In this newsletter we ask, ‘Why does it take so long for most new condominium developments to be completed?’ Although Buyers are often given an 18-month timeline from the day they sign the Agreement of Purchase and Sale, they frequently find themselves waiting well past that, with growing frustration. Why is that? In a previous edition, Understanding the Development Process - Part 1, urbaneer examined some of the contributing factors. In this newsletter, we continue exploring steps that, if improperly navigated, can wreak havoc on a new project’s timeline.
Building and Planning Approvals and Documentation
Once a developer has secured a site, the developer will formally move into capital expenditure and hire the appropriate consultants to create the project. This includes preparing all architectural, landscape and interior design programs, mechanical, structural and plumbing drawings, environmental reports, all planning and government agency approvals, building permits, draft condominium status and all legal contracts including the Agreements of Purchase and Sale. This is when the developer starts ponying up the cash for the city’s development fees and levies, including construction permits, development charges, art contribution, park and education levies.
Launching the Site in a Pre-sales Capacity
When the project is initially launched to the market, the developer’s main objective is to achieve around 70 to 90% of his pre-sales in advance of construction, which is frequently a requirement of the principal lender. As a result, the unit mix, style and configuration are carefully considered in tandem with proposed sale prices to promote quick sales. In today’s marketplace, a developer may be prepared to narrow his profit margin initially to achieve the necessary pre-sales then follow a series of price escalations through the construction program. It is appropriate that prices would be higher for a completed product and initial risk takers rewarded for purchasing in a pre-sale capacity, where one is required to purchase from floor plan, choose from a selection of finishes, and sign a contract that provides delivery as long as three to four years in advance.
A major challenge for developers is getting enough pre-sales to begin construction and expedite the building’s completion. This is where the first pre-sale purchasers can find themselves waiting an extended period of time to take ownership of their unit. Although in an ideal world a condominium could be built within 18 months of reaching sufficient sale targets, lagging sales, a shortage of construction trades, or delays getting building permits can slow down a project. Most all developers account for these possibilities in their Agreements of Purchase & Sale, which typically allow for a delay of up to 18 months on attaining planning and financing approvals, a further delay of up to 18 months for construction, and an additional delay of up to 18 months for the condominium to be registered as a corporation through the city so the buyer can take title ownership of the suite.
Taking (Interim) Occupancy
Many buyers of new condominiums are unaware that closing on their suite is a two-step process (Interim occupancy followed by formal ownership and registration of your mortgage on title). Interim occupancy is determined when the suite is deemed 95% complete (meaning it may still not have appliances or lighting fixtures etc.) at which point the purchaser must “occupy” the unit and pay the developer a monthly amount (monthly common expense, interest on the deferred purchase price and an estimate of the apportioned realty taxes). This takes place when the municipal authority issues the developer permission to begin occupancy. The occupancy fees paid to the developer during this period are not credited to the final purchase and the only way to avoid paying interest on the deferred amount of the purchase price is by electing to pay the full amount of the purchase price on interim occupancy. It is important to understand that a mortgage cannot be secured on the occupancy date.
The final closing occurs when the developer can legally register the condominium declaration and transfer title to the individual unit purchasers. This date can occur at any time after interim occupancy, and is generally anywhere as soon as three months to as long as eighteen months. Only upon final closing will a buyer be able to secure a mortgage, as this is when title will be delivered.
It is common during the pre-sales program to advise Buyers they can expect to occupy their suite within 18 months if everything “goes according to plan.” Unfortunately, plans rarely unfold perfectly. This sales-based unbridled optimism is not neccessarily deceptive, but it is unrealistic given the number of variables and conditions that have to be met.
Sometimes, a purchase is all about patience and calculated restraint. If you’re buying something which isn’t easily available or replicated by virtue of its location, space plan, features or quality of life, then it may well be worth the wait to get that Dream Home. Otherwise, exploring already completed resale condominiums may be a better alternative.
Do you have questions? At urbaneer.com, we’re here to guide you through your real estate needs, wishes, and wants, including purchasing a new condominium, or finding the perfect resale space that is ready for occupancy when you are.
In case you missed it, check out Understanding the Development Process - Part 1 here!
We’re here to earn your trust, then your business.