Homebuyers who took a chance by purchasing properties before they were constructed in the hopes of gaining an early advantage in a pricey real estate market are now experiencing the repercussions as property values decline.
A growing number of Canadians, particularly in condo markets like Toronto, are facing the harsh reality that developers and lenders are not willing to bear the financial burden when property values decrease.
Vitor Almeida, a carpenter and former real estate agent, is one such individual. Over five years ago, he committed to buying a pre-construction condo in Vaughan, Ont., for $675,000. Despite putting down a 20 percent deposit, securing financing is contingent on the unit nearing completion and finalizing the transaction.
Several years later, an appraisal valued the condo at $590,000, making it impossible for Almeida to secure a mortgage as the property was no longer worth the agreed-upon purchase price.
Amid a more than five percent decline in the average selling price of condos in the Greater Toronto Area towards the end of 2025 compared to the previous year, condo prices in Toronto have dropped by approximately 25 percent since their peak in 2022.
For buyers like Almeida, the options are limited if they cannot bridge the gap between the appraised value and the initial purchase price. Failure to do so may result in forfeiting the deposit, fees paid, and potential additional costs.
Mortgage broker Ron Butler believes that buyers in this predicament may face legal consequences as developers can pursue them for breaching the contract.
In Toronto, the real estate market is expected to face challenges in 2026, with an estimated 28,000 units set for completion and a widening disparity between purchase prices and current market values.
Trying to transfer the property to another buyer through assignment is not a straightforward solution, as builders must approve the process and may impose fees ranging from hundreds to thousands of dollars.
Real estate lawyer Gathya Manoharan highlighted the difficulties buyers face in a market with high supply and low demand, emphasizing that very few newly built properties retain their value.
Amid these challenges, Diana Mok, an associate professor specializing in real estate finance, suggests that addressing the issues in the market may be complex, drawing parallels to stock-market risks and emphasizing the importance of understanding the risks associated with committing to a fixed price in advance.
It is crucial for buyers to be cautious and avoid following trends blindly, as rushing into investments without considering potential risks can lead to financial consequences.