Caveat emptor when buying Victoria condos

Caveat emptor when buying condos

Consumers cautioned about perils of pre-purchasing condominiums

She got her $8,000 deposit back - with interest.

But while Andrea Kucherawy was waiting in vain for her Pandora Avenue condominium to be built, her chances of getting into the real estate market went from slim to none.

A teacher at a local photography school, Kucherawy purchased a unit in the ill-fated Bambu project almost two years ago. But early this year, developer Anthem Properties scrapped the project, citing rising construction costs, and refunded the deposits of close to 140 people who had pre-purchased units in the building.

In the interim, rising real estate prices have left first-time home-buyers like Kucherawy on the outside looking in.

"I have been so deflated since then that I haven't even been looking at the market," she said. "It was a real reality check to what I can afford."

While most new home buyers have traditionally opted for dwellings that have already been built, pre-purchasing has become commonplace in recent years and especially during the recent real estate boom.

Typically, the developer will pre-sell enough units to convince a bank or other lender to finance the project. In a volatile market, this reduces the developer's risk and, if all goes well, provides the buyer with a brand-new unit at price slightly below the going rate.

However, certain projects in Greater Victoria have either been scrapped or delayed due to rising costs, leaving buyers with money tied up in a half-finished building or, like Kucherawy, priced out of a market they could barely afford to begin with.

Scott Kendrew, president of the Victoria Real Estate Board, said it's crucial for home buyers to read all the paperwork carefully, especially when buying something that has yet to be built.

"We've advised our sales people to make sure people fully understand all the paperwork they've signed," Kendrew said. "You're buying something you can't touch feel or see, so there's a risk attached to that."

Most contracts contain a due date for the project after which the developer is obligated to provide a refund. Contracts can also contain important disclosure information about the project's financing and local government approvals, he added.

The increase in pre-sold dwelling units is due in part to changes in the province's Real Estate Act, that have loosened the rules around financial and technical disclosure, Kendrew said.

Casey Edge, executive officer of the Canadian Home Builders Association in Victoria, advises anyone interested in pre-purchasing a condominium to research the background of the developer.

"Find out who is building it, what's their history, are they a member of a professional association and for how many years," Edge said. "A condominium project is not like buying a house or a spec house because the expense the builder has put out is partly transferred to the buyer."

Another thing to be aware of is that there are no minimum education requirement to be a builder in B.C., leaving consumers to tell the bad from the good.

"A person that's a designated builder might not know anything about building science," Edge said.

That's advice Greater Victoria resident Holly Courtright could have used when she was looking at condominiums last year.

A University of Victoria employee, Courtright paid $190,000 to pre-purchase a suite near the Goldstream Avenue Tim Horton's outlet last year. Although the project "seems to be moving right along," Courtright admits she could have done a better job of due diligence.

"I'm just looking for an affordable place to live. That's why I went to Langford. It's just crazy, the amount of money that it costs," she said. "I know a lot of the developments in Victoria are not getting finished, but nothing was discussed with me as far as risk-taking. Being a first-timer, I didn't even think about it."

Often, locally based developers have a better track record and more direct access to experienced trades people, while out-of-town developers may have trouble finding qualified workers to build their projects.

"Developers in town tend to keep their sub-trades happy and the subs know these guys will be in town to build when the market cools off," Kendrew said.

By Brennan Clarke
Saanich News
Jun 28 2006