Incentives. Flexible deposit structure. The opportunity to customize your living space from the ground up. There are many benefits to buying a pre-construction (pre-con) condo. But there’s also one aspect of purchasing these units that can make some buyers a bit hesitant, and that’s interim occupancy.
Most buyers who are considering pre-construction have heard the term “interim occupancy” at some point, but there’s a lot of confusion about what it means. In this post, I’ll define the concept—and help you understand how it could impact your condo purchase.
What is the interim occupancy period?
If you’re like most prospective condo buyers, you probably think that once you buy a unit, you own it. Not so with pre-construction. You can’t own a condo until it exists—and (for all intents and purposes) it doesn’t exist in Ontario until it’s been registered with the Land Registry system.
While you’re not able to take ownership of an unregistered condo, you can take occupancy as soon as it’s fit to live in. This means that for a while, you’ll have the right to move into a unit that you don’t yet own. This window of time is what we in the business call the interim occupancy period.
During this period, your new building probably won’t be completed. Builders will likely be working on parts of it like the amenities after you move in. Developers will also be taking steps to ensure that every unit gets registered. This process takes time—three to six months is fairly typical, though it can last longer. In some cases the building or some units can go directly from interim occupancy to registration, which would be ideal.
You should be aware that during the interim occupancy period, you’ll be charged monthly fees. Here’s an idea of how much you can expect to pay.
Phantom rent: understanding fees
I get asked a lot about “phantom rent.” It’s a scary sounding term—one that stresses some potential buyers out. But really, we’re just talking about the fees you’ll be paying during your interim occupancy period.
Generally, these monthly fees are about equal to the interest on the amount you still have to pay off on your condo (your full purchase price minus your down payment).
Let’s say you buy a condo that costs $600,000, and you put 20 per cent down. You’ll have to pay the interest on $480,000. The interest rate you’ll pay is whatever the Bank of Canada determines to be the interest rate for one-year mortgages.
Where does your money go? During your interim occupancy period, developers need to pay property taxes, operating expenses, and the loan that financed your building’s construction. Let me stress the fact that for developers, these costs are non-negotiable—and you’re not alone in having to pay them.
Is pre-construction worth it?
There’s no way to get around interim occupancy fees. It’s also impossible for developers to pinpoint exactly how long you’ll be paying these fees, since they don’t know how long your interim occupancy period will be until the process is well underway.
Given these facts, is pre-construction worth it? In my opinion, the benefits of purchasing these units far outweigh any potential inconveniences. I can’t tell you how many first-time condo purchasers I’ve worked with who have saved a bundle by going the pre-construction route. As a rule, these buyers were also thrilled to take advantage of builder incentives—and the opportunity to select their own custom finishes.
Whether to opt for a pre-construction or resale condo is a personal choice. It will depend on your circumstances, preferences, and expectations. But if you do decide to buy a unit that hasn’t been built yet, choosing the right developer can take some of the uncertainty out of the process. In most cases, the more experienced a developer is, the less likely it is that unpleasant surprises will pop up. A Realtor who knows the pre-construction landscape in Toronto will know which developers are reputable, so be sure to work with a professional who has the right industry experience.
Want to know more about pre-construction? Send me a message and we can book a no-pressure information meeting. I look forward to meeting you!
