Investing in pre-construction condos in Toronto might sound like a great idea at first, but let’s talk about why it might not be the best move for your money. As of now, there are over 200 active pre-construction developments in various stages, from planning to near completion. Despite high sales volume during the pandemic, the Toronto pre-construction condo market has slowed down by a lot. Right now, there are too many newly built condos sitting empty in the city because rental rates are prohibitively high, making it difficult for landlords to attract tenants. Many landlords are unwilling to lower their prices, as they struggle to cover their mortgage costs. 

High Prices and Overvaluation

First off, let’s talk about money. Pre-construction condos are usually priced based on what developers think they’ll be worth in the future, not what they’re worth right now. This means you’re often paying top dollar for something that doesn’t even exist yet. Imagine paying $1,400 per square foot for a condo when you could get a resale unit for around $1,000 per square foot. It’s like buying a car for what it might be worth in five years – not a great deal​. 

When buying a pre-construction condo, you might feel like you’re getting hit with hidden fees at every turn. Development levies, utility hookup fees, occupancy fees, and reserve fund contributions can add thousands to your final bill and take away from your expected profits. 

Construction Delays are Quite Common

If you think you’ll move into your shiny new condo in Toronto right on schedule, think again. Construction delays are pretty common and can stretch your timeline by months or even years. Meanwhile, you’re stuck paying occupancy fees – kind of like rent, but it doesn’t go towards your mortgage. They are to cover any additional costs the builder is incurring while completing the project. It’s frustrating and can really mess up your financial plans​. 

Even after the condo’s complete, the quality of your investment may not be satisfactory. If the developer has a bad track record, you could end up with a poorly built condo that’s worth less than you paid. It means you might not even qualify for a mortgage and would need to sell it for a loss. 

With so many new developments popping up, your unit might not stand out. If the market gets flooded with too many condos, it can drive prices down and make it harder for you to sell at a profit​. 

High Risk Investment 

Real estate markets can be as unpredictable as the weather. Economic downturns, rising interest rates, and global events can all impact the market. For example, in 2022, sales of pre-construction condos in Toronto dropped by 80% because of economic challenges and high interest rates​. 

Also, let’s not forget that one of the biggest downsides of buying a pre-construction condo is that you won’t see any cash flow until the condo is finished and you can either live in it or rent it out. This could be years down the line. If you’re counting on rental income to cover your costs, this wait can be financially draining​. 

Take what we’ve written with a grain of salt but if you’re falling short on down payment for a resale condo, wait for a few months and save that money. Don’t get involved in buying pre-construction condos in Toronto, especially as your very first investment.