Student migration towards luxury condo towers in the University District creates a unique market pressure. Students are not interested in living within family subdivisions and converted student homes. They prefer high-rise buildings specifically built for the student lifestyle. Developments like ICON330 are literally built next door to the University of Waterloo. Sites like these are selling out years before the developments are even completed. This type of demand actually creates a secondary sales market. Just because the developer says the building is sold out, doesn’t mean an interested buyer can’t find other means to purchase a unit. Consider the following.
Savvy real estate investors (generally from Toronto) look for developments in the pre-construction stage that are likely to have high purchasing demand ie. (a student condo tower next door to university of Waterloo). During pre-construction, Builders will often offer purchasing incentives like free upgrades for premium views or a parking space. Such incentives can amount to 10-15k in the later stages of development. The initial deposits from the pre-construction sales are key in the early funding stages of the build. Once the Developer is able to get the project up and running, development loans kick in. Now the Builder can charge more for upgrades such as premium views, larger floor plans and parking. At this point the early investor is already seeing equity built into their investment.
Consumer interest in the project grows as construction begins, the development may even sell out. When a development sells out, pre-construction investors can capitalize on the opportunity to sell their unit at a profit to interested purchasers who have no other option. The early investor can add in the developer incentives they saved on in pre-construction, plus they might add an extra 5-10% to the original purchase price. Considering there would only be a few units available on this secondary market a purchaser may gladly pay this premium. The price may even be comparable to the Builder’s pricing in later stages of the development. As the development would not be completed yet, a purchaser would actually be buying a condo assignment.
A condo assignment is essentially the sale of the original agreement of purchase and sale between the investor and builder. The developer will generally need to provide consent for the investor to assign their unit to another purchaser at a profit. These deals can be complex and require professional assessment from both a legal and market perspective. Most Realtors will not be familiar with the condo assignment process, be sure to use a company like Benjamins Realty Inc where we can connect you with a seasoned negotiator who will either acquire a unit for you in a sold out building, or sell your unit at a profit before the building has even completed. For more information on this process or any real estate questions in general please Contact Us.