Oct 23, 2008; Tips For Potential Buyers of
Pre-Completion or Pre-Sale Housing...
With the recent increase in financial volatility and tightening
credit conditions, buyers of pre-completion or
pre-sale housing should exercise extra caution before
entering into a Contract-of-Purchase-and-Sale.
The danger of not taking extra pre-cautionary steps before
entering into a pre-completion agreement could result in
increased risk exposure to your deposit(s) being held-up and your
moving schedule being delayed.
Before buying a pre-completion or pre-sale property, you should
research the Developer extensively… just some of the questions you
should be asking (in no particular order) are;
How many other developments does the Developer have under
construction?... and if the Developer has a large number of
other projects under construction, does the Developer still have
the equity and access to capital to build-out all the projects
as per their original schedules?… does one or more of the
Developers other projects present a "high risk" that could
potentially result
in a negative spill-over effect into the Developers other
projects?.
Has the Developer recently purchased the development site(s) at peak prices?... if so,
measure the various risks associated with the project going forward on
schedule... IE: how much unsold similar inventory remains on the
market in the immediate
neighborhood, construction financing risks,
the banks pre-sale requirements (which may have changed
recently), the Developers equity/debt exposure
in other developments.
Is the Developer building a large number of real estate
developments in the United States?... if so, that Developer may
be having difficult financial issues on their US developments
(given the very difficult US real estate market conditions)
which could have a spill-over effect into the Developers overall
equity & financial solvency,
including its Canadian operations.Has the Developer obtained
a significant portion of its financing from the recently failed
US investment bank Lehman Brothers Inc?... if so, be careful,
as we've already seen the Infinity development in Surrey incur
serious financing & construction problems due to its financing
arrangement with the now bankrupt US investment bank Lehman
Brothers Inc.
Does the Developer own a number of revenue properties?... if so,
that Developer may be in a much better financial position to
meet construction deadlines, especially if that Developer owns a
large number of revenue properties that were purchased many
years ago when the properties were considerably cheaper,
providing they are currently encumbered by little debt.
In this market, even highly liquid & solvent Developers
(those that need little or no financing) may opt to delay
construction dates on planned developments, simply because of
the overall market conditions… they may simply choose to wait
for more favorable market conditions, costs, and improved
consumer sentiment.
The bottom line is; you should be extra cautious when buying
pre-sale or pre-completion housing in the near-term. |
