How Pre-Construction Buying Works in Ontario

Buying a pre-construction home in Ontario is fundamentally different from buying resale. The process is longer, more complex, and comes with unique financial structures, legal considerations, and risks that most buyers aren’t fully aware of going in.

This guide explains how it actually works — deposits, occupancy period, HST, assignment clauses, and Tarion warranty — so you can make an informed decision about whether pre-construction is right for your situation.

What Pre-Construction Actually Means

When you buy pre-construction in Ontario, you’re signing a contract to purchase a home that doesn’t exist yet — or is still being built. You’re committing today to a price, a unit or lot, and a set of specifications. The actual home may not be ready for one to five years, depending on the project.

This has real implications for how the purchase works, how your money is structured, and what your rights are during and after construction.

The Deposit Structure

Pre-construction deposits are paid in stages over the construction period — not in one lump sum at signing. The total typically ranges from 15% to 20% of the purchase price, though this varies by builder and project.

Importantly, your deposit money is protected. Pre-construction deposits in Ontario are held in trust and are protected by HCRA (Home Construction Regulatory Authority) deposit protection — meaning if the builder goes bankrupt or the project is cancelled, your deposit is covered up to the protected amount.

The Occupancy Period

This is one of the most misunderstood aspects of buying pre-construction condos in Ontario. When construction is complete, you may be allowed to move in before the building is legally closed — this is called the occupancy period.

During occupancy, you do not own the unit yet. You pay the builder an “occupancy fee” — often called “phantom rent” — which typically covers the interest on the balance of your purchase price, property tax estimates, and condo maintenance fees. These costs are not applied to your mortgage. You’re essentially renting from the builder while waiting for the building to register.

The occupancy period can last anywhere from a few months to over a year. Once the building registers with the municipality, final closing occurs — your mortgage funds, title transfers to you, and the sale is complete.

HST on New Construction

New homes in Ontario are subject to HST — which significantly increases the effective price compared to resale homes. However, there are rebates available that partially offset this cost, depending on the purchase price and how you use the property.

The HST implications for new construction purchases are covered in detail in our dedicated guide:

First-Time Buyer Incentives for Pre-Construction

Several first-time buyer programs apply specifically to new construction — including the 30-year amortization option for CMHC-insured mortgages and certain qualifying conditions for the FHSA and HBP. These can meaningfully affect how much you qualify for and your closing costs.

Assignment Clauses

An assignment is when you sell your rights to purchase the property before the building closes — essentially flipping the contract. Whether you can assign your unit, and under what conditions, depends entirely on what’s written in your purchase agreement with the builder.

Some builders prohibit assignment entirely. Others allow it with consent and may charge fees. If you think there’s any chance you’ll want to sell before closing — due to a job change, relocation, or financial circumstance — the assignment clause in your agreement matters significantly. Review it carefully with your lawyer before signing.

Tarion Warranty

New homes in Ontario purchased from registered builders are covered under the Tarion warranty program, which provides protection against defects in workmanship, materials, and structural integrity over different timeframes. You should receive a Tarion warranty certificate, and there are specific inspection and claim deadlines — typically at 30 days, one year, and two years after possession — that you must meet to preserve your warranty coverage.

Closing Costs on Pre-Construction

Pre-construction closing costs are typically significantly higher than resale — and less predictable. In addition to standard costs (land transfer tax, legal fees), builders often add development charges, utility connection fees, Tarion enrollment fees, and various adjustments that are itemized in the purchase agreement. These can add tens of thousands of dollars to your closing costs.

Pre-construction can be a smart purchase in the right circumstances and with the right project. It can also be a costly and complicated experience when buyers enter it without fully understanding what they’ve committed to. The most important investment you can make in a pre-construction purchase is time — reading the agreement, working with an experienced agent, and retaining a real estate lawyer before anything is signed.