A housing sector that appears prime for flipping – pre-sale condominiums – is exempt from new B.C. legislation meant to restrict the sale of contract assignments and track foreign buyers in Metro Vancouver’s white-hot housing market.
Assigning one’s right to a contract is a legitimate practice. But, due to media reports that some realtors were flipping assignments secretly, the B.C. government now requires contracts prepared by real estate licensees to include clauses stating that the contract can’t be assigned without the written consent of the seller and that any profit from an assignment goes to the initial seller. The new rule came into affect May 16.
But the legislationexempts new developments, including pre-sale condos, even if a licensed realtor sells the assignment, according to the Real Estate Council of BC and the Ministry of Finance.
Section 8.2(2) of the new regulations states: “This section does not apply in relation to a contract for the sale of a development unit by a developer, as those terms are defined in section 1 of the Real Estate Development Marketing Act.”
Finance Ministry spokesman James Edwardson said the regulations contain an exemption for developers “because they generally do not need the same kinds of protections as consumers, especially since developments are often pre-sold and some form of assignment term is standard.”
Under the 2008 Real Estate Development Marketing Act, which was instituted during the last real estate boom, the onus is on developers to police assignments. Some have done this by charging a fee, usually 1% to 2% of the sale price, and outlawing the advertising and sale of assignments until the building is sold out.
“The processes already in place with respect to assignments in new developments seem to have better protected the public than the processes that were in place for resale,” said Scott Brown, president and CEO of Fifth Avenue Real Estate Marketing Ltd., one of Metro Vancouver’s largest condo marketing firms.
But Metro Vancouver developers report that there is vague enforcement and only modest concern about assignment sales.
Jason Turcotte, Cressey Development’s vice-president of development, said Cressey allows pre-sale assignments because, with the two- to three-year delay between pre-sales and completion, some condo buyers couldn’t close on their units and therefore should be allowed to assign the sale.
As for advertising restrictions, about three dozen condo assignments were listed on Craigslist last week, including units in luxury Concord Pacific projects and WestbankCorp.’s landmark Vancouver House that is scheduled to be completed in 2019. The ads are from realtors and owners holding pre-sale contracts.
Assignments can be a “win-win” for developers, because the developer gets the original price for the condo, a 1% to 2% commission on any assignments and, as Vancouver real estate agent Mike Stewart pointed out, “if the buyer doesn’t close, they get to keep the deposits and get the condo back.”
Condo assignments could also be lucrative for investors. There are 17,311 new condominiums under construction in Metro Vancouver and there are only 790 units completed and unoccupied, a six-year low, according to Canada Mortgage and Housing Corp.
As well, the benchmark price of a Metro Vancouver resale condo has increased 20.6% from April 2015 to $475,000. New condos are fetching even higher prices and seeing similar price appreciation.
The 6,227 new condo sales in 2016’s first quarter in Metro Vancouver represented a 53% increase from the same quarter last year and a new six-year high, according to Brown.
“Feverish sales activity has resulted in inventory levels reaching six-year lows, which will put further upwards pressure on prices as demand seems to continue to outweigh supply,” Brown said.
There is another aspect that some offshore investors might consider, according to real estate consultant Ozzie Jurock. He noted that, under separate legislation that also came into force this month, the B.C. government will require the buyer of a property to list his or her citizenship.
However, the requirement is only on transfer of title. Therefore, under the new rules, Jurock said, a foreign buyer could buy a pre-sale condo assignment, flip it to a buyer and never appear either as a buyer of an assignment or as property owner on any government documentation.