It’s usually a part of the real estate world that isn’t seen by your average buyer. But the condo sales segment of the market has been turned upside down this year as interest rates have rapidly jumped. And according to an expert, the plunge in mission sales activity is not over yet.
“When I say this is just the tip of the iceberg, it’s because I know more interest rate hikes are coming. And I know this is uncharted territory right now. ‘have to qualify for a mortgage prospect,’ Simeon Papailias, managing partner at Toronto real estate sales and advisory firm REC Canada, said Yahoo Finance Canada in a telephone interview.
As historically low interest rates fueled seemingly ever-increasing home prices, Papailias says, pre-construction condo sales were “on fire,” until March of this year.
“The minute the interest rate landscape changed, you literally had a whole fringe of the market – the speculator – who instantly had to face the reality of potentially buying at the peak of the market and having, for the first time in three years, think about interest rates, affordability and having a mortgage,” he said.
“The only thing the market had seen for three straight years was a decrease in mortgages and affordable loans.”
Conveyance sales of condos are different from the regular resale market in that it is generally a transaction where a buyer purchases a unit from a developer and sells the contract to another buyer. Essentially, it is the documents that are exchanged, not the physical unit itself, as it is not yet registered.
Assignment sales are also usually not listed on public platforms such as MLS and are done privately between agents.
In recent years, part of the great appeal of disposal sales for real estate investors has been the fact that they only have to put down the deposit rather than activate the full mortgage financing; the investor doesn’t have to worry about closing costs, and a quick profit could potentially be made on the disposal sale since prices, especially in areas like the GTA, were skyrocketing so quickly .
However, there are various conditions and restrictions to be aware of when considering making an assignment sale. Most developers don’t allow assignment sales for certain periods of time and until a certain percentage of units in the building are sold first.
Decrease in the pool of buyers
For those looking to assign or sell their pre-construction units, the pool of buyers has shrunk considerably.
Trend data from BrokerPocket, Canada’s largest off-marketplace listings platform, showed sales of disposal listings have fallen since March.
Eric Skicki, founder and chief executive of BrokerPocket, says many investors have opted to put the purchase of pre-construction condominium units on hold from developers and disposals as interest rates rise.
“You have people who bought a year or two years ago with the anticipation of making huge profits. But those profits are going down because prices are trending down,” he said over the phone.
The result, he adds, is that people are choosing to “overcome” the current drop in sales by delaying their release. Others who choose to register anyway face a shortage of buyers.
To get a sense of how much the GTA condo market dynamics have changed over the past year, data released Monday by market research firm Urbanation showed that sales new condos in the area fell 79%, with just 1,748 new condos. sold in the third quarter, compared to 8,320 in the same period last year. Aside from the first few months of the pandemic, Urbanation says this is the worst quarter for new condo sales since the financial crisis.
Brendon Cowans, vice president of sales at Property.ca and who has expertise in the pre-construction condo market, says he’s seen some sellers list their assignments at the same price they did years ago.
He points out, however, that it’s not all “pessimistic” as not all investors walk away. While some are struggling financially or seeing their anticipated profits evaporate, others still believe in the real estate market and view the current downturn as a short-lived “boomer”.
But for buyers who cannot complete the purchase of their condo, the legal consequences are costly.
Not only would the contract holder likely lose their down payment, but the developer could seek damages for things like legal fees, property portage and arguably most important, the difference in sale price, which in some cases could be hundreds of thousands of dollars depending on when the device was purchased.
“It’s not something you want to end up in,” Cowans said.
Meanwhile, REC Canada’s Papailias says that while every client’s situation is different, he generally believes real estate investors should be patient and “ride out the storm” if they can.
“The people who are approaching their Occupy dates right now are the ones who are living in absolute volatility because they don’t know where things are going, like no one else does. Every month we wake up with a new title,” he said. said.
“And when people don’t know what’s going on, they get scared and panicked and they make decisions like flooding the market with missions, not being patient or being able to be patient because of changes in the circumstances of the life.”
Michelle Zadikian is a Senior Reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.
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