Pre-construction condo buyers facing huge losses as prices fall in Toronto

Homebuyers who gambled that buying before a home was built would give them a quick foothold in an expensive market are finding out what happens when values ​​drop.

A growing number of Canadians – particularly in condominium markets like Toronto – are learning the hard way that when property values ​​fall, developers and lenders are not willing to bear the losses without a fight.

Vitor Almeida is facing that reality firsthand. A carpenter with experience as a real estate agent, he agreed to buy a pre-construction condo in Vaughan, Ontario, for $675,000 more than five years ago. They put down about 20 percent, but financing is not fully confirmed until the unit is almost complete and the deal closes.

Years later, an appraisal valued the condo at $590,000. This meant that Almeida could not find a mortgage provider to lend him the money to close the purchase because the condo was no longer worth the price he had agreed to pay.

“We never would have thought the market was so good in 2020. If I had known this could happen, I would not have bought the condo,” Almeida said.

Buyers have to make up the difference

The average condominium sales price in the Greater Toronto Area was projected to decline by more than five per cent at the end of 2025 compared to a year earlier.

Compared to the peak in 2022, Apartment prices in Toronto There has been a decline of about 25 percent.

Options for a buyer like Alameda are limited if he cannot raise money to bridge the gap between the appraised value and the agreed price. The builder can keep their deposit and any fees paid by the buyer, and they may be on the hook for additional costs.

“They’re telling me they’ll sell it for less, obviously, and they’ll come after me for their losses,” Almeida said.

Experts say there aren’t a lot of options

Short of a time machine, it may not be easy for buyers caught in a pre-construction decline market to escape.

Mortgage broker Ron Butler said he does not believe buyers in this situation can avoid the consequences.

“There is no question that the developer will pursue you in the courts and they will win because you signed a valid contract,” he said.

He said the problem could peak in Toronto in 2026, calling it “the biggest, most problematic year ever,” with an estimated 28,000 units expected to be completed and the gap between purchase prices and current market values ​​widening.

Trying to find someone else to take over the property is not always an easy solution. While social media groups are trying to promote pre-construction purchases through a process called “assignment,” it’s not as simple as finding someone else to pick up your losses.

“You will also need builder’s permission when you are doing the assignment,” says real estate lawyer Gathya Manoharan. She says that of the many clients she has seen, only one buyer has successfully handed over a pre-construction condo purchase to another buyer.

Builders may also charge fees ranging from a few hundred dollars to thousands of dollars for approving an assignment, he said.

“You are in this scenario because you cannot afford this property and now you have additional costs as a result of this assignment fee,” she said.

Describing a market where condos remain in high supply and low in demand, he said, “I don’t think I have a single client who has a newly constructed property that has retained its value.”

She attributes this, in part, to options made when the market was hot – and the bill comes when the market is significantly cooler.

Manoharan said, “People were like, listen, they’re buying these pre-construction homes before they even close and they went up to $200,000, they made all this money, et cetera. So everyone was trying to jump on that gravy train.”

Regulation is no easy answer, academic says

These market concerns can be difficult to address, says Diana Mok, an associate professor in the department of marketing and consumer studies who specializes in real estate finance at the University of Guelph.

He said that no one policy or regulation could solve the problem and suggested there were parallels with stock-market risk – though not a direct comparison.

“Some stocks are really high risk… and naturally attract some speculators rather than long-term investors and then suddenly these stocks go south, and do you think someone should do something to regulate, put in place some policies or even compensate these speculators?” He said.

Mok said buyers need to understand the risks of paying a fixed price years after signing the contract.

“Don’t get into the herd mentality like in 2022, (when) everyone was trying to get a rush into this investment market in pre-sales, pre-condos, pre-construction sales.”