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One Vancouver developer is dealing directly with the problem of condo buyers who purchase condos prior to occupancy, and then “re-assign” or sell the contract to another buyer prior to completion, pocketing the proceeds. While the Real Estate Council has regulations around “assigning”  single family houses, there is no similar regulation of condos prior to occupancy, and this activity has boosted the price of units.
As Joanne Lee-Young in the Vancouver Sun reports prices started at $890 a square foot for a 450 square foot unit in a 53 storey tower called One Burrard Place at Drake Street. That amounted to $400,000 for that unit in the winter of 2015. By early 2016, with all 354 units sold prior to building, condo prices increased around 40 per cent and the cost for a similar unit was about $1,250 a square foot.
President and CEO of Reliance Properties  Jon Stovell noted that there was 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.”  And he came up with a solution: instead of accepting 1.5 per cent of the initial purchase price back to the developer in order to gain permission to assign the sale to a new buyer, the seller must pay 25 per cent of the profit made on the assignment. Hoping to discourage speculation, Jon Stovell observed ““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.”
Stovell  also noted that while some buyers are upset that the developer is taking what the buyer perceives as their “windfall” before assigning the property, those buyers are welcome to wait until the condos are completed, and sell the units after the building is completed. The re-assignment of condo units appear in a variety of websites so it is difficult to ascertain how many buyers are trying to resell their units prior to construction completion. What will be interesting is to see whether the 25 per cent payback to the developer limits the flipping of units prior to occupancy, and whether that contains some of the rising sale prices of these condo units.
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Comments

  1. While this gesture is noble one has to ask: Why should assigning or flipping be disallowed or is somehow unethical ?
    It provides easier financing to builders. Anyone is free to join the party.
    The key issue is lack of taxation ie tax evasion by many flippers. What we need is a registry of such condo sales and reporting to CRA or easily traceable sales via SIN number !
    To me the tax evasion story is the bigger story here. Perhaps include condo assignments on land transfer tax regulations too.

    1. Those builders would have had access to the capital from the eventual buyer (who was likely shut out by offshore sales or “VIP” access). In the meantime the price is driven up needlessly. The assigner/speculator created and added no value to the product. It’s a fool’s game, but that’s Vancouver for you.

    2. Also hasn’t it be shown that anyone isn’t actually free to join the party, as most of the units in pre-sales are snapped up by industry insiders before they get opened up to the general public…? A tidy way to an extra bonus for realtors and other developer “friends.”

  2. As a grammatical note, an assignment is a legal document and assigning contracts is ordinary-course in the business world. (i.e. no need to add quotation marks as if it were slang or a euphemism).
    Often, assignments require the consent of the non-assigning party. In this case, that would be the developer.
    That’s an easy fix.
    I wonder why developers don’t include such restrictions more frequently?

      1. Given that the original buyer is usually able to sell the assignment, its clear presales would be no problem even if assigners were excluded. It’s all about access.

      2. Capital markets are about efficiency. If a developer can fill a room with folks that buy on the spot then why go through a more extensive and lengthier, thus more costly, sales cycle ?
        Again, the issue is the lack of taxation of the flippers ie tax evasion. If taxes were enforced properly, usually as passive income ie taxed at 50%+, then it would not be so common ! Perhaps the onus needs to be put on the developer to enforce taxation and/or registry of buyers.
        If assignments re reduced expect prices to RISE anyway as the sale would take longer, financing would be more complex and thus, expensive and thus, it might not be any cheaper to the end consumer anyway. Every action has a reaction.

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