No matter what you invest in or where, real estate is a gamble, and a number of investors in a pre-construction development in Oakville have found themselves with some serious buyer’s remorse.
Last week, the Toronto Starreported that Canadian home builder Mattamy Homes is now selling pre-construction houses in its Preserve West community at a significant price cut, much to the dismay of dozens of people who bought into the same development during last year’s market peak.
The disgruntled buyers are now reporting “financial devastation” and difficulties securing mortgages -- understandably, as the high interest rate environment has put the cost of borrowing through the roof. They’re also fearful of the implications to their home values.
In a statement to STOREYS, Brent Carey, Vice President of Communications for Mattamy, confirms that sales in the Preserve West developments are indeed continuing at a discounted price, and says that the reductions are in line with the broader housing market.
And it’s hard to argue with that logic.
The median selling price for single-family homes in the Oakville-Milton area was down close to 27% in January compared to the year prior, according to the Oakville, Milton and District Real Estate Board. Similar realities can be observed throughout the GTA.
“Mattamy sells through all market cycles, and every week sells homes at prices that reflect the market at that time,” says Carey. “Currently the market is reacting to the interest rate and inflation environment, and all participants in the market -- which include resale and new home buyers and sellers -- are impacted.”
He adds that, had the buyers locked in their financing at the time of purchase, they could have mitigated some of the grievances being aired today.
The Star also reports that some buyers are considering walking away from their purchase agreements, but the ramifications of doing so could make a bad situation worse.
According to the Real Estate Council of Ontario (RECO), most real estate transactions in Ontario do not have a “cooling-off period.”
“Which means there is no guaranteed cancellation period without penalty if you change your mind,” writes Joseph Richer, Registrar of RECO, in a post on the organization’s website. “An agreement to buy a home is a legally binding contract. If you have had a change of heart and would now like to back out of your deal, you should expect to face financial and legal implications. This means that you may risk losing your deposit or worse. If the seller takes legal action and you end up going to court, you could be ordered to complete the purchase, or you may be liable for damages beyond your deposit.”
The one exceptional scenario pertains to newly-built condos, which are subject to a 10-day cooling-off period.
“Mattamy takes the agreements we enter into with our home buyers very seriously and is committed to fulfilling our obligations to our customers. Similarly, we expect our home buyers to meet their obligations to us,” Carey continues. “The agreement is legally binding on both parties. While Mattamy works with our home buyers to suggest resources and referrals to help them get their homes closed, we enter into these agreements with the expectation that they will be enforced."
It’s worth noting that Mattamy was embroiled in an almost-identical controversy in 2018. At that time, the matter garnered the provincial government’s attention, according to reporting from the Star, but ultimately, the onus remained on the buyers.
Are these frustrating situations for the jilted buyers? One can only imagine. But the consensus amongst real estate experts is that it’s simply the name of the game.
Homebuyers Are Protected -- But Not From Market Turmoil
“Our home building industry is up there with the best in the world,” says Richard Lyall, President of the Residential Construction Council of Ontario (RESCON). “We have a very, very evolved system of consumer protections for new homebuyers.”
He points to the Home Construction Regulatory Authority and Tarion -- both not-for-profit organizations that exist to ensure homebuyers are protected and deal with a fair, safe, and informed marketplace. Under Tarion, for example, builders that fail to complete projects on time without just cause can face penalties, since it could subject the buyer to a greater range of market fluctuation.
In this case, however, it appears that Mattamy has minded all rules and regulations. The market, however, has been unpredictable and unforgiving.
“We've had pretty much a bull market for 20 years. Prices of housing have gone up and up and up,” says Lyall, adding that this has given some buyers a “false sense of security.”
Of course, the market took a turn last year. Home prices in the GTA peaked in February before steeply dropping off until early summer and more or less flattening for the remainder of the year.
While Lyall sympathizes with the Mattamy situation, his overarching sentiment is that the market ebbs and flows. In an ideal world, buyers wouldn't get burned, but it is what it is.
“There has been some litigation in the past where some people have tried to sue a builder, but it’s the reality of buying in a market. You go to the grocery store and tomatoes are one price one day and another price the next day,” he says. “It's difficult for builders, too. Builders don't want the bad press, but everybody's under pressure.”
As far as Lyall is concerned, the biggest takeaway from the ongoing controversies is to broach pre-construction investing -- and the housing market in general -- with caution.
He stresses the importance of retaining a lawyer, consulting with a mortgage professional, and reading the fine print of a purchase agreement prior to solidifying a transaction. On top of that, consumers should “crunch the numbers,” he says, and be very wary of over-leveraging.
“What's your worst-case scenario? What happens if rates go up by 2% or 3%? What happens if you lose your job? Do you have that rainy day fund?” he says. “Know what you're buying, know your limits, always be mindful of a rainy day, and don't believe the baloney that housing will keep going up and up and up. Housing is part of the larger market, it has cycles.”
