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    Surge In New-Condo Occupancy Presents Assignment Sale Opportunities

    Buyers could begin leveraging the financial risks faced by the original buyers of pre-construction units

    Written By Robert Van Rhijn

    News that a record number of new GTA condo units will be ready for occupancy in 2023 — nearly 32,000, according to research firm Urbanation — must be music to the ears of many pre-construction buyers who have waited years to move into their new homes.

    The bad news for some of them, however, is that rising mortgage rates are making it harder to close on these properties. A 20-percent down payment is typically required to obtain a pre-construction unit, with buyers needing to pay the remaining 80 percent after their unit has been built and finally registered as a condominium. Trouble is, many condo buyers are struggling to qualify for mortgages now that five-year interest rates are topping 5 percent. At the same time, lenders are appraising units at lower values, which means buyers must come up with extra funds to bridge the gap between the smaller mortgage and the price they originally agreed to pay.

    This double whammy is sure to produce a jump in the number of buyers trying to get out of their newly-built condos by selling the right to buy them. Known as assignment sales, these transactions are more challenging to navigate than traditional resales. That’s because they involve negotiating with both the original purchaser and the developer. There also tends to be a smaller buyer pool for assignments, as larger down payments are typically needed to cover the original purchaser’s deposit, along with any capital growth earned since the contract for that unit was purchased from the developer.

    What aspiring assignment buyers need to know is that buyers who purchased pre-construction units as investment properties are facing a third whammy that may be more terrible than the other two combined. According to Urbanation, the average cost of condo ownership in Toronto was $3,506 a month in the third quarter of 2022, while the average monthly condo rent was $2,733. This means the average owner who rented out a unit paid $773 out of pocket each month. When this discrepancy stood at $17 a month, as it did in 2019, or even at $196, as it did in 2020, it was typically offset by impressive increases in condo property values. Now, with data revealing softening rent-to-list price ratios, a sharp increase in average days on the rental market, and a jump in total inventory — that $773 may well continue to balloon while offsetting property values decline.

    This is why assignment buyers may find plenty of leverage in the months ahead. They could end up negotiating very reasonable prices for all these newly-occupiable condos. The keys to this opportunity are threefold:

    1. Enlist a realtor who has plenty of experience with assignment sales and knows the developments

    2. Enlist a lawyer who has the same

    3. Consider an assignment, regardless of whether you’re an end-user or investor

    And that’s where this famous quote from former U.S. President John F. Kennedy comes in:

    "When written in Chinese, the word ‘crisis’ is composed of two characters — one represents danger, and the other represents opportunity."

    Ultimately, one person’s financial hazard is another person’s chance to score a brand new condo at a discounted rate.

    Starting your search for a new home? Click on any of these links to access active listings, sold listings or contact a Strata agent.

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