Recent media articles on presale condo assignments of contract have been full of factual errors and have misrepresented presale assignments as shadow flips.
Presale condo assignments ARE NOT Shadow flipping.
Let’s clarify.
What is a Shadow Flip?
A shadow flip is when an existing property primarily a single family house or single family house lot is purchased by a buyer under false pretenses. The contract that was used to purchase the property has a clause in it saying that the buyer can assign the contract without the permission of the seller. This practice victimized unsophisticated sellers of single-family houses in areas that had lots of demand before the Advent of the foreign buyer’s tax. This practice of assigning existing properties without permission is now not allowed in British Columbia. If the buyer of an existing property wants to assign it prior to completion, they need to get the seller to sign a release saying they will allow an assignment of the contract to occur.
What is a Presale Condo Assignment of Contract?
A presale condo assignment of contract is when the buyer of a presale condo sells their rights or “assigns” their rights under the contract to another person. The original seller of the presale, the Developer or builder of the property has to give written permission to allow the assignment to occur.
Presale condo assignments regulated by legislation called the Real Estate Development Marketing Act here in British Columbia.
Again, to assign a presale condo contract you need to get permission from the original seller which is the developer.
Developers here in British Columbia are some of the most sophisticated and richest people in the province and typically have the best lawyers in the province at their beck and call. There’s nothing Shadow about this. The written permission of some of the most sophisticated and well-off people in The Province who actually are actually building the property is required to let the sale of the presale condo assignment.
To clarify nobody is taken advantage of and everyone who is party to the contract has to give their written permission for a transfer of ownership of the rights in the contract.
Presale Condo Assignments of Contract Increase Supply to Keep Prices Under Control?
Yes.
Presale condo assignments do not inflate the price of real estate in Vancouver.
Presale condo assignments actually increase the supply of available properties at times when they are available for sale. This supply actually keeps prices stable or lower than they would be without presale condo assignments. The reason why presale condo assignments occur is because of a lack of supply and too much demand. This excess demand can be seen from the rise in prices we have seen in Vancouver recently.
Consider this:
A person buys a presale. That presale increases in value caused by increasing demand for property. Our person by assigning their presale condo is increasing property supply and are keep prices lower than they could have risen by making their assignment available for sale.
Why real estate prices are high and rising in Vancouver.
There are three major reasons why property prices are high in Vancouver and continue to rise.
- Demand caused by immigration – Canada’s population grew by 1,000,000 people in 2022 and at growth rates on track to see the doubling of Canada’s population in 26 years. These people need somewhere to live. Canadians have a birth rate that is below replacement level. The vast majority of population gain in Canada is from immigration. A growing population who want to live in the nicer parts of the country like Vancouver results in demand for property. Increased demand equals increased prices when you have constricted supply which leads us to our next Point.
- Limited Supply – The Vancouver area has limited land available for development. We have the ocean to the West the mountains to the north and east in the US border to the South. There is a limited amount of land that can be developed on in this area. We are not Calgary or Toronto or Los Angeles where we can sprawl our way out of high property prices. We need to build up and that leads me to the next point about government and their role in inflating the price of real estate in Vancouver because of delays and their environmental and social agendas.
- City Government Caused Delays & Expensive Environmental + Social Agendas – City governments in the Vancouver area take a very long time to allow new projects to come online. This delay increases cost for the builders and developers of properties that are passed onto buyers. Every delay that occurs caused by government increases the cost for the builders of properties because of interest, holding costs, and other costs. Also if the focus of the cities in the region is on an environmental or social agenda rather than housing affordability, housing is not going to be cheap. High environmental standards are expensive. Social housing in the city of Vancouver is expensive. Those who buy properties and pay taxes in the Vancouver area are the ones who pay for this. Typically they pay for it in the form of higher housing costs.