What is a Pre-Sale (or New Construction)?
New homes sold before or during construction by a company or Developer are considered new construction or pre-sales. Pre-sales are a great option for investors or buyers with time on their side. Upon signing the contract of purchase and sale, a deposit (5-20% of the purchase price) is required to secure ownership. Additional instalment payments are expected throughout the duration of construction, as per contract.
Benefits of a Pre-Sale
Pre-sales provide first-time homeowners additional time to save money, allows for customization, and offers a brand new, never-been-lived-in home. First-time homeowners purchasing a pre-sale that are Canadian citizens or permanent residents may be exempt from Property Transfer Tax (PTT). For more information on available exemptions visit the following Government of BC website: https://www2.gov.bc.ca/gov/content/taxes/property-taxes/property-transfer-tax/exemptions
For investors, pre-sales reduce the amount of money being tied up, create property appreciation, and provide additional time to find a buyer or tenant, should the investor wish to rent or sell.
Although pre-sales offer numerous benefits, possible market value decreases upon completion, construction delays, deficiencies, and estimated strata fees should be taken into consideration. Here’s what you need to know about strata fees for pre-sale purchases.
What are Strata Fees?
Strata fees are monthly fees that homeowners of a stratified property (often a condo or townhouse) pay to the Strata Corporation for maintenance, upkeep of common areas, and savings for future expenses. These fees go towards services like waste management, landscaping, cleaning, building insurance, professional management, amenities, and repairs. The Contingency Reserve Fund (CRF) is a separate fund for capital expenses and emergencies that happen less than once a year such as roof replacement, painting, replacing mechanical systems, and other building upgrades or repairs.
How are Pre-Sale Strata Fees Calculated?
Strata fees are determined by the Strata Corporation’s annual operating budget. For pre-sale condos and townhomes, the Developer prepares an interim budget included in the Developer’s Disclosure Statement. A Strata Corporation’s total expenses are calculated by multiplying individual unit entitlement and dividing that number by unit entitlement of all strata lots. The larger the unit entitlement, the higher the strata fees will be.
Unit entitlement is based on the Form V submitted by the Developer at the Land Title Office. A surveyor looks at the size (square footage or square meters) of the unit before determining unit entitlement. A figure that correlates with the unit size is assigned to the unit and their share of common property.
Pre-Sale Strata Fee Costs
Strata fees differ by building. Monthly strata fees for a complex are based on the building size, amenities, items included in the budget, and the amount the Strata Corporation saves (CRF). Buildings with numerous amenities often have higher strata fees, as they require frequent maintenance and upkeep.
Strata fee changes are determined at the Strata Corporation’s Annual General Meeting (AGM). Annual strata fee increases are common to keep up with inflation and to increase savings. Before strata fee changes are set in stone, the Strata Council and Strata Property Manager/Management Company must send the budget to all owners in advance in a notice of AGM. At the AGM, homeowners approve and finalize the budget and changes.
At CENTURY 21 Prudential Estates (RMD) Ltd., our office specializes in residential Strata Management, Rental Management, and sales. We also offer services to Developers who need assistance with preparing interim budgets for new and upcoming buildings. The interim budget needs to be included in the Developer’s Disclosure Statement. We provide our Financial Plus or Full Service Strata Management Services for developers that are looking to engage with a Strata Management Company when their project is complete or nears completion. Find out how we can help you navigate the Vancouver Real Estate Market by contacting us or visit www.century21pel.com to learn more about our strata or rental management services.
