Toronto Real Estate and Neighbourhoods Blog | Move Smartly

Leslieville News: The Pit at Queen and Pape

David Eakins in Toronto Neighbourhoods, Leslieville

"What's the story with the stagnating pit at the corner of Queen and Pape?" That's the question many residents have been asking as it has been months since there has been any sign of activity at the site of the Film Studio Lofts. What's baffling about the abandoned project is that for the past three years there has been a sign posted at the site proudly proclaiming that the project sold out and occupancy would start in Fall 2007.

Well as many of you probably already guessed nobody is going to "live in the spotlight", at least for now.

A little investigative blog-ism, which included calls to the city, a conversation with a purchaser of one of the units, some extensive Googling and a call to Councillor Fletcher's office, and I've pieced together the story - past, present and future.

Buyers overpay builder for estimated taxes

Bob Aaron in Legal, Condo Buying Tips

In 2005, Stuart signed an agreement to purchase a condominium unit for $326,900 in an upscale 20-storey project not far from the Annex area.

He was able to take possession of his unit early in 2008 and final closing occurred on Aug. 12, 2008.

On Stuart's closing, as with every other real estate transaction, the seller's lawyer prepared what's known as a statement of adjustments. The statement is used to calculate the unpaid balance of the purchase price due on closing. In addition, it allocates adjustable items like tax bills between the parties as of the closing date.

As set out in the purchase agreement, the builder adjusted 2008 taxes with Stuart (and the other 215 owners) on the assumption that it would pay all of the taxes for the year of closing when the bills were issued.

On this basis, the builder would be responsible for 222 days of taxes (to Aug. 12), and Stuart would be responsible for the remaining 143 days of the year.

But since the actual 2008 tax bills were unknown at the time of closing, the builder estimated the taxes and adjusted with the purchasers on the assumption that the taxes had been (or would be) paid.

On the builder's closing statement of adjustments, the 2008 taxes were estimated at $3,970.

But when the city finally issued the 2008 tax bill in January 2010, it came in at only $2,107.92. As a result, the builder had over-estimated the 2008 tax bill by a staggering $1,862.08.

Devil is in the details

Bob Aaron in Legal, Condo Buying Tips

Terry is a 23-year-old public servant, having recently graduated with a bachelor of commerce degree.

He is ready to buy his first home, and came to my office last month to review a 33-page offer prepared by the builder of the condominium tower where he wanted to live.

As we sat down to go over the form, I explained that my function was to highlight the legal red flags in the agreement, and not to attempt to encourage or discourage him from buying the condominium.

By the time he left my office an hour later, Terry was thoroughly disillusioned.

"This is unbelievable," he told me. "I was lied to."

Terry thought he was buying a 665-square foot one-bedroom unit in a highrise tower for $267,500. It turns out that the agreement contained no guarantee of unit size and the price he would eventually have to pay for the unit was considerably higher than the price written on the first page of the offer.

Some of the nearly $20,000 in extras buried in the small print were:

7 Reasons Why Toronto's Condo Market is on Solid Ground

John Pasalis in Toronto Real Estate News, Condo Buying Tips

Toronto’s condo market is on solid ground according to a recent research paper published by Scotiabank Economics.  Toronto’s condo market is the one segment of the real estate market that industry watchers are keeping an eye on because it’s believed to be the most vulnerable.  With over 36,000 condominiums currently under construction, there is a risk of an oversupply once these condos are completed.  But Scotiabank economist Adrienne Warren concludes in her report that the risk of an oversupply of condos which would result in a broad decline in prices is low.

She gives seven key reasons for this conclusion:

Fewer Condos under Construction
The number of condo apartment units under construction has fallen for four consecutive months. 

Residential Construction Intentions are down
The number of new construction permits being issued is on the way down as well.  The weak sales environment in the new construction market means that far fewer building permits are going to be issued over the next few years.

Increase in Cancellations Expected
They expect to see an increase in the number of pre-construction condominium projects getting cancelled due to poor sales and a tightening of credit.  Many of these displaced buyers are expected to re-enter the housing market. 

Builders should be upfront about extra condo charges

Bob Aaron in Legal, Condo Buying Tips

Last week I had the opportunity to review a condominium builder purchase agreement with a couple of clients. They had been told in the sales office what they thought was the total purchase price and asked me to see if there were any surprises in the 39-page offer.

The salesperson had failed to mention that the price on the front page was not the final one and that there were a great many extras not included in that figure. I went through the offer with the clients, pointing out many such items.

The more I talked, the unhappier they became. I provided them with a long list of items classified as extras to be paid on closing in addition to the purchase price:

• The unit's proportionate share of the cost of installation of gas, hydro, sewers and water service and meters, to an unlimited amount.
• Any new taxes imposed on the unit by any level of government after the agreement was signed (think HST) – also an unlimited amount.
• The Tarion warranty enrolment fee of $502.
• An unlimited levy against the unit for parks or other municipal charges.
• Provincial sales tax on the appliances included with the unit.
• An extra $300 for the paperwork to hold the purchasers' deposits in trust.
• $150 to discharge the builder's construction financing and give clear title after closing.
• The builder's $52.50 transaction levy payable to the Law Society.
• $150 to subsidize the builder's legal fees.
• Interest on the balance of the purchase price from the day of final closing to the next banking day.
• The amount of any increase in municipal, education or transit development charges imposed between Oct. 10, 2008 and closing.
• An unlimited contribution to the builder's proportionate share of all costs associated with a development agreement entered into with the city.

The total cost of these extras could easily exceed $10,000 to $20,000. And since they are classified as extras or "adjustments," they are typically not eligible for mortgage financing. Not one of them was mentioned in the sales office.

Buying a New Condo: Get a Better Deal

Rachel Loizos in Legal, Condo Buying Tips, Home Buying Tips

There are a myriad of complexities that potential purchasers can encounter when entering into new condo deals. Based on the current state of the lending market, buyers are wise to be concerned about the implications for the financing of their prospective project. Consider that most condo projects require that at least 60% or more of the units be ‘pre-sold’ in order to guarantee financing. Without demonstrated buyer interest, projects will fail to qualify for financing and the project will fold.

Market uncertainty, however, offers possible opportunities. Consumers are encouraged by the developers through a variety of means to buy into construction projects early. Typically these inducements will be in the form of lower ‘first-in’ pricing or extras in the way of free or reduced upgrades and the like. This is because those first entrants will ultimately face the greatest risk – the risk that not enough units will be sold and that the project will be dropped. They will also wait the longest to have somewhere to live while their money is tied up in the project. 

Until the developer can guarantee its financing, it will be trying to attract as many buyers as possible. This means that pre-construction projects, those that are at the greatest risk for financing issues, offer the some of the best bargaining opportunities.

Consumers must ensure that all dealings with the builder are in writing. It will simply not be good enough to rely on the verbal assurances of the sales staff. This is where the benefit of the 10-day rescission period will come in; make sure that you take your agreement and any amendments to your lawyer for review before the rescission period expires.

Once you have your negotiated agreement, remember that buying new construction can be fraught with issues and delays. One doesn’t have to be facing a failed project to be disgruntled with buying new. As one example, the frustrated buyers of the 11 Christie Street Condo project are so incensed, one purchaser has started an online forum.

Rachel Loizos is an associate lawyer at Sotos LLP in Toronto. She practices in the areas of real estate, corporate and commercial law, estate planning and administration.

Email Rachel

Photo Credit: Let's Make a Deal and Daily Commercial News

Interim Occupancy Fee aka 'Phantom Rent'

Rachel Loizos in Legal, Condo Buying Tips, Home Buying Tips

In his recent article, Condo Buyers should prepare for ‘phantom’ rent, Terrence Belford of the Globe and Mail highlights an issue confronting purchasers of new condominium units; the often unexpected cost of carrying your condo before you own it. This period of time, known as the interim occupancy period, requires that unit purchasers pay the monthly cost of their unit (common expense fees, property tax, and interest on the unpaid balance of the purchase price) to the developer.

In a previous post, New Condominium Interim Closing, I discussed this process. Once the building is ready to be occupied, determined by the municipality by way of an Occupancy Certificate issued to the developer, the HomeBuyers can move in. The HomeBuyer does not yet own the unit – ownership can’t be conveyed until the final registration of the unit is complete. The HomeBuyer is effectively renting the space from the developer. This has been referred to variously as a ‘phantom mortgage’ or ‘phantom rent’.  Whatever you prefer to call it, the result is the same. Payments will be made to the developer until the units are registered, however long that may take. Unfortunately, developers have very little control over the process as registration involves having each unit properly described and recorded in the land registry system.

The largest part of the interim occupancy fee or ‘phantom rent’ is the interest on the unpaid balance of the price of the unit. As an example, if the purchase price for your unit is $300,000 and you have paid $50,000 in deposits at the time of interim occupancy, this means you still owe $250,000 to the developer to buy your unit. Roughly, interest at 6% on this unpaid balance will result in a monthly payment of $1,250. That amount is strictly interest on the unpaid balance owing, it does not include the estimated common expenses or the estimated realty taxes.

Toronto Condo Market Is Oversold, Developer Says

John Pasalis in Toronto Real Estate News, Condo Buying Tips

In May of this year the Canadian Mortgage and Housing Corporation (CMHC) released an optimistic report on Toronto's condominium market.  They raised some concerns about the share of condominiums currently under construction that are owned by investors.  Here they concluded:

As projects complete, some of these investors will choose to sell their apartments in order to take advantage of increases in market value which occurred during the construction period. These increased sales are not forecast to result in declining values for condominium apartments.

CMHC forecasted that condo prices would continue to rise in 2009.

Despite their positive forecast, I still had a few concerns about Toronto's condo market so I invited CMHC's Senior GTA Market Analyst Jason Mercer to answer a few questions for our readers.  One of my principle concerns was that Toronto's condo market is oversold which means that the condo market might have two negative factors working against it, a decrease in demand and an oversupply of units.  You can read our full interview here.

In yesterday's Toronto Star Brian Johnston, President of condo developer Monarch had this to say about Toronto's condo market:

I think we've definitely oversold the market.  The question is whether all these buildings are still going to be built a few years from now. I think you're seeing a real possibility that some won't be going up.

Buying a New Construction Condo in a Slowing Market

John Pasalis in Toronto Real Estate News, Condo Buying Tips

The past ten years have been kind to home buyers and real estate speculators who invested in pre-construction condominiums in the Toronto area.  Purchasers who bought in the early stages of a new condominium were able to realize a significant return on their investment by the time their condo was completed. 

Long lineups of purchasers eager to buy early before prices went up were a staple of new condo openings during this decade’s condo boom.   When the Tannery Lofts sales office opened in 2004, the sales team would ring a cowbell to inform the lineup of waiting purchasers that prices had just been jacked up.  The height of the condo madness was reached when realtors began paying students to wait in line outside the sales office of 1 Bloor, up to a week before the sales office opened.

For too many years there has been an underlying assumption among many condo purchasers that you can’t lose when buying a new construction condo.  The assumption is that if you buy early enough, you are virtually guaranteed to make a significant return on your investment by the time your condo is completed.  This underlying belief about the condo market reminds me of something I read from economist John Kenneth Galbraith recently.

It’s another feature of the speculative mode that, as time passes, the tendency to look beyond the simple fact of increasing values to the reasons on which it depends greatly diminishes.

Buying a New Condo Based on the View can be Dissapointing

Rachel in Condo Buying, Legal

Buying a condo, especially pre-construction, can set you up for disappointment when your expectations aren’t met by what is delivered.  Recently, I have had several calls from concerned buyers with the same problem – the view they were expecting did not materialize.

Delving further, I realized that these home buyers had purchased their units, usually on a higher floor of a building, exclusively for the sake of the view.  Of course, not everyone’s expectations were the same.  I spoke to people who were anticipating a lake view, while still others wanted city scapes.  In all cases, what these buyers wound up with was a view of the glass surface of yet another building.  Many of these buyers felt betrayed, particularly because units on higher floors usually have heftier price tags – but the extra expense was justified because of the payoff, or so they thought.

Others before me have written again and again that buyers should be wary of the glossy sales office of the pre-construction condo.  The developer is selling an idea, a dream that has not yet come into fruition.  As much as the developer wants (and wants you) to believe in the skillfully rendered images they put forward, there is really very little control they could exercise over the development landscape.  If some other builder gets approval for a 30 floor building just south of your 12th floor unit downtown, chances are good that your highly anticipated lake view will be compromised.

If the only reason you are attracted to a particular unit is the view, you may want to consider that it will be very difficult to predict the future landscape of an ever-changing city.

Rachel Loizos is an associate lawyer at Sotos LLP in Toronto. She practices in the area of real estate law.
Email Rachel

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Related Posts:

Ask a Lawyer: Condo Conundrums

New Condominium Deposits

New Condominium Interim Closing

Condominium Conversions