Pre-sale condos now harder to flip
Joanne Lee-Young
The Vancouver Sun
Condo sales and prices are on fire. And now, developers of a prominent condo project in Vancouver’s West End, which won’t be completed until 2019, are hiking the fee they charge for letting a pre-sale buyer of a unit re-assign (sell) their contract to another buyer.
It’s the latest example of developers and buyers figuring out who benefits when there are steep gains in value. This is happening because prices are climbing in the years between when a buyer signs a pre-sale contract and when a condo is completed, handed over for occupancy, and the sale is legally complete.
It’s also a reflection of amount of speculation in the pre-sale condo market. The Real Estate Council imposed new rules on the “assigning” of single-family homes in May 2016, but these were not extended to apply to pre-sales by developers of condos.
In late 2015, Reliance Properties Ltd. and Jim Pattison Developments started to pre-sell condos at their One Burrard Place. This will be a 53-storey tower off the Burrard Bridge at Drake Street that is destined to be one of the city’s tallest and most luxurious.
At that time, prices started at $400,000 for a 450-square-foot unit, or about $890 a square foot. By early 2016, all 354 of the units were pre-sold. Since then, condo prices have rocketed and the per-square-foot cost of a similar unit would be about $1,250, an increase of about 40 per cent, according to realtors.
In the past few weeks, Reliance has been telling buyers who want to sell their rights to a completed condo before the units are completed that they have to sign a “modified” agreement. It stipulates that instead of paying the developer 1.5 per cent of the initial purchase price to get permission for an assignment sale, they have to pay 25 per cent of the profit made on the assignment.
To illustrate with random numbers: If, in the past, if Buyer A bought a pre-sale condo for $500,000, he or she could assign it to Buyer B for $600,000 by paying the developer 1.5 per cent of $500,000, or $7,500. Now, the developer is charging 25 per cent of the $100,000 profit, or $25,000.
The change is designed to discourage speculation, says Jon Stovell, president of Reliance Properties.
“There has already been a regulatory shift in the single-family market where it is automatic in all contracts that if there is any ‘assignment lift’ the proceeds will go back to the homeowner,” says Stovell, referring to the Real Estate Council’s new rules in May 2016 about the re-assigning of single-family homes before the sale is registered.
In recent months, Stovell says there has been a rapid increase in requests by buyers to re-assign pre-sale condo units at One Burrard. As well, there have been reports of “unauthorized advertising of (One Burrard) assignments” online, in particular on private realtor websites and through emails and social media.
Stovell says the new policy aims to dampen this activity and create a “level playing field” for all buyers seeking to assign. There was also a need to balance the needs of “purchasers with bona fide reasons (such as a sudden change in personal circumstance, including death, divorce or a job change) who may need a way to assign a condo purchase.”
Some buyers in the midst of assigning to a second buyer are irate that the developer is suddenly taking a slice of what they consider as gains made on a risk they the buyer took.
To this, Stovell says buyers are welcome to wait to sell the condos when they are completed, handed over and the sale is finalized.
It’s hard to gauge the number of buyers seeking to re-assign units this far ahead of the building’s completion. They don’t tend to get listed on the MLS until later, but there at least a dozen postings for One Burrard Place assignments on other sites and apps.
Some developers do not allow assignments. It’s been standard for others to charge a small fee, typically between 1.5 per cent and two per cent of the purchase price.
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