In 2021, Sudip Sehgall put down an $81,990 deposit on a yet-to-be-built townhouse in Surrey, B.C. While it was under construction, he occasionally visited the site to watch it grow.
The 52-year-old envisioned the deal taking him steps closer to owning his first Canadian home, but he only had enough for a deposit after a loan from his retired father.
Sehgall was relying on selling his home in New Delhi to get financing to close the deal. He began to worry when new regulations in India made his property less desirable. Then floods hit and selling became impossible.
Making matters worse, when he tried to find a buyer to take over the Canadian deal so he could get a refund, the developers opted to keep his deposit and sell the brand-new unit themselves.
Sehgall, who came to Canada in 2016 as a skilled worker, says he is now broke and back to renting, this time a cramped $1,700-a-month basement suite with his possessions lined up in suitcases against the walls. He lost his cheaper rental, thinking he was about to move into his new home.
“I may have to return back to India, and my Canadian dreams have been ruined and crashed,” he told CBC News.
The new townhouse complex in South Surrey, B.C., that Sudip Sehgall paid a $81,990 deposit on in 2021, hoping to take possession by July 31, 2023. (Yvette Brend/CBC News)
Sehgall is part of a growing contingent of Canadians who are defaulting on deals to buy presale or preconstruction condos or homes due to financial pressures.
This trend of defaults is in part being driven by high interest rates and declining condo values, according to realtors. Many buyers lose their deposits, according to realtors and real estate lawyers across the country. While Sehgall’s circumstances are specific and extreme, other Canadians are also getting a hard lesson in the potential risks of these deals, experts say.
Growing problem
Toronto real estate broker Barry Lebow has not seen this many buyers defaulting in 30 years.
“It’s happening in droves,” said Lebow. “I’m hearing stories about many people walking away.”
Buying presale or preconstructed homes means putting down a deposit and signing a contract that you will pay the balance after the property is built to agreed-upon specifications on a certain date, called the closing date.
Sehgall, 52, came to Canada as a skilled immigrant in 2016 and saved up enough, with a loan from his father, to put down a deposit on a presale home in 2021. (Mike Zimmer/CBC News )
Lebow says the declining condo values and high interest rates are making it difficult for people to finance and close on deals. In some cases the unit has lost so much value they now can’t afford a mortgage.
Banks will only loan money on the current value of a property, so if a buyer agreed to pay $1 million and the property is now worth less, the bank will only approve a mortgage for the current value. The buyer is left to find the rest of the money on their own.
“The last time we had a wave like this, it was in the ’90s,” Lebow said.
Lebow helps developers, who are on the hook to resell when buyers default, to prove to their lenders that units were listed then resold at the highest price possible to offset losses and maximize profit. Often the down payments are used to help pay for the construction and the closing payments are needed to complete buildings.
Toronto condo lawyer Gerry Miller says people are “better off buying something they can touch and feel.” He’s seen clients lose up to $300,000 deposits, bound by contracts he describes as “incredibly complex and one-sided to the point of it being almost unfair.”
What happened in this case
In Sehgall’s case, he failed to sell his property on the outskirts of New Delhi when it was flooded with more rain in one day than had been seen in 40 years.
“It just made everything very complicated,” he said. He says he contacted the developer and spoke repeatedly to Jennifer Wilson, vice-president of sales for StreetSide Developments, requesting a refund of his deposit and seeking permission to have the deal assigned to buyers he had found who were keen to take over the townhouse contract.
Sehgall said there is a clause in the contract that allows “assignment,” the transfer of the deal to a different buyer. The contract says, “The builder shall not unreasonably deny an assignment.” He said transferring the deal to another party would have incurred a penalty — but he would not have lost his entire deposit.
Lawyers urge caution as more Canadians lose deposits on presale homes
A new Canadian who lost his family’s savings when he couldn’t close on a presale home is warning others to be wary. Sudip Sehgall said he found another buyer to take over the contract, but the developer refused and kept his $82,000 deposit.
He says the developer refused to allow it.
“Because they were selling in an adjacent development, they refused,” said Sehgall.
Vancouver real estate lawyer Kenneth Pazder explains that re-assignments may be seen as competition that might divert prospective buyers away from other properties the developer is selling.
Sehgall says he was offered time extensions and encouraged to find a co-owner. He couldn’t come up with anything that would work.
“I begged her, I wrote desperate emails, I did not want to default,” said Sehgall.
Contracts are ‘very one-sided’: lawyer
It is sometimes possible to get a deposit back, Pazder says.
When a developer allows a contract to be re-assigned then a fee of one to three per cent of the sale price is usually charged to the original buyer and they remain legally liable to complete the purchase if the new buyer fails to do so.
But the market is slow right now.
“Presales are not flying off the shelves like they usually do,” he said.
He said while the presale market is regulated by the provincial government, contracts for presales or preconstructed units are not. He also said they can be sticky to negotiate, and the wording is weighted in favour of developers. Not only can the developer refuse to consider an “assignment” option, it’s also not required to deliver exactly what the buyer saw in a showroom.
Sehgall believed that a clause in the contract for the presale townhome he bought would allow him to assign or transfer the deal to another buyer as it read, “The builder shall not unreasonably deny an assignment.” (Yvette Brend/CBC News)
“All are very one-sided,” said Pazder. “You might be able to negotiate on a price sometimes, or maybe they’ll throw in an extra parking stall or a storage locker.”
Pazder said he believes Sehgall has grounds for a legal challenge, arguing that the developer was “being unreasonable” given Sehgall’s claim that he had found another buyer for the property.
Company declines interview
CBC News reached out to the seller in Sehgall’s case, but they declined an interview. The company’s contracts follow the rules set out in the Real Estate Development Marketing Act of B.C., a spokesperson said in an emailed statement.
“This is a legal matter for which we have encouraged Mr. Sehgall to seek appropriate advice from a lawyer,” said Jonathan Meads, vice-president of StreetSide Developments, which is a division of Qualico, a large company building developments in Western Canada. “We won’t be commenting further on this.”
Sehgall has reached out to politicians and Surrey business leaders for help.
“For me, it was a first-time buy. I’m not an investor. I’m innocent and my realtor did not advise me at all. We just went and signed,” said Sehgall. “The contracts are ironclad. And it’s very hard, if the builder denies you. A buyer like me does not have the legal or the financial wherewithal to go against a big builder.”
‘We have been ruined’
B.C. Housing Minister Ravi Kahlon told CBC News that Sehgall’s situation was disheartening.
“Home purchases can be one of the most significant financial decisions of people’s lives, and it’s important that homebuyers have the information they need to carefully consider those decisions,” Kahlon said in a statement.
“That’s why the Real Estate Development Marketing Act requires developers to provide a disclosure statement and gives purchasers the right to cancel presale contracts within the first seven days, so consumers have time to think through their decision.”
Kahlon also said consumers can get information from the B.C. Financial Services Authority to help them understand presale purchases and their rights under the act.
Sehgall wishes he’d gotten better advice. The $81,990 deposit was money his family helped save and its loss was devastating, especially to his parents, who are both in their 80s.
“We have been ruined,” said Sehgall.
“My parents were not able to take the shock, and they were still hoping that they would refund, hoping against hope.”
TORONTO – The Toronto Regional Real Estate Board says home sales in October surged as buyers continued moving off the sidelines amid lower interest rates.
The board said 6,658 homes changed hands last month in the Greater Toronto Area, up 44.4 per cent compared with 4,611 in the same month last year. Sales were up 14 per cent from September on a seasonally adjusted basis.
The average selling price was up 1.1 per cent compared with a year earlier at $1,135,215. The composite benchmark price, meant to represent the typical home, was down 3.3 per cent year-over-year.
“While we are still early in the Bank of Canada’s rate cutting cycle, it definitely does appear that an increasing number of buyers moved off the sidelines and back into the marketplace in October,” said TRREB president Jennifer Pearce in a news release.
“The positive affordability picture brought about by lower borrowing costs and relatively flat home prices prompted this improvement in market activity.”
The Bank of Canada has slashed its key interest rate four times since June, including a half-percentage point cut on Oct. 23. The rate now stands at 3.75 per cent, down from the high of five per cent that deterred many would-be buyers from the housing market.
New listings last month totalled 15,328, up 4.3 per cent from a year earlier.
In the City of Toronto, there were 2,509 sales last month, a 37.6 per cent jump from October 2023. Throughout the rest of the GTA, home sales rose 48.9 per cent to 4,149.
The sales uptick is encouraging, said Cameron Forbes, general manager and broker for Re/Max Realtron Realty Inc., who added the figures for October were stronger than he anticipated.
“I thought they’d be up for sure, but not necessarily that much,” said Forbes.
“Obviously, the 50 basis points was certainly a great move in the right direction. I just thought it would take more to get things going.”
He said it shows confidence in the market is returning faster than expected, especially among existing homeowners looking for a new property.
“The average consumer who’s employed and may have been able to get some increases in their wages over the last little bit to make up some ground with inflation, I think they’re confident, so they’re looking in the market.
“The conditions are nice because you’ve got a little more time, you’ve got more choice, you’ve got fewer other buyers to compete against.”
All property types saw more sales in October compared with a year ago throughout the GTA.
Townhouses led the surge with 56.8 per cent more sales, followed by detached homes at 46.6 per cent and semi-detached homes at 44 per cent. There were 33.4 per cent more condos that changed hands year-over-year.
“Market conditions did tighten in October, but there is still a lot of inventory and therefore choice for homebuyers,” said TRREB chief market analyst Jason Mercer.
“This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed and home construction continues to lag population growth, selling price growth will accelerate, likely as we move through the spring of 2025.”
This report by The Canadian Press was first published Nov. 6, 2024.
HALIFAX – A village of tiny homes is set to open next month in a Halifax suburb, the latest project by the provincial government to address homelessness.
Located in Lower Sackville, N.S., the tiny home community will house up to 34 people when the first 26 units open Nov. 4.
Another 35 people are scheduled to move in when construction on another 29 units should be complete in December, under a partnership between the province, the Halifax Regional Municipality, United Way Halifax, The Shaw Group and Dexter Construction.
The province invested $9.4 million to build the village and will contribute $935,000 annually for operating costs.
Residents have been chosen from a list of people experiencing homelessness maintained by the Affordable Housing Association of Nova Scotia.
They will pay rent that is tied to their income for a unit that is fully furnished with a private bathroom, shower and a kitchen equipped with a cooktop, small fridge and microwave.
The Atlantic Community Shelters Society will also provide support to residents, ranging from counselling and mental health supports to employment and educational services.
This report by The Canadian Press was first published Oct. 24, 2024.
Housing affordability is a key issue in the provincial election campaign in British Columbia, particularly in major centres.
Here are some statistics about housing in B.C. from the Canada Mortgage and Housing Corporation’s 2024 Rental Market Report, issued in January, and the B.C. Real Estate Association’s August 2024 report.
Average residential home price in B.C.: $938,500
Average price in greater Vancouver (2024 year to date): $1,304,438
Average price in greater Victoria (2024 year to date): $979,103
Average price in the Okanagan (2024 year to date): $748,015
Average two-bedroom purpose-built rental in Vancouver: $2,181
Average two-bedroom purpose-built rental in Victoria: $1,839
Average two-bedroom purpose-built rental in Canada: $1,359
Rental vacancy rate in Vancouver: 0.9 per cent
How much more do new renters in Vancouver pay compared with renters who have occupied their home for at least a year: 27 per cent
This report by The Canadian Press was first published Oct. 17, 2024.
