February 2008 - 'Pre-sales still attract savvy investors despite risks and gains'
February 25th, 2008 - www.AssignmentsCanada.ca - a leader in the assignment and pre-sale field since 2004 with more than 300,000 hits per month - is on hand to offer advice following the revelation that the Sophia development has gone into receivership.
Even with the reported 12-per-cent increase pre-sale owners may now be required to pay, in the current real estate boom they will still have made a profit on their unit since buying in 2005. From the web site's statistics, an average 1-bedroom pre-sale in Yaletown in that year was selling for around the $275,000 mark. Now, it is nearly impossible to find one under $400,000. That equates to a 45-per-cent increase.
"In today's market," says Nicola Way, founder of AssignmentsCanada.ca," if you compare the percentage deposit that was paid two years ago, to what the unit is now worth, the purchaser will still come out on top."
She adds, "Among myriad developments in Vancouver, and across B.C. and Canada, this receivership is still a rare occurrence. It does, however, highlight our recommendation to the many people who enquire about pre-sales and assignments through our web site that they need to read the Disclosure Statement with a fine toothcomb and discover the history of a particular developer. There are risks associated with all investments."
The Sophia development in Vancouver is just one of 155 pre-completion buildings and resales on AssignmentsCanada.ca listed by Realtors.
AssignmentsCanada.ca - first established when Way wanted to assign her own Yaletown apartment and realized it could not be advertised on MLS - applauds the recent Superintendent of Real Estate's introduction of two new Policy Statements. From November 1, 2007, Disclosure Statements filed under the Real Estate Development Marketing Act require additional information regarding the terms of pre-sale agreements, the background of developers, and potential conflicts of interest.
"This will further help purchasers to understand fully the offerings of real estate developers," she says. "Investors, however, are still attracted by profits that can be made from buying a pre-sale unit and assigning it prior to completion. This is what fuels the assignment industry. The worst case scenario, which is what happened with the Sophia, is that after a purchaser has bought a pre-sale and paid the deposit, the developer gets into financial difficulty with rising construction costs and in order to complete the building, requires the purchaser to raise further capital to fund a larger deposit."
When a unit is assigned, the original purchaser receives the amount of the deposit paid and then can negotiate the terms of payment of the "lift" or increase in original purchase price and the new assignment price. This lift is usually paid upon building completion, in which case the purchaser of the assignment can include it within the mortgage. However, the lift can also be paid at the same time that the deposit is paid, or a percentage of it can be paid with the balance owing upon completion. It all depends on the demand for the unit and each party's negotiating skills.
Key considerations in the success of an assignment are always location, accessibility, amenities and the opportunity to own a brand-new apartment.
Editor's Note: AssignmentsCanda.ca is an independent listings web site. Formed in 2004, it has received coverage on CBC Radio, the Vancouver Sun, Ozzie Jurock's Insider Newsletter, and regular editorial in the following publications: A Place in the Sun, Homes Overseas, Homes Worldwide, Weekly Telegraph, The Daily Telegraph, Location Location Location, International Homes Luxury Collection, Canada News.