Squamish is constantly expanding and has seen a rise in new construction over the last few years. Many projects are now complete, but there are hundreds of units still under construction, with many more proposed over the next decade.
Pre-sale purchases have made a lot of sense with property prices increasing steadily and purchasers realizing large gains in very short periods of time. However, the market is constantly changing and while there is still a lot of new construction, lending has tightened and interest rates have risen. So, if you’re considering whether to buy a pre-sale or a re-sale, there are a lot of things to consider.
For the last few years, even after paying GST, the price of buying a pre-sale property was comparable and even lower than that of buying an existing property (re-sale). However, this is not always the case anymore and pre-sale properties have seen substantial increases in price in comparison to resale.
Previously buyers interested in pre-sale were anticipating price appreciation during the construction period, however, with prices expected to remain fairly flat in the next few years, short term price appreciation doesn’t necessarily make sense as an investment strategy for both pre-sale and re-sale.
Pre-sale purchases often require an up-front deposit of 20%, commonly paid in two parts over the course of a couple of months. With re-sale properties there is no specific amount required for deposit and this figure can be negotiated between the buyer and seller, but can be as low as 5%.
Closing costs, which include costs beyond the purchase price of a property, are paid by the buyer and differ between pre-sale and re-sale. Both require property transfer tax (1% on the first $200K and 2% on the amount $200K- $2m) and lawyer fees, however pre-sale transactions also incur a 5 percent GST charge – something which is not required on a re-sale.
There will always be far fewer ongoing costs when buying a new construction and the property will generally be covered under a warranty for a certain period of time. The property will also tend to be more efficient and have lower running costs compared to an older home.
Maintenance, repairs, and running costs of a re-sale will always add up, depending on the condition of the property you have purchased. This area can become very costly if you haven’t done your research or ensured a thorough home inspection prior to purchase.
Interest Rates and Financing
The last decade has seen some very low interest rates, however, these are now increasing. One risk of buying a pre-sale is having to secure a higher rate when it comes to the property’s completion down the road. These rates will also put pressure on property prices, so you will be paying more for your mortgage and will have less guarantee of price appreciation in the short term.
There are also new financing qualifications for buyers to consider, such as the mortgage stress-test, which has meant that fewer buyers are qualifying for a mortgage now. This may result in an increase in buyers selling their contracts prior to unit completion, which will boost the new construction inventory.
When it comes to negotiating there is more flexibility with re-sale properties in any market, and especially in a balanced or buyers market where activity is quieter.
Pre-sales are typically built by large developers and the purchase price is set and negotiation is generally not entertained.
Inventory levels are also worth considering when choosing between a pre-sale and a re-sale. In Squamish there are no longer many single-family homes being built compared to other property types. This means that these homes are more likely to maintain their value, especially compared to condos which will see an increase in supply over the coming years.
Making a Decision
Ultimately the decision will come down to what your buying objective is. Everyone’s situation is different and you must consider everything as it relates to you. For more information on buying a pre-sale or a re-sale property in Squamish, get in touch with one of our local Realtors.