How to Buy Vancouver Condo Presales 3 | Disadvantages & Risks

The Disadvantages and Risks of Buying a Pre-Construction Condo in Vancouver

In Episode 2 of How to Buy Vancouver Condo Presales, we talked about the advantages of condo presales for Owner/Occupiers. In Episode 1 we discussed the advantages of pre-construction condos for investors in Vancouver.

Be A Presale Condo VIP!

Find Out About New Presales & Get Access to VIP Openings & Special Promotions!

Are you a realtor? Click here

  • Reload
  • Your Privacy is important to us. View our Privacy & Data Collection Policy.

  • Should be Empty:

Today we’re going to discuss the disadvantages of pre-construction or presale condos in Vancouver for both investors and owner occupiers and what to watch out for with this kind of property.

Rights and Obligations with Presale Condos

When buying pre-construction condos Vancouver in Vancouver, its easy to overlook the potential negative aspects of this type of purchase or investment (especially for first time home buyers!)

Purchasing a presale condo is not the actual physical purchase of a tangible property. Its actually a contract for  the right to receive and obligation to pay for a finished condo at a set point in the future, irrespective of market conditions or the buyers financial situation.

What are the Risks & Disadvantages of Presale Condos in Vancouver?

If you’re thinking of buying a presale condo in Vancouver its also important to be aware of the potential risks and negatives (for some people) which could include the following:

  • HST/GST and PTT is payable on Presales! – Yes! GST/HST is payable on all new properties in British Columbia (and GST!) and when a presale property completes HST/GST is due. Do keep in mind there are rebates on both the HST/GST and Property Transfer Tax. To get a clear idea as to how much tax will be payable on a presale, I have a great New Home Tax Calculator for BC.
  • Buyers Can’t Back Out If Market Falls! – If real estate prices in Vancouver fall and the value of the presale condo at the time it Completes is below what was originally paid for it, the Buyer is still required to complete! The Buyer cannot back out! If the Buyer does back out on the purchase of a presale, very bad things can happen that involve lawyers, courts, judges, and lots of money spent. Make sure if you’re buying a presale, you’re 100% certain that you can complete on it!
  • No Guarantee of a Mortgage! – In most cases, it is possible to get a mortgage on a presale property. BUT there is no guarantee. Consult with your lender, bank, or mortgage broker before purchasing a presale. Check out this great video on Mortgages and Presales for more info.
  • Buyers May Not Get Exactly What They Paid For! – In the contracts to buy presales (which are drafted by the Developers and are not the standard Contract of Purchase and Sale), Developers protect themselves in the fine print, just in case this happens. Make sure to buy fro a reputable Developer (Contact me for more info on this!) and read the contract for the presale in detail and don’t be afraid to have a lawyer review the contract!
  • Buyers have to Wait and be Patient! – We live in a society of instant gratification. With presale condos, in most cases, the finished product is not usually ready for at least a year and sometimes to up to 4+ years from when the presale is purchase. Very often, especially when there are a lot other buildings being constructed, pre-sold buildings do not complete on time and completion can be delayed significantly. I bought a presale several years ago that was completed a year late and I was required to rent a property for several months. These delays are common can make planning difficult and it is advisable to have alternatives planned in advance.
  • NO GUARANTEE OF PROFIT! – Making money from investing in condo presales in Vancouver has been very popular. In many instances, investors have made significant profits from investing in Vancouver presale condos. In a rising real estate market, presales can be profitable, but there is no guarantee of profit as there is no guarantee prices will rise and if the market falls, the buyer is still required to complete on the presale. (see above)
  • Difficult to Sell the Presale Before Completion (Assignment of Contract) – In the absence of a rapidly rising real estate market, condo presales can be difficult to re-sell (known as an assignment of contract) as Developers will often not allow the buyers of presales to assign (sell) their presale until the developer has sold out the development. Furthermore, Developers will very often put significant restrictions on the marketing of assignments, including not allowing them on Realtor.ca
  • Leverage Can Work Against You – Real estate prices go up, but they also go down, If the value of the presale condo goes down below what you paid for it, you still have to complete on it (see above) and you cannot back out. If you need to get a mortgage on a presale condo that is completing and it is worth less than you paid, you may have to find the money to make up the difference between the contract price on the presale condo and the actual market value of the condo when it completes. Be sure when you are buying a presale condo to always consult with a mortgage broker or lender to see about getting a mortgage on the property if prices go down.

Remember Folks! When you’re looking to buy a presale condo in Vancouver ALWAYS consult with your Realtor, Lawyer, Accountant, and Mortgage Lender!

Looking for New Vancouver Presales?

Check out this great Vancouver Presale Map!

Curious about How Much a Realtor Charges to Sell a Property?

Check out My Video on Vancouver Real Estate Commission Calculator!

Feedback

  Comments: 4

  1. Mathieu Powell


    Half of your negatives apply to any property purchase, and instant gratification should never be an aim when a person is making one of the largest purchases of their life. Finally, getting your mortgage in place and discussing the purchase with your lawyer should be a go-to before ANY purchase. I don’t find you article very compelling.


    • Hi Mathieu,

      Good to hear from you.

      I’m sorry to hear you don’t find my article compelling.

      Perhaps some of the other content on my site might be of interest?

      Thanks!


    • I for one found this article to be quite helpful and informative.

      I have to say I don’t agree with Mathieu’s comment on going to a lawyer and getting a mortgage in place being a must beforehand. First there’s the fact that a mortgage approved today is not applicable to the one needed 18 months+ down the road when completion occurs. For some a presale may make sense as they may have the downpayment now, and will be ready and able to get a mortgage a little further in the future. Personally I would always have a fall back, and would always advise others to do the same.Just like life though, you can’t guarantee anyone will be in a situation where they are still able to continue their mortgage a couple years down the road.
      Some people also like to just see whats out there without going through a whole mortgage application and if they find something in a presale you have the 7 day rescission period (I learned that from one of your other articles Mike:), even in regular home/condo purchases you can always put ‘subject to financing’ so I don’t find the process of being preapproved necessary for everyones situation.

      Many people invest in presages and plan a quick flip, in this case your points/info on developers rules on contract assignment are really important things to know about.

      I wanted to touch on difficulty of getting a mortgage on a presale. Getting pre approved is one thing (that with a presale will probably expire anyway), but I was wondering if you could explain this to me Mike, why is it that its so difficult to get a mortgage on a presale? Is it because the bank needs a finished product to mortgage, so they have something tangible to sell in the case you default on your mortgage?
      That was a interesting point you made about how a potential market plummet could have you in a position where your market value is now lower than the purchase price. Especially right now, this is something to really think about. Is it just all the negative possibilities as a whole that could occur in the period until completion that make getting mortgages difficult (like fluctuating markets, personal financial situations changing etc) ?

      I also enjoyed reading the section on assigning contracts, checking to see if the developer allows it, what stipulations they put on it etc. Many people (myself included) have invested into a presale because you can put a deposit down, not have to get into a mortgage for a couple years (or however long depending on completion), or for some people, ever, if they plan on assigning BEFORE completion. So its also interesting and appealing to many that you can potentially buy a property and sell it without ever having a mortgage. It is of course, as you said, very important to be prepared to close just in case you need to.

      I am curious about a couple things
      -I see what you were saying about how we live in a world where we expect things to be ready when they say they will (our ‘instant gratification’ mindsets) and I am waiting on a condo myself that is a few months behind, this is important for people to know, because apparently they run behind quite often, and its difficult to plan around that, so what is the maximum amount of time developers can push back completion?
      -Where and how does property transfer tax come into play on presales? On the calculator it says I owe ‘X’ amount in dollars, but then other places it says there is no transfer tax on new condos can you clarify this for me please?

      Thanks for the article, I personally found it very informative. I’m definitely going to be going over my contract with a magnifying glass tonight to look for this ‘fine print’ you spoke about, I suppose anything would be too late, but I’d rather find out now:)

      Natalie


      • Hi Natalie,

        Good to hear from you.

        Thank you for the very well written and reasoned contribution and kind words!

        Here are some answers to your questions:

        -I see what you were saying about how we live in a world where we expect things to be ready when they say they will (our ‘instant gratification’ mindsets) and I am waiting on a condo myself that is a few months behind, this is important for people to know, because apparently they run behind quite often, and its difficult to plan around that, so what is the maximum amount of time developers can push back completion?

        Depends on the project as there is not a set rule. The exact time can be seen by looking in the Disclosure Statement for the project. Give me a call if you need help finding it as it can be buried in legalese.

        -Where and how does property transfer tax come into play on presales? On the calculator it says I owe ‘X’ amount in dollars, but then other places it says there is no transfer tax on new condos can you clarify this for me please?

        Confirm with an accountant, but PTT is typically payable upon registration at the Land Titles Office.

        What are your thoughts?

        Thanks again for the great comments and questions!

Your feedback