A growing contingent of Canadians are defaulting on agreed 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 local real estate agents, which add that many buyers are having to lose their deposit as they are unable to complete the purchase once the unit is completed.
Toronto real estate broker Barry Lebow told local press that he 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.
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 in Canada will only loan money on the current value of a property, so if a buyer agreed to pay $1m 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 added.