What is a presale?
Presales generally refer to developments being offered for sale prior to completion of construction (Presales can be offered prior to start of construction and/or during the construction period). Examples in Victoria include the Bayview Promontory, Mondrian, Era, and Sovereign.
What are the advantages to buying a presale?
– The main advantage would be the potential increase in value prior to the completion of construction. Essentially, you put down a deposit (5% to 20% depending on the development) and hope to watch the value increase before you complete on the condo. During this waiting period you typically do not have to take on a mortgage, strata fees, or property taxes. Example, in the summer of 2009 I personally purchased a 533 sq./ft. south facing unit at the834 (Chard Development) for $198,900. On completion (end of November, 2011) the condo was worth approximately $240,000 to $250,000 with a similar BC assessed value. My deposit was only 5% or less than $10,000; therefore, you can see that the return on investment was very attractive at the834.
– Brand new home – there is an appeal to a lot of buyers to move into something that has never been lived in before.
– Latest in construction, design and technology. For example, the Bayview Promontory has a well-designed kitchen with a built in TV (yes, the TV is included), and the Sovereign has a car elevator and pretty awesome rooftop area.
– More choice of units, floor plans, floors, etc. Early on during pre-sales is also when typically the units with the best pricing/value are bought.
– The construction period can allow many first time buyers to save more money for the down payment prior to completion, and it can give retired buyers enough time to prepare for the downsize from a larger home.
What are the disadvantages to buying a presale?
– The main disadvantage would be the potential decrease in value prior to the completion of construction. For example, you enter into a contract to buy a presale for $300,000 and on completion it is only worth $270,000. Prices don’t always go up with pre-sales so buy carefully!
– Delays in construction: most presale contracts have delay clauses which allow the developer to be up to a year late (varies with contracts) on the estimated completion date. So, you might buy a pre-sale with an anticipated completion date of 2014 and it might take until 2015! Time delays can occur due to whether, labour shortages, supplier problems, inspection problems, etc.
– Your deposit is out of your pocket. Although it is protected by the Real Estate Development Marketing Act you have opportunity costs (you could potentially invest your deposit instead of having it locked up for up to 3 years while you wait for completion).
– Changes in floor plans, finishing, etc. The disclosure statements are generally very broad the developer typically reserves the right to change appliances, vary the floor plan size by a small amount, etc. For example, in the disclosure it will typically specify that every unit or certain units come with a storage locker; however, the size of the storage locker may not be specified. In this type of scenario you are at the mercy of the developer – and hopefully they have a good reputation