In Ontario, Excess Condominium Deposit Insurance or “ECDI” allows developers access to purchasers’ deposits that would otherwise be tied up in a trust account. Developers who utilize an ECDI policy end up saving money as the deposit access is typically a much cheaper source of financing than traditional bank financing.
What is Excess Condominium Deposit Insurance?
As noted above, an ECDI policy is issued on new residential condominium projects in Ontario. It is issued to guarantee purchasers’ deposits in excess of the $20,000 which are already guaranteed through the posted Tarion Warranty Security. If the developer uses the deposits and can’t deliver the condo or pay back these deposits, the ECDI policy will refund these deposits. Learn more about Tarion Warranty Security in our Tarion Bonds for Condominium Projects post.
Is an ECDI Policy Required?
An ECDI policy is not required to sell condominium units, however most lenders will recommend it as a source of funds. It is required if the developer wishes to access purchasers’ deposits to be used for construction prior to the condominium registration.
As per Ontario’s Condominium Act, deposits paid by the unit purchaser must be held by a prescribed trustee in a separate trust account until registration of the condominium. Without an ECDI policy in place these deposits can be utilized.
Cheaper Alternative Source of Financing
Accessing your deposits allows you to fund construction costs with a few distinct advantages over traditional financing methods.
- It improves your ROI by allowing you to access the deposits much earlier than registration.
- Because the cost of deposits ranges from 0.75% to 1.5%, developers can access cheap money. With deposits typically in the amount of 20% of the purchase price, this can result in meaningful savings.
Example: Let’s take a 50-unit condominium selling for an average unit price of $500,000. Assuming 20% deposits are taken, this leaves us with $4,000,000 in excess deposits above Tarion’s $20,000 per unit. If we use a spread of 3% between bank financing and the ECDI rate, this would equate to nearly $120,000 in annual savings on financing costs.
What Is Required to Obtain an ECDI Policy?
The application process and required documentation is similar to what the lender would require. It includes financial information, project information and budgets, consultant reports, Tarion documents, and bank financing agreements. Apply for Condo Deposit Insurance.
Do I Need to Use an Insurance Broker?
Surety business is written by insurance companies that work directly through insurance brokers. It is always recommended that you use a construction focused broker with experience in the surety industry. Using a broker allows you to access a range of markets, drive down the rate through competition and utilize the broker’s client base as leverage for your ECDI facility.
Ready to get started or have questions? We welcome your call or email and would be happy to address any questions you might have or help initiate your ECDI policy acquisition process.