Over the years, any real estate investor has preferred investing in pre-construction houses to buying a brand new house. This trend is fueled by how convenient these projects are to buyers and developers.
Despite other limiting factors such as the risk brought about by this housing plan, recent studies show a steady increase in pre-construction prices over the last few years. This is a buying a condo in Toronto guide designed to help you understand why and how to make informed decisions if you invest in a pre-construction home.
1. Rising Demand
There is a rising demand for pre-constructed houses. These units give buyers the convenience of owning a home at a relatively lower price. Also, they get to have a say in how they wish the house to look like when the project gets completed.
These are not the only reasons investors today opt for pre-constructed homes. Pre-buyers enjoy lower purchase prices and discounts, no mortgage till completion, extended deposit structure, and many more.
Generally, the pre-constructed homes offer more convenience, especially financially, but have a higher risk. Nevertheless, they are among the best condos to buy in Toronto for those who find it hard to afford a home because of increasing prices. These are the main reasons why there is a huge demand for these units.
Developers then take advantage of the imbalance in the market, which leads to an increase in the prices of the pre-constructed houses. However, the rise is not that significant as they are still keen to keep the pre-buyers attracted to their project.
2. Customized Deposit Structure
This is the reason why many reasons developers are charging more for pre-construction houses. Various home developers have different deposit structures they offer their clients. Most of them require a full deposit of 15 to 25%.
These figures might seem unaffordable to some, which is why some companies modified this plan and now offer a split deposit structure. In this new plan, a client can pay 5% on the first signing and another 5% for the next two years. After three years, the total comes to a 15% deposit.
The modified plan sounds less stressful, affordable, and convenient. However, the developer has to charge more for both parties to benefit from the bargain.
This flexibility period may start from when the project begins to its completion. The developer here gives his client enough time to raise the deposit and more. These modified plans vary with different companies, but they all give a chance to the client to lock in the house and have more time to save for the full payment.
The payment schedule becomes comfortable for the buyers through affordable payments. However, the developer also needs funds to ensure the effective running of the project and includes these expenses in these payments. The result is a higher price for the pre-construction house.
3. The Home Value Appreciates
A known fact is that a pre-construction house appreciates every day. Therefore, the house prices rise significantly when the project begins to be completed. This way, the price of a pre-construction home done ten years ago is way lower than an identical one today.
Each time you purchase these houses, you get a home that has a significant market value than what you paid for.
The main reason behind the appreciation of these pre-construction houses is the huge demand in the market. Looking at historical data, the prices of these homes improve significantly.
Real estate is still one of the fastest-growing investment sectors. With these impressive numbers, the developers tend to increase the prices for potential buyers.
Developers involve real estate analysts who help project the future value of their planned project upon completion. They then use this information to create a budget and plan to ensure the planned projects are completed successfully and in time.
The significant increase in the future value of the pre-construction house corresponds to an increase in its price.
4. Minimal Down Payment Requirement
One of the main reasons the pre-sale homes are cheaper is because the pre-buyer takes on some of the project risks from the developing company. If the developers were guaranteed that the prices would surely go up, this agreement might not exist. As a result, the developer offers a minimum down payment for interested parties to buy and lock in their preferred units.
Real estate investors understand that if you choose to buy a pre-construction house, you get to enjoy even lesser rates when buying a condo in Toronto with no down payment. Therefore, these investors choose to buy at these lower prices to enjoy the future benefits when they sell the home after completion.
The investors know the best place to buy a condo in Toronto and resources about these investments. As a result, they tend to make the first move, and since the down payment is relatively low, most of them end up locking in more pre-construction units.
Developers know these strategies where investors make huge profits from their projects. To regulate these practices, they tend to increase the prices of these pre-construction homes to manage the future price range.
5. Quality of Materials Used
Another reason you’ve been noticing an increase in house prices is the quality of materials used today. As a result, home projects have been experiencing an increase in the cost of essential building materials such as wood and timber.
To make profits, the developers have to charge more for their units, even pre-construction. This is a technique they use to distribute the expenses for the planned project to get completed successfully.
Also, there are growing concerns about the environment, and governments worldwide are implementing tighter measures to conserve the environment. But unfortunately, this makes it hard for the developers to acquire various building materials, especially wood.
This might lead the developing companies to consider other ways of acquiring the material, such as importing them from other countries. The result is an increase in the budget, which leads to higher prices of the pre-constructed homes.
Recent reports indicate that the prices of steel rising over the past years. Developers also confirm that any stuff made out of metal ore increases by the day.
The materials used for building and construction ten years ago are not the same as today’s ones. Also, the interior and exterior designs vary significantly. Today, developers use quality, modern, and stylish building materials.
For instance, nowadays, developers don’t use any wood as before. Today, there are new forms thanks to the highly engineered wood products. Also, people prefer the more diverse stone forms that cost more.
This is another case for other building materials such as steel and plastic. The better the quality of these materials, the more it costs the developers to acquire them. Therefore, this chain of events results in an increase in pre-construction houses over the years.
6. Equipped with The Latest Technology
It is a fact that pre-construction houses will have better and more improved features than the current homes. This is a strategy developers use to ensure that their units remain appealing and attract clients in the future when the project gets completed.
Therefore, it is essential for developing companies to equip their units with the latest tech. Furthermore, they must consider the latest technology to acquire the alarm systems, cable wiring, speaker systems, and other electric devices.
We have seen in the past companies exporting high-tech appliances from other countries like China. However, technology is improving rapidly, and what we might call high-tech today might not be the case tomorrow.
Because of the new inventions and rising high-tech prices, developers often spend more today than they could have spent on a similar project five years ago. This then leads to a corresponding increase in the price of the pre-construction house.
Also, the house designs and styles are always changing. People nowadays prefer open floor plans, walk-in closets, a large eat kitchen, and other fancy customizations. All these cost money and time, leading to an increase in the house price.
A good example is the heated bathroom floors. The cost of buying the floor heating systems and warming tiles is more than the standard floors used today. This then causes an imbalance, and the best way to remedy it is to increase the price of the pre-constructed unit.
7. Customizable House Designs
Another benefit of investing in a pre-constructed house is the possibility of customization. Developers are willing to build your unit exactly according to your specifications. As much as they have a basic plan, the pre-buyer gets a say on how they want the overall outlook of the home.
Pre-buyers take advantage of this opportunity to create a unit that makes them feel at home. Others improve the home’s value, such as including a vast range of upgrades in the houses’ interior and exterior finishes. Real estate investors maximize this chance to avoid costly renovations later.
All these customizations are not cheap. However, it is a fact that we are constantly redefining comfort, and what seems comfortable today might not be a few years to come. This makes people think of new and better ways to comfort their homes.
This is why you’ll find people choosing exotic color pallets and appliances since the developer does everything for them. However, don’t forget that the developing company wants to profit from the sale of their units. Therefore, the cost of making these customizations gets slapped to the pre-buyer.
As much as they charge clients more, both parties win from the customizations made. The pre-buyer gets to build a unit according to their preferences at a relatively lower price than if they were to do them themselves. The developers get to satisfy their clients’ needs, complete their projects successfully, and maybe get an impressive rating.
8. Brand New Home
Every pre-buyer knows that they will be the first occupant of the unit they choose to lock in. In that case, they will be the first to enjoy the available amenities while they are still new. This means they get to enjoy the best service and environment the project will offer.
Unlike other purchases such as resale flats or condos, the pre-construction unit satisfies your urge to live in a brand-new house. You will incur low maintenance costs as almost everything will be functioning properly as you live there. During this period, the pre-buyer will spend almost nothing on home repairs.
For this to be the case, the developer must ensure everything is perfect, from the quality of materials used to artistry. As a result, they spend more as they create this unit that will be new and still appealing to the investors. This leads to an increase in the price of the pre-constructed unit.
9. Minimal Bidding Wars
Developers have created a safe and secure space where pre-buyers get peace of mind by purchasing the specified unit for a specific price. This price considers several factors such as the lot size, recent sales data, and floor level. All these actions save pre-buyers from engaging in bidding wars that often outprice the buyers.
These bidding wars occur because builders tend to inflate the prices of resale houses based on the current market performance. Over the years, these rates have been registering a general upward movement. This means that the buyer has to do much bidding to get a favorable price.
There is usually a set price for pre-construction houses, making it easier to create a budget. However, the convenience offered by the developers tends to lead to an increase in the price of the unit.
10. Hands Off
Unlike owning real estate, buying pre-construction condos in Toronto gives you a short grace period during the first 3 to 5 years when the construction is passive. This is a good time to buy a condo in Toronto as you get more than enough time to eye on other important areas, and the house is not a concern. This way, the developer takes the burden off the pre-buyer.
For some reason, if the pre-buyer still doesn’t feel like moving to their new home, there is an option where they can assign the unit to another buyer. This is also an assignment, as the pre-buyer is not selling the unit.
The advantage of these agreements is that the pre-buyer can sell the unit once it appreciates. Many experienced investors use this strategy to profit by selling the pre-constructed home without even holding a mortgage.
This creates a win-win situation for the pre-buyer and the client interested in the unit. The pre-buyer makes the profit on the house, and the client gets paid way less than the current market price.
What about the developers? The developer can only benefit from such arrangements by increasing the unit price in question. This then contributes to the general increase in the price of the pre-constructed house.
Developers must constantly ensure that their projects align with the changing environmental rules. This almost guarantees that their future projects are energy-efficient and sustainable construction.
A few years ago, companies used techniques that led to increased waste during construction and after completion of the units. There was a trend where they would carelessly dump the waste in pits and other neglected areas.
That is not the case as the developing companies are fully responsible for any waste on the construction site. There are strict rules today that involve eco-friendly measures such as recycling waste.
These rules and regulations require the developers to consider their waste management plan before the project begins. In addition, these programs require the company to spare more money to be on the safe side.
As it seems hectic, proper waste management allows the developers to make more accurate constructions, better air ventilators, and tighter joints. This leads to improved wall insulation and a corresponding increase in energy efficiency.
12. Availability of Options
Pre-buyers get the opportunity to choose their ideal home before other buyers. As a result, they are the first to access the plan and choose the best location for their units. Take, for instance, a developer working on a big flats project. Pre-buyers tend to choose units on the ground, first and second floors since they are easier to access.
As the project continues, these options become limited, and the other buyers are forced to buy what is left. The convenience of choosing the ideal unit during pre-construction has also played a part in the increasing prices of these units.
Investing in pre-constructed houses is becoming a popular trend because of the many benefits and the convenience it offers the pre-buyers. However, research shows that there is also a trend in the increasing rate of the prices of these homes.
This article is an in-depth review of these trends as it explains why the prices are constantly showing an upward trend. Please read it to learn more about pre-constructed homes and use it to make more informed decisions.