The preconstruction assignment market, once the darling of real estate speculators, is facing its moment of truth, with investors having to hand over ever more cash to escape unsellable contracts and already facing steep losses.
“You can’t imagine how many people are trying to off-load what they bought,” said Sundeep Bahl, realtor with Re/Max Plus City Team Inc., who said most of the people he sees never intended to live in the condo they agreed to purchase, believing they could flip them for a profit instead.
“Now they realize they have to lose money – profit is out of the question,” he said. “The average loss I would say is at least $100,000. We have had some lose $200,000.”
Those who specialize in this market – which is not public and so has no official or semi-official statistics to track it – say the worst may be yet to come.
According to Mr. Bahl, many of the people he’s seeing today first purchased in the early days of the pandemic in 2020 and 2021 when prices for new homes hit new heights. “They were caught up like everyone else,” he said. “It was the fear of missing out.”
But instead of prices continuing to appreciate, interest rates began to rise rapidly in 2022, causing real estate prices to stall, and then fall across the country. The resale correction put the squeeze on preconstruction speculators just when developers began delivering near-record numbers of finished condos in 2023 and 2024. Tens of thousands of units came onto an already weak market, pushing down prices even further.
“The current price gap between new and resale condo prices remains near a record high at roughly 60 per cent, and a full 20 percentage points above its long-run average,” according to a 2025 forecast from CIBC economists Benjamin Tal and Katherine Judge. “Simply put, the resale condo market is a buyers’ market and will remain so during the course of 2025.”
A recent post to a Facebook group devoted to assignment sales. The owner says they contracted with the developer to buy the unit when completed for $1,347,900. They are now willing to lose their deposit and sell the 939 square foot condo for $1,299,900, along with offering other incentives.Supplied
A recent post to a Facebook group devoted to assignments, which has 18,000 members, offers an example of the desperation of precon buyers. “Owner is willing to lose the deposits, offer occupancy fees and is willing to offer a one-year rental guarantee ($5,000 a month),” reads a post about a 939-square-foot condo at 195 McCaul St. The purchase price is set at $1,299,900, despite an original purchase price said to be $1,347,900. With the current owner set to lose their deposit, their loss on such a deal could exceed $200,000.
Some of those who gambled in the pre-con market that prices would only go up are facing a no-win situation: they can’t afford to actually buy, and selling could cost them even more.
“Usually it’s somebody who already made money in precon and wanted to do it again,” said Jonathan Zadegan, one of three managing partners at Zadegan Group, which specializes in the preconstruction market. He recounted one extreme example of a speculator who started with a few units several years ago, and every time they made a profit they would plow it back into more new condos.
“That particular client actually has 135 units now. … They are sitting on catastrophic losses,” he said.
At one point, Zadegan’s business was mainly new precon contracts with perhaps 10 per cent of their transactions in the assignment market. Today, their business is 85 per cent assignments.
While most of these speculators are holding only two or three condos that are under water, or worth less now than the purchase price, Zadegan has had to turn more and more of them away as 2024 has worn on. “There’s not enough equity to sell,” said Mr. Zadegan. Most assignment deals now involve the seller giving up their deposit – 15 or 20 per cent of the total purchase price. But increasingly they face a scenario where a buyer wants them to pony up even more cash to agree to take on the contract. “Sometimes it’s worth 30 per cent less than what they bought it for 2022,” Mr. Zadegan said.
The only reason anyone would even consider making such a deal – essentially paying money to avoid buying a condo – is because they fear litigation if they default on the deal.
“People are very scared of being sued,” said David Feld, a real estate lawyer with Feld Kalia Professional Corp. who said that, by the time some clients become aware of the legal risks of a default – such as being sued for any losses the developer takes when they resell the condo – it may already be too late. “Some might write a cheque to the developer and say, ‘Please, I don’t even have $50,000 … let’s sign a mutual release, please don’t sue,’” he said.
Increasingly he’s seeing assignments not with speculators cashing out, but from buyers assigning an uneconomic condo to their parents, friends and other family to try to avoid financial disaster.
“If an assignment buyer knows what they are doing, there’s tremendous opportunity,” said Air Zadegan, who keeps a running list of available assignments that she shares with a client list almost 50,000 names long. The types of people buying in this distressed market typically only do so if they are getting a discount compared to the resale market, not just against the rest of the overpriced units in a given building.
“We’re seeing a lot of joint ventures – people have got together – or firms that are buying in bulk. Even some first-time homebuyers with the backing of parents,” she said. There were almost 27,000 new condos delivered in the GTA in 2024, and based on the volume of assignments they’ve seen, Zadegan thinks it’s likely more than 10 per cent of those units – perhaps as many as 3,000 – were assigned before final closing.
Agents are also feeling the pinch of lost commissions when condo buyers default or developers cancel projects: Mr. Bahl said his office has written off almost $600,000 in commissions for 2024 from deals that fell apart.
“We’re almost three years into this market downturn,” said Pauline Lierman, vice-president of market research with Zonda Urban, who said that she had counted more than 3,400 condo units cancelled in the Toronto-region so far this year (with almost 3,000 more she considers vulnerable). “I expect there will be more [cancellations] that will come in the New Year,” she said. “The sentiment is a lot of people want to rip the Band-Aid off to get past all the situations and problems.”