Why Assignment Sales are Making a Comeback

25 February 2019

Assignment sales were a hot subject just a few years ago. Assignment sales, usually for new condos, take place when a Buyer sells their interest in a property BEFORE they take title through registration. They were popular until Revenue Canada stepped in to rule that these sales were not subject to Capital Gains but instead should be taxed as income. Revenue Canada also ruled that these were commercial transactions and are subject to HST. The Buyer, now Seller, was in the business of flipping properties. Buyers then realized it was far more advantageous to close on the purchase of these properties and rent them out instead. The Assignment market dried up.

So, why are Assignment Sales making a comeback?

When many Buyers bought new condos 4-5 years ago, they were pre-qualified for a mortgage under the lending rules at that time. But, the Government (again with it's infinite wisdom) introduced a Stress Test at the start of 2018.

The Stress Test means that you have to qualify at a mortgage rate more than 2% higher than what you could borrow for a 5-year fixed rate. If you look at any yield curve you know that the difference between 5 year and 10 year Government bonds is basically 0. That means little chance of mortgage rates rising by 2% in the next 5 years. That doesn't help Buyers who bought 4 or 5 years ago, but who can't qualify for a mortgage today. Buyers are then left with little choice. Sell the new condo as an assignment, or lose some or all of their deposits.

These Assignments represent an additional market for new Buyers, hopefully with a chance to purchase at below resale prices. Where to find them and how to structure the deal, that's why you need a really good agent.

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