Presale

What is a Presale?

Presales are strata developments sold by a developer prior to the completion of the building. They can be either residential or commercial units. In order to purchase a presale unit, a partial deposit is required upon writing, with the remaining deposit balance spread over a length of time. Deposits are held in a trust account until the building is completed. Once the deposit is paid in full, the remaining purchase price will be due upon completion of the building. Deposits differ across developments, and can range from 10%-35% of the purchase price. If a purchaser wishes to withdraw from a presale, cancellations are possible as long as they are completed during the rescission period. It is advised to seek legal counsel when purchasing real estate.

Over the course of the project’s development, there will be amendments to the disclosure statement. These are additions or revisions to the original disclosure statement. Some developments allow the purchaser to “assign” their newly purchased presale once a reasonable length of time has passed, in accordance with the terms of their contract. An “Assignment” is selling one’s contract to another person or company prior to completion. The assignment is sold “as is” with no changes unless the developer approves them. The new purchaser will take over the contract with any additional upgrades or discounts that are in the contract. This means the following: if there is a discount, the end user will receive it. If the contract has upgrades, the end user will be responsible for paying for them. The end user will also have to pay all closing taxes, including GST, PTT, and lawyer fees, etc. It is advised to consult an accountant to learn more about these additional fees.

As project completion nears, there are a few steps to be taken in preparation for the closing of the unit. Financing can be done through a mortgage broker/ Bank prior to the completion. The developer and/or marketing company will also arrange for a walk-through of the unit with the purchaser to ensure there are no deficiencies. You will meet with your lawyer or notary to finalize the last documents. Once these steps are complete, the final step is to move in.

How can presales make you money?

Presales are purchased before the completion of a building. Depending on the height and complexity of the building, the project may take anywhere from 2-5 years to complete. During the years of construction, the real estate market inevitably changes, weathering typical rises and falls. However, as our economy grows, market trends consistently show the demand for homes rises and the cost of living increases. All of these factors mean that buying into a development project early has real advantages. With these market trends in play, when you buy presales, their value tends to only increase over time, typically making them more affordable now (in the current market) than when they reach completion (in the future real estate market). As a result, presale purchasers can also make a profit when they sell assignments. In fact, they make their profit based on only the money they put down for their deposit. That’s a great investment for a short period of time.

If the purchaser decides to sell after completion, the value is, in many cases, worth even more. Some buyers like to touch and feel a finished product, making the value from time of purchasing to selling even stronger. To optimize the presale’s value, it is crucial to take into consideration the unit type, square footage, and location, etc. Most importantly, early access is always better.


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