Comment by guardiangod | Hacker News Reader

Comment by guardiangod | Hacker News Reader

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If a pre-sell buyer decides to flip the property immediately, what harm is there in that

http://www2.jurock.com/articles/columnist.asp?id=9370

But in 2008, worldwide financial markets tanked and with it condo markets in Vancouver. By December 2008, some 200 presale unit owners were offering their contracts on Craigslist - often at a loss. (On March 20, 2012 there were just 39.) When that did not work, many simply did not complete the deal and lost their deposit. Some lost not only their deposit, but where the price of the unit had fallen they were sued by the developer for the difference (developers won in many cases).

Needless to say, developers once burned have now tightened up the contracts. Buyers must realize that developers get their financing on the basis of pre-sales and rightfully expect and deserve all pre-sales in their development to complete.

Also, you then have issues with insider buying/selling etc. It's just not worth the hassle for the developers.

http://globalnews.ca/news/2823397/vancouver-pre-sale-condo-m...

I don't quite understand; this column simply re-iterates what I said.

Needless to say, developers once burned have now tightened up the contracts. Buyers must realize that developers get their financing on the basis of pre-sales and rightfully expect and deserve all pre-sales in their development to complete.

So, the pre-sale game changed. But probably for the better.

Builders offer the 'pre-sale discount' because they're trading return for security; they need to sell-through on the units they're building. If a bunch of the pre-sell buyers then flake-out and decide not to pay, the builders are in a hole.

The point that I'm making is that this has no effect on the trajectory of prices; its merely a small discount on the market price for those units. Pretending that this is a key driver of prevailing market prices doesn't help anyone; if the market wasn't already rising feverishly then 'shadow-flipping' and 'pre-sale flipping' would carry more risk and you'd lose money as often as you made it.

In Toronto, I heard stories of brokers buying 5-10 pre-release condos and selling them all before taking possession. These people didn't have cash to pay more than the deposit and became millionaires overnight. I don't know how pervasive this was though. There are not too many asset classes where one can pull this off .. so I guess kudos to those people.

I think having tighter contracts to keep people from weaselling out of their pre-sale commitment is a Very Good Thing; anyone who makes a such a commitment should be bound to it.

But here in Vancouver there are people who are upset that pre-sales sometimes don't include the general public. There are builders who've restricted pre-sales to friends and families, and this is perceived as 'unfair'; when these units do show up on the market, they'll be more expensive than the pre-sale price (of course! they no longer get the discount and the market rose in the 8 months that it took to finish the project!). I think there are Vancouverites who then assume that this difference is cumulative across the market and that it is the cause rather than the symptom of the ridiculous increase in cost of housing here.

This is equivalent to betting on the margin — the downside is that you end up holding a contract that commits you to paying for the whole condo, and if you can't get rid of that contract when the market goes down or you become incapable of paying, the developer will sue you (see above comment about what happened in 2008 in Vancouver).

This is not easy to do. Most developers in Toronto will not allow you to post on MLS before possession. And many will not even allow reassignment (change the name of who will own the condo).

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