What to Consider When Investing in a Pre-Construction Condo

When condo shopping, there’s a host of benefits to going the pre-construction route.

It’s no surprise, then, that pre-construction condos are an enduringly popular choice for investors interested in a dependable product backed by strong market fundamentals. And the everyday homebuyer certainly stands to reap those same benefits.

“I think the benefit of going pre-construction condo is a-few-fold,” says Carlo Timpano, President of Toronto-based residential developer Capital Developments. “Generally speaking, you get a newer product that has exposure to higher quality green standards, higher quality building code standards, and, frankly, better quality technology in the build — both in terms of what we would consider technology within a suite, but build technology as well, generally leading to a higher quality and more durable product.”

However, Timpano cautions that a wise investment hinges not only on the quality of the condo product itself, but also on the players involved in its development.


Work with a reputable development team

Any real estate investment comes with risk, but when it comes to a pre-construction investment, some of that risk can be mitigated by working with a reputable developer.

“When you’re considering investing $0.5M, $1M in a condo, you want your developer to have developed condos before, you want to be able to go see the quality of the product that they’ve built, and you want to see a track record of condos that have sold and started construction with a limited history of cancellations,” says Timpano. “You can look at our track record, and that’s exactly what you see.”

He points to Azura — a new condo development at Yonge and Finch — as not only an example of a successful pre-construction project under Capital Development’s belt, but a testament to the benefits of working with an established, quality-focused developer.

“Azura, in particular, is a good example of where we actually upgraded the quality of the product after we’d sold out,” he says. “We overspent on the lobby glass, we put real hardwood in the amenity space, we upgraded all of the connectivity in our spaces mid-pandemic, we added work-from-home spaces, we added USB charging stations, we improved the Wi-Fi knowing that the people who are going to move in are more likely to be working from home.”

Azura party room (Gillian Jackson)

Take inventory of completed projects

While Azura certainly exemplifies one strong pre-construction investment, it’s important to assess developers based on consistency. This means taking stock of completed projects. Timpano suggests taking time to compare initial renderings to end results.

“Some of our purchasers have sliced our renderings in half and put them side by side with the end product,” he says. “With our West Block project, which we did on behalf of Choice REIT and Wittington, the rendering, you can slice it in half and it looks identical. You can do the same thing with the Azura rendering. So I would encourage buyers to look at what’s delivered versus what was promised.”

In addition, a strong developer will have projects in their portfolio that have stood the test of time. Buyers should look at projects completed five years ago or more, and find out if they’re in good financial standing and if they still have enticing resale potential. A good pre-construction condo investment will be able to show strong growth and return-on-investment potential over time.

Invest in a well-performing location

With any real estate purchase, (location, location,) location can make or break the investment. A good developer will have done their market research, leaving investors to reap the rewards.

“Invest in projects where you’re confident that the market exists and the purchase rationale is clear to understand,” says Timpano. “And that’s really the premise of our whole pipeline. We’re not creating new nodes, we develop in areas where there’s transit access, and where there are multiple types of future renters, be they downsizers or people who work in the area.”

In the case of Azura specifically, the area is well-served by highway access and high-order transit, and will benefit from the Yonge North Subway Extension, which will see TTC service expanded north from Finch Station to Vaughan, Markham, and Richmond Hill.

“When people look at Yonge and Finch as a node, it’s a very interesting node, because it is really the gateway to downtown and to North York,” continues Timpano. “There is a very robust group of people who strongly prefer to live in that particular node, and that’s reflected in the rental rates — Azura is as high as Yonge and Bloor, at nearly $5.00 PSF.”

He adds, “We don’t need to say, ‘trust us in seven years, this is going to be a great place to be.’ Where we build is where it’s already a good place to be.”

Know the current — and future — market demands

One of the advantages of investing in the pre-construction condo market is that buyers often get a say in details like suite layout and finishings. Bearing ROI in mind, it’s important to make choices that not only cater to personal preference, but also the demands of the current and future markets.

“We’ve seen an increase in demand for units with dens as people have started to work from home,” says Timpano. “And we’ve seen a very substantial increase in demand for three bedrooms. And that’s seen across the industry.”

He attributes this to affordability challenges. Given the increasing cost of living, people are more open to living with roommates.

“Wherever you have students, the demand for studios will be there,” he adds.

“But I imagine that the demand for two-bedrooms plus dens and three-bedrooms is going to increase over time because you can double or triple the rental potential with a 15-20% increase in cost versus a 1+den, if the unit is efficiently designed. In New York, San Fran, or London, as costs increased, occupant per suite increased, and sits higher than Toronto for new product.”

Cover image: Azura (Gillian Jackson) https://storeys.com/investing-pre-construction-condos/