Buying Pre-Construction in Toronto? Read This First

Toronto's pre-construction market took another hit this month. Not long ago, the builder behind a major project filed for bankruptcy with $1.6 billion in debt. Now a second developer has collapsed, and every one of its projects has ground to a halt.

I'm Moe Asgarian, a senior Toronto real estate advisor. I want to keep this short and practical: what went wrong here, and what you should look at before you invest a dollar in any pre-construction project. This matters most if you just arrived in Canada, and even more if you are still on a work permit.

What Happened to the Builder

The developer is Vandyk Properties, and this is not some fly-by-night operation. They have been building since the late 1970s, mostly townhouses and detached homes, and more recently moved into mid-rise and high-rise. The company now owes around $23 million. That is nowhere near the billion-dollar scale of the earlier collapse, so why does it matter? Because we are talking about 1,757 planned homes that were supposed to be built and now will not be. Condos, townhouses, detached homes. Of those, 830 condo units had already been pre-sold.

Five Projects, 830 Pre-Sold Units

Five large projects are now in limbo. The first, Uptowns in Brampton, was 340 units. It started in 2017 and was meant to be delivered in 2020. Six years later, buyers are being told it will finish somewhere between 2024 and mid-2025. The second, Heart Lake Collection, was the 200-townhome second phase of that Brampton project, and construction never even began. The third was 37 detached homes in Mississauga, promised for 2024, though I am not holding my breath. The fourth was a pair of boutique-style condos on Lakeshore near the Mississauga-Etobicoke line. The fifth, Grand Central Mimico, was the big one: nine condo towers, around 750 units, basically a new neighbourhood. Demand was strong and it sold out fast.

How Tarion Protection Really Works

Here is the part that stings. The money buyers put down sits in the developer's trust account, and they cannot access it. Nobody knows when, or if, these units get built. Tarion covers some of this, but it has limits. For homes contracted before 2018, freehold protection runs up to $40,000. For freehold homes contracted after January 1, 2018, it is better: a home priced under $600,000 has its deposit protected up to $60,000, and above $600,000 the protection is 10% of the price up to a $100,000 cap. You may have heard about $100,000 of protection, and that is real, but it only reaches that ceiling on higher-priced freehold homes. Condos work differently, so read Tarion's policy carefully before you assume you are covered.

New to Canada? Settle First

If you just landed here, welcome. This is a country with real opportunity to build a good life and invest well. But my first piece of advice is to get to know your surroundings, find work, and make your situation stable before you buy. Plenty of people will push you toward a pre-construction purchase while you are still on a work permit. For most in that spot, this is not the right time. Get settled, get your PR, then look at the market. If your PR gets delayed, the 25% non-resident tax is a very big number, and mortgage rules get tougher every year. Fewer than 10% of people in that situation should be jumping into this kind of investment.

The Assignment Trap

Someone may tell you not to worry: if you do not want the unit at completion, you can assign your purchase to someone else. As I write this in early December 2023, a lot of people are losing money on assignments. They are selling for less than they paid and giving up part of their deposit. Before you count on that exit, think hard about what happens if the market does not cooperate. Talk to people who actually have experience in this market. The agent who sold you the unit took their commission and moved on. Your job is to check the details.

Canada's housing market is a good market. If you go in informed, you will be fine. If you have questions about a pre-construction project or want a second opinion before you commit, fill out the form at the bottom of this page or book a free consultation. Stay well and take care.