As you look at the skyline developing around Calgary, it's not hard to notice all of the new condo developments that are going up. You may be thinking that developers may be taking a risk with so many being built since they won't be finished for the next 2 to 3 years. It is not, however, a real risk for these developers. They only need to worry about the real estate predictions for the upcoming year.
Condos are pre-sold before the construction of the building begins. Investors are willing to put their money into condos without seeing them physically built first. They'll look at the artist renditions and building plans for the units and wise investors can often see a 25% appreciation on the price paid for a condo.
In most cases, the construction financing comes from pre-sales of the units. The developers offer a pre-sale discounted price to interested investors and buyers. When enough equity is acquired through these sales, the developers can then secure financing. As the construction continues and more sales are made, the developer will start to see a profit.
Usually the financing won’t be provided to the developers until about 70% of the development is presold. When you see a construction project underway you can usually pretty much assume that about 3/4 of the units have already been sold and that the rest will sell shortly.
Condo developers don't have to wait for 2 - 3 years to see a profit. They will see it during the construction phase or even beforehand. When a developer is looking at the profit potential of a condominium building, the company will want to see that a profit can be generated in about 6 months. Even with the fear of rising interest rates in the air and a lot of talk about the Canadian real estate market softening, condo developers don't have to worry about long-term forecasts. It's the shorter predictions that will let them know whether or not profit can be made through condo developments.