Select realtors and speculators who buy multiple condos have preferential first access to the most sought-after units in Vancouver, through private deals with developers.
However, that could change. BC’s Finance Minister, Carole James, is considering introducing legislation that will force developers to make pre-construction condo units available to all potential buyers at the same time and the same price.
This comes after an investigation discovered a significant number of industry insiders − particularly realtors − are buying then flipping condos themselves, for six-figure profit (sometimes a 200% increase on their initial investment), further squeezing tight supply and driving up prices for ordinary buyers.
Tax avoidance
Carole James says pre-sale condo assignments (flipping) may be done to avoid tax. The new legislation will require developers to collect and report information on sales. The provincial government and Canada Revenue Agency (CRA) will ensure taxes are collected.
The BC Real Estate Association, a trade group for roughly 23,000 agents in the province, issued a statement on Monday saying it supports efforts to track pre-sale information, increase transparency and enforce higher penalties against unethical realtors. The association, which guards access to the lucrative MLS system, did not say whether it wants the whole pre-sale market opened up to everyday buyers.
Approach a pre-sale condo or townhouse with caution
I always advise my clients to approach a pre-sale condo with caution as there is no guarantee of you getting a mortgage at the time of completion. Your best bet is to contact us before entering into a pre-sale condo contract to increase the chances of getting a mortgage on that property. Most lenders can guarantee a mortgage rate and qualification by up to 120 days. Mortgage qualification criteria is always changing, therefore it’s difficult to determine if you will qualify for the mortgage if completion takes place 2 to 3 years from when the purchase is firmed.
Pre-sale condo and townhomes can be a gamble
Moreover, pre-sale condo and townhomes can be a gamble. If you’re entering that gamble with a developer at risk of going into the insolvency process (unknown at the time of entering into the contract to purchase), at the end of your waiting period, you may not have a property to move into. Also, most lenders will only lend based on the current value of the home at the time of completion regardless of the purchase price on the contract. Should the value of the home be less than the purchase price on the contract, the borrower would be required to pay the difference from their own resources.
