How COVID-19 Is Impacting Pre-Construction Properties
As of Friday, the provincial government has decreed that construction will be halted for all of Ontario. What was considered an essential service is no longer deemed so in order to prevent the spread of COVID-19. This has left many investors concerned at the state of upcoming residential projects and the future of the real estate market.
Residential projects that are about to begin or are far in development will be put on hold until the concerns of the pandemic have subsided. Buildings that are nearing completion are currently allowed to continue until they are finalized, with some stipulations. The property must have an above-grade structural permit, any and all construction work has to have started before April 4, and residential homes have been granted a footing permit.
The Residential Construction Council of Ontario is aware that dropping projects now will have a noticeable impact. The constantly evolving market and contractual obligations put heavy stress to continue development, but the security of the workers is definitely the priority. This only exacerbates the housing crisis in the Greater Toronto Area. We are seeing 35,000 homes being built on a good year, when we need at least 50,000 to keep up with demand. It remains to be seen what precisely the impact will be.
It's possible that contracts will have to be amended, as a global pandemic is an unforeseen event resulting in unknown effects. There are deadlines with construction projects that may have to be extended regardless of what the contract stipulates. It's likely penalty-less delays will happen, all depending on how long this pandemic continues for. The majority of pre-construction condominiums in Ontario are sold with Tarion, which has a clause allowing builders to extend the closing date due to unavoidable circumstances. The maximum return allowed to the purchaser is $7,500, which may not apply due to the unique case of COVID-19. Since isolation is declared a necessity by the World Health Organization, it's possible for them to present that as justification for the delay. Unless stated, purchasers do have the option of approaching the builder about compensation if the deadline is passed.
There are certain things that those waiting on pre-construction should be aware of. We can justifiably expect a delay until construction gets back to normal within the next couple months. Even when construction can continue, there is the strong potential of attaining supplies being a struggle. It's possible the builder has a cancellation clause, allowing the project to be terminated without having to pay the purchaser penalties; while having the deposit returned in full. It's also possible that the project could receive further delays due to purchasers having issues making their payments, resulting in the construction not receiving the required financing. Projects over a year in development are likely the most secure, as most of the financing has been provided and construction is already well on it's way. Developments that are still in their earliest stages have the biggest concerns, as they could be delayed years if they have yet to receive the necessary permits.
If you've already purchased, it's extremely likely a mild delay will be your biggest concern. With any project right now, having an alteration in the occupancy date is a possibility. Utilizing a lawyer would be wise if you have issues with the legality of the agreement. Ensure that you get one that specializes in this variety of real estate, and not a general practitioner. If your concern lies with the market value depleting, the appreciation will inevitably rise as all real estate inevitably does.