“No time to panic,” says the real estate agent as GTA buyers fret about closing the deal ahead of construction

As the Toronto housing market continues to grapple with the Bank of Canada’s aggressive rate-hike campaign, some brokers say they’re increasingly hearing from pre-construction condo buyers anxious to close the deal.

Real estate agent Jordan Scrinko of precondo.ca, a website portal for preconstruction projects in Canada, said several of his clients have expressed concerns about being able to afford their preconstruction investments, which many bought when interest rates were below two percent.

After seven rate hikes in 2022, the BOC’s policy rate is now 4.25 percent.

In order to get a mortgage, all buyers must pass a stress test that determines how much they can afford to borrow and pay each month as interest rates rise. The qualifying minimum interest rate is either the reference rate of 5.25 percent or the rate offered by a lender plus 2 percent, whichever is higher.

Last month, Scrinko and his team worked with about 70 clients who had purchased pre-construction units in two large Toronto condos.

“Everyone graduated successfully, but it was a lot of work. … A lot of fires were put out,” he said, adding that in some cases clients used private lenders to close their deal.

“There were definitely some clients who came to us to liquidate their holdings before closing,” he said, adding that he and his team always advise buyers to do whatever they can to hold their investment.

Scrinko said buyers who bought condos before construction to flip them in contract sales — a practice where a contract of sale is effectively sold before a building is even finished — are now finding they are barely breaking even, or even Lose money.

Like Scrinko, Ara Mamourian, a broker and chief executive officer of The Spring Team Real Estate, said some of his clients have begun to inquire about how to get out of their property development deals.

Mamourian said it’s okay if buyers, who are about to close, are worried about how to afford their property ahead of construction.

But he said it was “not the time to panic”.

“A lot of people are very scared of interest rates, but they can still close. … There are so many ways not to lose a property one way or another,” he told CP24.com.

“Most people should do whatever they can to close the deal. My number one advice is to do whatever it takes to hold on to a property. Your future self will thank you.”

According to Mamourian, this is particularly true in the Toronto market, where the average home price across all property types is down 9.2 percent year-on-year.

“I expect good news from the Bank of Canada, maybe no (rate) rate cut, but I think the rate hike cycle will hopefully come to a halt by March,” he said.

“We have seen worse times on the (housing) market. … By and large, the market as a whole will be fine.”

More than 30,000 new units are expected to be completed by 2023

Research from Urbanation has revealed that a record 32,000 new condos will be completed in GTA in 2023.

Mamourian, whose company does about 20 percent of its pre-construction condominium business, said people investing in the market with long-term intentions of holding, moving in or renting should be in good shape.

However, those who bought this type of property to make a quick buck without fully understanding what they are getting into might face some challenges, he acknowledged.

“There are some people who are in big trouble and they’re going to lose money in this market right now,” he said, adding that in many cases these buyers put their trust in a “Bad Apple” agent who did and said anything an agreement was needed.

Still, Mamourian said he doesn’t expect there to be a spate of such cases.

“We don’t see scenarios where a large chunk (of a property) can’t close,” he noted, adding that in a 500-unit condo there might be 15 or 20 units that a developer takes back and resells, improved as soon as the market becomes available.

“What’s happening doesn’t put developers in dangerous positions.”

Dave Wilkes, the president and CEO of the Building Industry and Land Development Association (BILD), said many buyers who bought a unit two or three years ago are understandably stressed when it’s time to close since the market “quickly and dramatically” has changed so much since then.

He said he would like changes to be made now to stabilize this segment of the housing market, including adjustments to the stress test.

“The stress test was introduced when (interest) rates were much lower. Now that rates have risen the stress test is really redundant,” he said, noting that rates are currently at or near their peak and are unlikely to go much higher.

Second, Wilkes said the BOC must not exceed its market cooling targets by raising interest rates too much.

“We don’t want the market to give way too much. That will cause people to stop buying and developers to stop building because there isn’t enough demand,” he said.

“There are many unintended consequences.”