Introduction to the Condominium Market
The Canadian Real Estate Association (CREA) reported a significant rise in condominium prices nationwide between January 2021 and April 2022. However, since the peak in spring 2022, condominium prices have dropped by 12% across the country, with a more pronounced decline of 19% in the Greater Toronto Area (GTA).
The Impact on Buyers
A buyer who purchased a Toronto condo in spring 2022 at the top benchmark price of $730,500 may have only put down 5%, or $36,525, as a deposit. With the current benchmark apartment price at $593,000 (as of April 2025), the initial deposit, plus an additional $100,000, would be wiped out. Furthermore, if the buyer wanted to close the purchase, the selected lender may no longer be willing to finance it.
Options for Buyers Who Cannot Close
If a buyer is unable to close on their condominium before the building is completed, they have several options to consider.
Selling with a Loss
Lenders typically use the estimated value of a property to determine potential financing. If prices are falling, buyers may find that they cannot borrow as much of the purchase price as they expected. Some real estate developers work with banks to offer financing based on the purchase price, rather than the estimated value. However, this does not change the fact that the buyer may be purchasing an asset that is "underwater" with more debt than value.
Alternative Financing Options
Buyers in Canada may be able to find alternative sources of financing, such as savings, loans against real estate they already own, or loans from family or friends. Private lenders may offer more than traditional banks, although with higher interest rates and more fees and restrictions. Another option is to try to sell the unit before closing, known as an assignment sale. However, the buyer’s deposit may be less than the drop in the property’s price, and they may even have to pay the assignee to take over their contract and close the apartment instead.
Challenges and Considerations
Assignment sales may require approval from the developer and may be subject to additional fees. Selling before closing may not be possible or practical. If a buyer is unable to sell the condominium, even at a loss, and cannot secure a mortgage, they may need to consider other options.
Conclusion
The decline in condominium prices has left many buyers facing significant financial challenges. With prices dropping by 12% nationwide and 19% in the GTA, buyers who purchased at the peak in spring 2022 may find themselves with a significant loss. Understanding the options available, including selling with a loss, alternative financing, and assignment sales, can help buyers make informed decisions and navigate this complex situation. It is essential for buyers to carefully consider their options and seek professional advice to mitigate potential losses and find the best possible solution.