Knowing some of the basic concepts can make it a much more pleasant and rewarding experience. A condominium is a building where the apartments, known as residential units, are individually owned whereas the common areas such as the lobby and hallways are owned by all the unit owners in common. Typically, in downtown condominiums, parking spaces and lockers are also owned as separate units as well.
A new condominium building is governed by the Ontario New Home Warranty Program (ONHWP) which insures the deposits given by the buyer to the vendor up to $20,000 and provides guarantees for the various building warranties. Prescribed excess deposit insurance must be provided by the Vendor or deposits over $20,000 must be kept in a trust account.
The Condominium Act creates a comprehensive regime to protect the homebuyer. The vendor is required to deliver to each buyer a Disclosure Statement explaining all of the significant features of the Condominium. The Disclosure Statement includes a draft declaration which is the basic constitution of the condominium, the proposed first year budget and various by laws and agreements which the Vendor expects the Condominium to enter into upon its creation.
A condominium purchaser is entitled to rescind the agreement of
purchase and sale within 10 days of signing the agreement, receipt
of the condominium documentation or receipt of notice of any material
changes to the Condominium documentation.
The Condominium Documents set out, in Schedule "D", the
percentage interest that each unit in the Condominium owns in the
common elements and also the percentage that the unit must contribute
to the condominium’s annual budget. The first year budget spells
out what costs the Vendor expects the condominium to experience in
the first year after its registration. The level of service which
the project is marketed should be reflected in the budget and is
most easily understood by figuring out how many cents per square
foot are the common expenses on a monthly basis. Purchasers will
see what utilities are included in the budget and which utilities
will be separately billed. Other highlights of the budget are the
number of hours of concierge service, the amount of cleaning, cost
of amenities, building insurance, and the cost of garbage pickup.
The budget also needs to provide a reserve fund to repair capital
assets from time to time and sufficient funds to conduct a technical
audit and a reserve fund audit.
The Agreement of Purchase and sale contemplates that the purchaser takes possession of the unit when it is substantially complete and fit for occupancy. The occupancy period lasts from the day that the purchaser takes possession until the condominium is registered. During the occupancy period, the purchaser pays a fee to the vendor called the occupancy fee which essentially reflects the costs of carrying the unit as if the transaction was completed and actually owned by the purchaser. The occupancy fee equals the estimated realty taxes, common expenses and an interest factor on the portion of the purchase price not yet paid.
Once the Condominium is registered, the vendor may legally convey legal title to the purchaser who then can register a mortgage on the unit whereby the mortgage company will advance the mortgage required by the purchaser to complete the purchase transaction. Once most of the units have been completed, the Declarant calls a turnover meeting at which time a permanent board of directors are elected and who begin to manage the condominium on behalf of the homeowners.
Financing Your Condominium Purchase
The downtown Toronto condominium market has recently enjoyed several of its most buoyant years on record as sales and condo prices have risen at record levels. Purchasing a home is one of the largest investments many of us will make. Here are some points to help you make the decision that is right for you:
Renting vs. Buying? A major reason for the Toronto housing market
being strong is an unprecedented extended period of low interest
rates. The tight rental market, low interest rates, steady construction
and condominium sale prices have all combined to create an environment
which makes it cheaper to buy then to rent your home.
Deteriorating stock prices and low bond rates have convinced many
former renters what experienced financial advisers have been saying
for a long time. The best investment you can make is to own your
home. Over long-term periods, home prices have always increased so
that your equity in your home is constantly increasing as you continue
to live in it. Furthermore, a continuously increasing portion of
your mortgage is being applied to principal repayment so that, typically,
after 25 years, you could end up owning your home free and clear – a
real retirement benefit. And best of all, gains in the value of your
home when it is your principal residence is free of capital gains
tax. Compare that to 25 years of renting and what do you have to
show for it?
Is this the right time to buy?
The condominium market has been strong for some time now. Prices have risen and the rise in construction has finally created an increased vacancy rate in Toronto. Does this mean that you “missed this cycle”?
Clearly, nobody has a crystal ball but if you believe that inflation is inevitable, increasing home prices is usually a good bet. Nobody can ever figure out the absolute best time to buy. However, the earlier you get on the bandwagon and invest in your own home, the more time you have to build up the equity in your home as part of a good comprehensive retirement/investment strategy.
What can I afford and how much will it cost to carry?
The key is to figure out how much you can afford and obtain a good capped rate mortgage commitment from a bank so you know how much your home will cost. An experienced salesperson at the sales office will help you do the math. Make sure you consult your lawyer or the sales person to help you calculate your closing costs and what your carrying costs will be based on your mortgage commitment. Your monthly costs also includes realty taxes and common expenses. Ask what are included in the common expenses, specifically in terms of utility costs.
