Condominiums facing construction elevators attached to the side of a condominium under construction on Mutual St., on Aug 29.Fred Lum/The Globe and Mail
Some real estate buyers who purchased condo units and houses in the preconstruction market are becoming increasingly anxious about their financial obligations once the home is ready for its first occupants.
Zuzana Misik, real estate agent with Harvey Kalles Real Estate Ltd., recently posted a video on Instagram in which she says an original purchaser under duress is trying to find someone to take over the agreement to purchase a condo unit north of Yorkdale Shopping Centre.
The original buyer signed a contract to pay $901,990 for the 740-square-foot unit on the 11th floor, she says in the post to nearly 18,000 followers. That buyer is now offering to sell for $860,000, she says, adding that the price is negotiable.
“It’s a distressed sale,” she says in the video. “It’s coming at a huge discount for you.”
The final tentative occupancy date is Aug. 21, 2024, she says.
Ms. Misik says she is upfront about the seller coming under pressure because most of the interest for such contracts is from investors looking for a bargain.
She asks potential buyers to direct message her to learn additional details, and some agents and investors have responded, she says.
“Buyers are aggressive,” she says. “They know they have more negotiating power.”
She adds that she has been using social media to advertise not only assignments but all types of properties since the pandemic began.
“With COVID-19, everything shifted,” she says. “A lot of people got used to being on their phones and looking for homes that way.”
Developers impose strict rules around assignment sales, she adds, so she checks with their offices to ensure that she stays within their guidelines.
Some allow her to disclose the address, for example, while others don’t allow her to reveal any more than the general area. Most don’t allow assignment sales to be posted on the Multiple Listing Service of the Canadian Real Estate Association.
In some cases, developers have remaining inventory to sell and they don’t want competition from original buyers who are willing to sell at a lower price.
In a July Instagram post, Ms. Misik disclosed few details that could identify the location of a two-storey penthouse in a boutique building in North York.
The original price was $1,319,990 for the unit with tentative occupancy in 2025 and the asking price for the assignment was $1,339,900.
Since she posted the information, the clients have changed their minds and decided to move into the unit, she says.
Often the buyers who purchased a condo unit or house in preconstruction three or four years ago are in a quandary now that interest rates for fixed-term mortgages have climbed above the six per cent level.
At the time of the purchase, the buyer was likely approved for a mortgage with a rate around the 2 per cent level.
Another problem arises if the original buyer tries to arrange a mortgage but the lender requires an appraisal and the value of the property has fallen below the purchase price. The buyer then needs to find the funds to close the gap.
Ms. Misik says some original buyers have seen changes in their plans: Some are moving out of Canada, for example, or they don’t have the financial strength to close the deal.
Some are just looking to cut their losses and try to recoup as much of their original deposit as they can.
“They’re off-loading it. They just want to get rid of it and get their money back.”
The CN Tower can be seen behind condos in Toronto's Liberty Village community on April 25, 2017.COLE BURSTON/The Canadian Press
The investors willing to take on the assignment want to pick up the unit for $100,000 to $200,000 less than the original price, she says. Many are counting on a drop in interest rates in the next year or two.
She is seeing early signs that some confidence is returning to the market after the Bank of Canada held its key interest rate steady in October.
Andre Kutyan, broker with Harvey Kalles, has recently received a stream of unsolicited e-mails from agents who are representing an original buyer hoping to assign. Some of the projects are located in neighbourhoods and segments of the market where he doesn’t typically work, he says, which suggests the e-mail blasts are casting a wide net.
Few buyers have the appetite to take on the purchase when they are not able to see the finished unit, he says.
“Unless it’s a steal, why are you going to put your neck on the line?”
One agent communicated details about the assignment of one of the 2,995 residential units planned for a community called Brightwater in Mississauga’s Port Credit neighbourhood.
The two-bedroom-plus-den unit in Brightwater II has an asking price of $820,000. The original buyer agreed to pay $764,900 and submitted a deposit of $114,735.
In another case, the suggested closing date is in early November for a 2,442-square-foot semi-detached in Richmond Hill.
“Seller must sell,” says the e-mail describing the three-bedroom home with an original price of $1.435-million plus $22,000 in upgrades.
The asking price is $1.4-million.
Mr. Kutyan received one e-mail advertising assignments for two units in the same development set for completion in early 2024. The agent provided a nondisclosure agreement that Mr. Kutyan would need to sign and return before learning the location or name of the project.
The list of people to whom Mr. Kutyan couldn’t disclose any information included the condo developer and any of its agents.
“Whoever is going to assign hasn’t told the developer yet,” he concludes, adding that he did not sign the NDA.
Mr. Kutyan says the problem is more acute at the lower end of the market where buyers sometimes struggle even to scrape up the money for a deposit.
The preconstruction market was rife with speculation for many years as some original buyers purchased units with the intention of flipping the contract to another buyer for a profit.
Those are the buyers who are often in trouble now as rates have jumped and prices have fallen in the condo market.
Well-heeled buyers who purchased a unit in an upscale project with the intention of living in it are far less likely to face financial stress.
“The high net worth individuals still have the ability to close,” he says.
The challenge for many original buyers hoping to sell an assignment is that prices are still generally significantly higher than they are for completed units in the resale market, says Anna Wong, real estate agent with Strata.ca.
She points to the example of a 600-square-foot condo unit at 38 Widmer St. near Queen Street West and Peter Street in downtown Toronto.
The original buyer, who signed a contract to purchase the small, one-bedroom-plus-den unit for $698,000, is asking $789,950, or about $1,300 per square foot, for the assignment. Development fees and levies are typically tacked on.
Ms. Wong says the average resale price for a condo in the downtown core now is $1,045-per-square-foot.
A buyer with a budget of $789,000 can find a two-bedroom, two-bathroom unit that’s only a couple of years old, she says.
The agent says she has been advising clients for years to steer clear of preconstruction purchases because of that price gap.
Today the resale market offers lower prices and the buyer can walk through the unit and see the views, she adds. But sales in that segment are slow as listings rise and buyers fret about interest rates and affordability.
She currently has a sub-penthouse listed for sale at 25 The Esplanade with a price equivalent to $914 per-square foot. During the market mania of recent years, she would have set an offer date and likely generated multiple bids, she says.
“It’s been sitting for two months.”
Ms. Wong says prices will eventually recover but for now buyers can purchase a unit without battling rival bidders.
“Buyers have a lot more to choose from.”