Ron Bragagnolo REC Canada Team Pre Construction

How COVID-19 Is Impacting Pre-Construction Properties

Sunday Apr 12th, 2020


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.

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