WHAT ARE VIP PRECONSTRUCTION CONDO SALES? IS ALL THE HYPE JUSTIFIED?

By: CLAUDIA VECCHIO

WHAT ARE VIP PRECONSTRUCTION CONDO SALES? IS ALL THE HYPE JUSTIFIED?

Tags: Preconstruction, Toronto Real Estate, New Condos

Perhaps you have been invited to VIP condo sales or you have even bought units at one of these
events, but you might still be wondering what they are all about.
 
Pre-construction condos are sold in stages.  First of all, builders need to sell a certain percentage
of units in order to get the funds from the lender to start construction. To be able to sell a
sufficient number of units to quickly meet the lender’s requirements and start construction, 
builders need to make the condo project attractive.  The VIP broker sale events are destined to
fulfill this purpose.  The event usually takes place one only evening or on a week-end day and a
limited number of agents, experienced in condo sales, is invited to bring their clients for a first
pick of units and to benefit of special incentives and/or attractive sale price reductions.
 
Once the builder has sold the required number of units at the VIP event, which almost always
happens in Toronto and in fact there are usually more buyers than unit allocated for the event,
then the doors are opened to the general public. Buyers will then not only have a more limited
selection, as the best units have already been sold, but also will have to pay more for similar
units as builders generally raise their prices after the VIP events.
 
Therefore, the advantage of buying at VIP preconstruction sales events are far from negligible:
 
1. You have first selection of units, floors, exposure etc, so you can buy the most desirable
units that will also bring in more rent, if you buy to rent out. In any case better units will
always translate in a higher resale value.
 
2. You will often enjoy a price reduction of thousands of dollars, as the builder usually
increases the prices after the VIP events. Other financial benefits offered at VIP events
may be consist of a cash rebate, a free locker, capped levies, or special upgrades.
 
3. Additional incentives of VIP sales can consist of low assignment fees or even free
assignment which allows you to sell the agreement of purchase and sale for the condo to
another buyer before the condo building is registered. This is particularly interesting in
times of rapid real estate price increases as you can cash in your profits anytime before
the condo is registered or even completed.  
 
Does all that mean that deals can be made only at the VIP Sale events? Absolutely not. Buying
preconstruction condos (and houses)offer, for its own nature, potential for great returns as you
capitalize on real estate price increases from the moment you buy and the moment your condo
(or house ) is completed. Furthermore, builders sometimes release later on unsold units with
special incentives.
 
One question frequently raised is: should I buy preconstruction condos or resale?
 
This depends on your needs. If you need to move in within a short period of time, you would
definitely look at buying resale as preconstruction condos  are put for sale two or three or years
before construction is terminated and occupancy possible. However, if for instance you are
buying for investment purposes speculating on the increase of Toronto real estate prices,  then 
the longer it  takes for the condo to be completed the better might be the return on your initial
investment. If, for instance, you have put down $100,000 on a $500,000 unbuilt condo that will
resale at completion for $650,000, you will have a net gain of over $100,000. You have more
than doubled your original investment before even talking possession of your condo, without
having spent a dime on utilities, property taxes, maintenance or mortgage and you did not even
had to deal with tenants. This is absolutely a worry free and maintenance free investment! That is
why busy professionals and savvy investors are heavily investing in preconstruction condos,
purchasing units at the VIP sale events to benefit from lower prices and incentives.
 
Hypothetically prices could remain stationary or drop between the time you buy and the time
your condo unit is completed. In these cases you should be prepared to rent out your unit until
the prices rise and you can cash in your profit.  In Toronto, prices may stabilize in the short term,
but will inevitably continue to rise over the medium and long run as Toronto real estate prices
have a long way to go to catch up with real estate prices of other major financial world capitals.
 
In any case the best way to proceed is to work with a knowledgeable real estate agent
experienced in real estate investments who can clearly explain you the different real estate
purchasing options and direct you, if this is the way you decide to go, towards  VIP
preconstruction condo projects that  have more potential and are more suitable to your financial
objectives.