When you’re in the market for a pre-construction condo in Canada, it’s important to consider the closing costs in your total buying budget. These costs, often overlooked by buyers, can impact your budget and are usually hidden when introducing the project. However, when you work with the right pre-construction specialist, they will inform you about these costs right away.
Through this guide, we hope you have a better understanding of what you can expect in terms of closing costs for pre-construction condos in Canada.
What are Closing Costs?
Closing costs are the additional expenses you pay at the end of a real estate transaction. Unlike resale properties, these costs for new construction condos can be quite distinct and often higher. It’s important to understand these expenses to avoid surprises when your condo is ready for occupancy. Majority of these costs are development levies, followed by land transfer tax, and HST.
1. Development Charges and Levies
Development charges are fees that the municipality levies to cover the cost of infrastructure and services like roads, public transportation, and parks. These charges can vary depending on the location of your condo. For example, in Toronto, development charges can range from a few thousand to tens of thousands of dollars. Some developers in Ontario add cap to these charges, which is clearly mentioned in the pricing structure. On the other hand, some developers in Alberta completely cover these costs.
2. Land Transfer Tax
In Canada, buyers must pay a land transfer tax when they purchase a property. The amount varies by province and sometimes by municipality. For example, in Ontario, the land transfer tax is calculated as a percentage of the property’s purchase price, with higher rates applied to more expensive properties.
3. HST (Harmonized Sales Tax)
Newly constructed condos are subject to HST but there’s a way to avoid paying a portion of it. The New Housing Rebate allows buyers to recover a portion of the HST paid, subject to certain conditions, which include:
- New condo is situated in Ontario and will serve as the primary residence for either you or your spouse/common-law partner
- To get the federal rebate, the total purchase price of the new condo should be $450,000 or less. If it is higher, you are still eligible for the provincial rebate.
4. Tarion Warranty Fees
In Ontario, new condos come with a warranty provided by Tarion, which the condo buyer is supposed to pay for. It protects buyers from builder bankruptcy, delayed closing, and construction defects.
The warranty coverage spans up to seven years, with different aspects of the home covered for varying durations. For example, the first year typically covers almost all defects, the second year covers plumbing, electrical, and heating systems, and the remaining years cover major structural defects. While not substantial, the cost adds to the total closing costs.
5. Utility Connection Fees
Utility connection costs involve setting up essential services like electricity, water, gas, and sometimes internet and cable services. A rough estimate for total utilities connection costs for a new condo could range from $2,000 to $20,000 or more. You might also have to pay additional costs to local authorities to start the connection.
6. Legal Fees
You will need a lawyer to handle the legal aspects of your condo purchase. Legal fees can vary, but it’s important to budget for this expense.
7. Other Costs
Other costs can include mortgage loan insurance, if your down payment is less than 20% of the purchase price, property insurance, and adjustments including prepaid property taxes or condo fees that the builder has already paid.
Budgeting For Closing Costs
A general rule is to allocate 1-4% of the purchase price for these expenses. For example, on a $500,000 condo, you should budget between $5,000 and $20,000 for closing costs. Consult with your realtor and real estate lawyer during the cooling off period to understand these expenses.
If you’re looking to consult with a trusted real estate agent, reach out to Catherine Nacar for all questions related to pre-construction condos in GTA.