Toronto’s exploding construction industry has been largely fuelled by our healthy condominium boom. This has all been very good for Toronto. We have successfully turned the corner as a city, now at 6 million people we are on the world map and a true force to be reckoned with. We have successfully repopulated our downtown into a vibrant human hub. We have added many new office buildings, hotels, public spaces, and institutions. In short, thanks to the condo industry, Toronto has a terrific future. There is however, a weakness in our industry that I should speak to – assignments.
An assignment is a transaction where an assignor (seller) sells a contract (sales agreement to buy a condo) to an assignee (the buyer) for a profit. Over the past 10 years, this kind of transaction has resulted in profits that in some cases have exceeded $100,000. This profit is made without the assignor actually closing the sale with the developer, as the new buyer (assignee), closes with the developer. This large profit is also made with little risk. Ten years ago, we saw a few of these transactions; today, they represent a significant component of the annual sales production of condominiums. Unchecked, in two years, they could become very significant. When I first started selling buildings for developers 16 years ago, we (the development team) never allowed these transactions. If you bought a new condo suite, you had to close with the developer. Only then could you sell your suite. This discouraged speculator/gambler-types who had no intention of closing, from buying in a new development. It forced them to close and get a mortgage. They would also have to increase their down payment and pay all closing costs. The stability of the closing process, where a development is successfully handed off from the developer to the buyer, is the cornerstone of our strong marketplace. This process prevents speculators from panic-selling and destabilizing the marketplace. This kind of behaviour could negatively affect the entire marketplace. Widespread it could potentially bankrupt developers, as many buyers of their building don’t, can’t, or won’t close.
Over the last 5 years, I have seen an erosion of the developer’s will to stop the propagation of assignments. The current strength of the investor-buyer and their realtor in the success and/or failure of a development has created a potential assignment monster. We do not want this practice to continue. As a new buyer in a building, your investment is at risk if hundreds of assignments are potentially possible. Here is why: when a flurry of sales listings occur prior to completion, prices get driven down due to an increase in the sales supply from these assignments. At completion, there is also usually some of the developer’s leftover inventory. A developer needs the 6-9 months prior to the title transfer to sell off the 20% of unsold inventory without facing the potential competition of hundreds of speculator assignments.
While I have not seen this as an issue anywhere in our marketplace, I believe we as developers, realtors, and consumers need to put a stop to the potential risk to our healthy real estate market. Developers need to hold their ground and deny a buyer the right to assign. Realtors need to protect their livelihood and see past the quick commission, and stop insisting on the right to an assignment as an intrinsic part of a new sale. Consumers/investors need to stop buying in buildings that allow assignments as it will potentially add to their investment risk. The risk that at closing hundreds of units in hundreds of buildings will be for sale – driving down the value of your investment.