The trend of defaulting on newly built properties is on the rise, closely tied to predictions about the real estate market Toronto. TD Bank forecasted a 10% drop in housing prices for 2024, which has proven accurate. The segment hardest hit by this downturn is the new-built condominium market.
Purchasing a pre-sale or pre-constructed condominium involves placing a deposit and signing a contract to pay the remaining balance upon completion. However, declining condo values and high interest rates have created significant obstacles for buyers in securing financing and closing deals.
One major issue buyers face is low appraisal values from banks. Banks base their loan amounts on the current value of a property. With home prices dropping by 6.5%, appraisal values often fall below the purchase price. Consequently, buyers receive less mortgage funding than needed for the down payment, leading to failed closings.
Defaulting on a purchase contract has serious legal and financial consequences:
Given the rigidity of contract laws, it is imperative for buyers to make every effort to close the deal. Possible solutions include:
The current housing market Canada, particularly for new-built condominiums, poses significant challenges for buyers. Declining property values and stringent financing conditions are leading to an increase in defaults. Understanding the implications and exploring all possible solutions is crucial for buyers to navigate these turbulent times. It’s always advisable to seek legal and financial advice to mitigate risks and make informed decisions.