Long ago (pre-pandemic, the Before Times), Vancouver media was shocked at news evil people (realtors) were selling houses that had not yet been sold. In other words, the masses read about assignment sales. And they were floored.
Anyone who’s purchased a property with a valid contract can sell or ‘assign’ that contract to somebody else, prior to the original sale closing. In a crazy up-market, the flip means the first buyer can make bank by simply selling the paper to the next purchaser, and pocket the gain. There were big headlines in YVR when some sellers learned their agreements had been resold days later for considerably more money than they were in line to receive. Had their agent steered them into a bad deal? Selling too cheap? Outrage!
Well, the emergence of assignment sales in a boom market helped lead directly to heavy shelling from the province and the CRA. Profits are now taxed as income, not capital gains. There’s GST levied on the transactions. The feds have a one-year anti-flipping tax. And BC has a new, onerous two-year flip-crushing equity snatcher in place.
But wait. The market’s not going up any more. There are no profits. Only losses.
Now the assignment web sites and brokerages specializing in these sales are swollen with misery as we enter a dark time for thousands of investors who bought condos when rental demand was high and interest rates low. Today the math doesn’t work – especially with condo fees, insurance premiums and property taxes on the rise. Folks who thought buying a condo (or three) with a minimal downpayment, letting the tenant pay the mortgage was a no-brainer are in deep trouble.
Scads of units purchased pre-con are coming up for closing in 2025, and significant numbers of buyers are unwilling or unable to complete their deals. They didn’t plan on mortgage rates doubling since they signed an offer three or four years ago. They never believed rents could do anything but rise, let alone steadily decrease. They did not foresee the punitive taxes coming, or a collapse in demand on the resale market. They believed what the industry says daily – it’s always good time to buy, and you can never lose with real property.
Well, here we are. Blood is coursing through the gutters of Condoville. It may not be time to vultch just yet, but we’re on a journey that usually ends with outsized gains for the brave.
Below are a few selections from the AssignmentPlus site, brought to my attention by veteran realtor Dan Bartley. “Wow,” he says, “the original price listed is what the buyer signed up for. Most can not close.”
For example, a two-bedroom, two-bathroom unit in downtown Toronto originally sold for just under $1.1 million, or a stunning $1,600 a foot. It’s now available for $940,000, with occupancy set for October.
This 579-foot, one-bedroom unit in Oakville comes with a parking spot and locker. It was purchased for just under $750,000 by a guy now trying to bail out before closing – two weeks from now – for $550,000.
Down the QEW in Hamilton, you get more space but the same troubles. This 946-foot condo has two beds, two baths plus parking and is on the market for $599,000 or $68,000 less than the buyer just paid on closing day, April 1st.
And on the Toronto waterfront, this two-bed, two-bath, no-parking apartment of 678 square foot comes up for occupancy in June. The original buyer paid $832,000 and is trying to unload for $659,000.
Of course, all these folks will also face realtor commission charges, legal fees and related costs. Their losses will be considered personal by the CRA, not deductible against earned taxable income. Also not a capital loss that can be carried forward and used to reduce future gains. Investors will have lost some or all of their downpayments – money which earned nothing during the years since it was placed on deposit. And if they fail to find a buyer on the assignment market, there’s even greater hardship and cost ahead.
Will this be enough to bring down the entire housing house of cards? Or just swaths of it?
To be continued.
About the picture: “Hi Garth, love reading your articles,” writes Deborah. “They’re so down to earth and to the point. This photo of my dog Tiburon represents what I think of the current state of the world today!”
To be in touch or send a picture of your beast, email to ‘garth@garth.ca’.