these “pre-registration” rental costs are calculated:
Purchase price :$200.000
Deposit paid to the builder: 20% / $40.000
The remaining balance due to the builder : $160.000
Interest to the builder for this remaining balance. Builders typically take the 1 year Mortgage interest rate posted from Bank of Canada. So if the interest rate is 3.75% it would be
$160.000 x 3.75% = $6.000/12 = $500 monthly
Additionally you have to pay condo fees, let’s say $200 monthly and property taxes, calculated based on the purchase price and the property tax rate, 200.000 x 0.08 = $1600 a year – $133.33 monthly.
The occupancy fee will be $500 + $200 + $133.33 = $833.33 monthly until registration is complete.
A “condominium” is not technically formed until it is mostly all lived in and passes the approval processes that allow it to be registered with the Land Registry Office. Only then can the title of your suite be transferred to you.
As High-rise condos are under construction the lower floors are finished well in advance of the upper levels. Once the interior is complete residents of the lower floors can move in and the approvals process begins once the first suite is occupied. As the filing for registration begins each unit within the condo building must be properly described and recorded at the land registry. In the case of a condo with 300-plus suites, it is much like registering a small housing subdivision. The registration period can take anywhere from 3 months to 2 years after the initial interim occupancy begins. The hard average is between 4 and 8 months after people begin to move in.
Registration occurs after the Condo building has passed all the city inspections and gone through all the processes to become a legal entity. During the registration period, condo ownership is transferred to the buyer. The mortgages come into effect and buyer is officially recognized as the condo owner.