Buying pre-construction can be a way to get into the market at today’s prices and spread your down payment over time. But it comes with unique risks that resale buyers don’t face — construction delays, changing mortgage rates, occupancy fees, HST surprises, and the possibility of closing on a unit worth less than you paid. Here’s everything you need to know.
How the pre-construction buying process works
| Stage |
Timeline |
What Happens |
| Purchase |
Day 1 |
Sign the Agreement of Purchase and Sale (APS), pay initial deposit |
| Deposit installments |
Months 1–24 |
Pay remaining deposits per the schedule (typically 15%–20% total) |
| Cooling-off period |
10 days (Ontario condos) |
You can cancel without penalty during this period |
| Construction |
2–5 years |
Developer builds the project |
| Pre-delivery inspection (PDI) |
Before occupancy |
Walk through your unit and note deficiencies |
| Interim occupancy |
Varies (condos) |
Move in but don’t own yet — pay occupancy fees |
| Final closing |
After registration |
Title transfers, mortgage funds, you become the legal owner |
Deposit structure
| Payment |
Timing |
Typical Amount |
| Initial deposit |
On signing |
$5,000–$10,000 |
| First installment |
30 days |
5% of purchase price |
| Second installment |
90–180 days |
5% of purchase price |
| Third installment |
365 days |
5% of purchase price |
| Fourth installment (sometimes) |
540 days or on occupancy |
5% of purchase price |
| Total deposits |
Over 12–24 months |
15%–20% of purchase price |
Example: $600,000 pre-construction condo
| Payment |
Amount |
Running Total |
| On signing |
$5,000 |
$5,000 |
| 30 days: 5% |
$30,000 |
$35,000 |
| 180 days: 5% |
$30,000 |
$65,000 |
| 365 days: 5% |
$30,000 |
$95,000 |
| Total (15.8%) |
$95,000 |
— |
Deposits are held in trust by the developer’s lawyer. If the developer goes bankrupt, TARION (in Ontario) protects deposits up to $20,000 per unit.
Mortgage considerations for pre-construction
| Factor |
Details |
| When you need the mortgage |
At final closing, not at signing |
| Rate lock |
You cannot lock in a rate years in advance — you get the rate available at closing |
| Qualification |
You must qualify at closing based on your income, credit, and debt at that time |
| Stress test |
The stress test rate at closing applies |
| Interest rates |
Could be higher or lower than today — a significant risk |
| Pre-approval |
Get pre-approved before signing to confirm you can likely qualify, but this is not a guarantee |
The interest rate risk
| Scenario |
Today’s Rate |
Rate at Closing (3 years later) |
Monthly Payment ($500K mortgage) |
| Rates fall |
4.50% |
3.50% |
$2,495 → $2,245 (saves $250/month) |
| Rates stable |
4.50% |
4.50% |
$2,495 (no change) |
| Rates rise 1% |
4.50% |
5.50% |
$2,495 → $2,763 (+$268/month) |
| Rates rise 2% |
4.50% |
6.50% |
$2,495 → $3,044 (+$549/month) |
A 2% rate increase on a $500,000 mortgage adds $549/month — or $32,940 over a 5-year term. This is the single biggest financial risk of buying pre-construction.
Interim occupancy (condos only)
In Ontario, you may move into your condo before the building is registered with the land titles office. During this period, you pay occupancy fees instead of mortgage payments.
| Component |
Approximate Monthly Amount |
| Interest on the balance owing |
Varies (based on purchase price minus deposits) |
| Estimated property tax |
~$200–$400/month |
| Estimated maintenance/condo fees |
~$300–$600/month |
| Total occupancy fees |
$1,500–$3,500/month |
You do not build equity during interim occupancy. You are essentially renting your own unit from the developer while the building completes registration. This period can last 3–18+ months.
HST on pre-construction homes
| Property Type |
HST Included in Price? |
HST New Housing Rebate |
| Condo (Ontario) |
Usually yes (builder includes and claims rebate) |
Up to $24,000 (if primary residence) |
| Detached house (Ontario) |
Sometimes — always confirm |
Up to $24,000 (if primary residence) |
| Investment unit (not primary residence) |
Builder usually includes HST |
You must repay the rebate ($24,000+) |
| Townhouse |
Varies by builder |
Confirm in writing |
HST rebate clawback risk
If the builder claimed the HST new housing rebate on your behalf but you do not move in as your primary residence (e.g., you rent it out immediately), the CRA will require you to repay the rebate — up to $24,000 in Ontario.
| Scenario |
HST Rebate |
| You move in as primary residence |
Rebate applies — no issue |
| You rent it out from day one |
Must repay rebate to CRA ($24,000+) |
| You assign the contract before closing |
May have tax implications — consult an accountant |
Assignment sales
| Factor |
Details |
| What it is |
Selling your purchase contract to a new buyer before closing |
| When it happens |
During the construction/pre-closing period |
| Developer consent |
Usually required — check your APS |
| Assignment fee |
$3,000–$10,000+ (charged by the developer) |
| Profit |
Difference between your purchase price and the assignment price |
| Tax |
Assignment profits are fully taxable — may be treated as income (not capital gains) |
| HST on assignment |
May be applicable — consult a tax accountant |
→ See: House Flipping Taxes in Canada
Risks of buying pre-construction
| Risk |
Details |
Mitigation |
| Construction delays |
1–3+ years beyond the estimated completion date |
Budget for delays; don’t rely on a specific move-in date |
| Interest rate changes |
Rates could be significantly higher at closing |
Stress-test your budget at higher rates before signing |
| Financial situation changes |
Job loss, income change, or new debts before closing |
Maintain stable employment and avoid new debt |
| Unit differs from model |
Final unit may have different finishes, views, or layout |
Review the APS carefully — the model suite is not a guarantee |
| Developer bankruptcy |
Rare but devastating — deposit protection is limited |
Research the developer’s track record; TARION protects up to $20,000 in Ontario |
| Market decline |
Property could be worth less at closing than you paid |
Have a long-term plan — don’t rely on immediate appreciation |
| Capping of condo fees |
Developers set initial condo fees low; they rise significantly after the first year |
Budget for 30%–50% fee increases after the first year |
| Deficiencies |
Quality issues discovered at PDI or after move-in |
Document everything at PDI; TARION warranty covers structural defects |
Pre-construction buyer checklist