Pre-construction Assignment


1. What are Pre-Construction Assignments?

In Canada, Pre-Construction Assignments are the transferring of pre-construction purchase contracts between two parties before the contracted property is fully completed/registered.

The Assignor, who initially purchased the pre-construction unit from the Developer, is the ‘seller’ in a pre-construction assignment. The Assignee, to whom the mentioned contract will be transferred, is the ‘buyer’ in a pre-construction assignment.

The Assignee will be the new buyer named on the pre-construction unit contract with the developer and are responsible for closing the deal with the developer.

As mysterious and complicated as pre-construction assignments sound, they are quite common and completely legal in Canada.

In the initial Agreement of Purchase and Sales (APS) signed between the Assignor (the original buyer) and developer, there is often an “Assignment Clause” that outlines if and when the assignor can assign (transfer) the unit to another party. If an assignment is allowed, the assignment clause should detail the conditions that must be met, the number of times the unit can be assigned, and the associated assignment fee. 

2. Why Do Assignors Want to Assign Their Pre-Construction Contract?

There are many possible reasons why Assignors might want to assign their pre-construction unit before the closing date. Here is a list of the most common reasons:

1.     Assignor could be a future immigrant who is landing in a few years. These possible assignors brought a pre-construction unit in Canada for their own self residence, however, due to a wide range of possibilities (such as a change in family plan), they decide to postpone or cancel their immigration plan, hence, no longer need the property for self-residence and would like to sell it as an assignment.

2.     Assignor could be an immigration applicant. These possible assignors who also brought a pre-construction may want to assign it if they didn’t obtain their permanent resident status in time. At the time of closing, if a foreign buyer did not obtain their permanent residency, they will be subject to a 25% Non-Resident Speculation Tax, hence, the reason they want to sell their pre-construction as an Assignment.

More on None-Resident Speculation Tax (link)

3.     Assignor could be experiencing financial challenges. These possible assignors might be in a different financial stance than when they brought the pre-construction unit. As a result, they either need cash right now or don’t have the financial capability to close the pre-construction (or both). They will then need to sell their pre-construction unit as an assignment to avoid penalties or even lawsuits from the developer.

4.    Assignor could be an investor looking for a short-term gain. These possible assignors brought the pre-construction unit with plans to assign it in mind. They are betting that before the pre-construction unit closes, the market price of these assignments will be much higher than their original purchase price, and hence, make a profit from assigning it.

3. The Benefits of Assignment Investing – Remarkable Leverage Ratio


In a booming real estate market, assignments are definitely a fantastic tool to leverage our equity and further expand our potential returns.

Let’s first learn some background information on Canada, specifically Ontario, pre-construction industry:

1.    No Purchase Limit

In Canada, if you have enough capital, you can purchase an unlimited number of pre-construction units. You typically can only buy one from each project, but you can purchase from multiple projects.


2.    No Mortgage Obligation Until Closing

At signing the contract for a pre-construction unit, the buyer only needs to prove their financial capability to the developer, no actual mortgage is needed!


3.    Lower the Deposit, Higher the Leverage

Typically, a project only requires 15% - 20% of the full price as deposit before occupancy. The deposit payments are spread out into various installments across hundreds of days. Sometimes, the deposit can be as low as 5%! This means a 20x multiplier ROI on the capital gain you made.

Let's look at a hypothetical example of a successful assignment investment in a booming real estate market. We will remove the possible fees and taxes for simplicity

Suppose Pascal brought a pre-construction apartment at the original price of $500,000 CAD. The developer requires a 20% ($100,000 CAD) deposit. Three years later, Pascal assigns it for $600,000, which means Pascal made $100,000 from this assignment (sold for 1.2 times the original price). 20% profit return from a three-year investment is pretty good, but Pascal’s actual return on investment is 100%! This is because Pascal only paid $100,000 in deposit, with no other additional cost like interest on a mortgage. Using the nature of a pre-construction assignment, Pascal made $100,000 in capital gain from his $100,000 deposit. He effectively multiplied his profit by 5 times!

Through this example, we can conclude that the lower the deposit, the higher the multiplier.

We at Your Home Sold Guaranteed Realty Team Pris Han successfully assisted countless clients in assigning their pre-construction units. We can take a look at a real-life example from one of our past clients, Aaron (pseudonym for privacy). Aaron purchased a pre-construction unit back in 2018 for $660,000.00, then in 2021, Aaron decided to move to Vancouver and wishes to assign his unit. With our assistance, Aaron was able to assign his unit for $810,000.00. Divide the capital gain by the original purchase price (144,000/666,000), you will get a 22% profit. But since Aaron only paid cash $100,000 for deposit and nothing else, the actual return on investment is 144% ($144,000/$100,000) before any applicable taxes and fees!

You can compare 144% return on investment over a 3-year period to any other investment tool, you will realize pre-construction assignment can be a phenomenon investment tool. But of course, as with any investment, there are risks involved.

4. The Risks of Pre-Construction Assignment

The market doesn’t always go in the direction we want it to, in a booming market where the housing market is growing faster than expected, pre-construction assignments can be extremely profitable. But if the market downturns, assigning it might not be as profitable, or even result in a loss.

If the original buyer is unable to assign the unit, the original buyer must close the unit with the developer. At this time, the buyer must prepare sufficient funds for closing, including remaining deposits due at occupancy, lawyer fees, land transfer tax, and other applicable expenses. If the buyer is unable to close the unit due to financial difficulties, the buyer still has a few options:

1. Find a private lender. These lending institutions are usually more lenient than the typical lenders in terms of the loan amount, but the interest rate will often be higher than your typical lenders. Buyers can first find a private lender to close the deal with the developer, and then transfer the loan to a big bank with better interest rates in a year or two.

2. Refuse to close with the developer. This is likely to be regarded as a breach of contract and can lead to lawsuits. If the developer wins the lawsuit, the buyer needs to compensate the developer for all losses in this transaction, including, for example, the difference between the new selling price and the original contracted price if the developer had to sell the unit for a lower price, as well as legal fees and so on.

3. Assigning at a loss. If there is still time for assignment, then there is still a chance buyer can assign it. There are no unsellable properties, only unsellable prices. In theory, as long as the asking price is in line with the market and the marketing exposure of the real estate is sufficient, it will attract buyers. If the market price at this time is lower than the original purchase price, the buyer should be psychologically prepared to sell at loss.

Of the above three options, option 1 and option 3 are worth considering.

Option 2. is likely to be the most costly, both financially and emotionally.

5. Assignment cost and fees for the Assignor

Although the profit earned when investing in the assignment could be huge, it is not without risks. We need to calculate the costs of the assignment, such as tax declaration, and then decide if it is still a good deal.

1) Real estate brokerage commission

In Canada, brokerage commissions for both buyers and sellers are paid by the seller. The seller has to pay a commission of 1.5%-2% to the seller's brokerage, and at the same time pay a commission of about 2.5% to the buyer's brokerage. Therefore, as a seller, you have to pay a total of 4%-4.5% of the transaction price of the assignment as the brokerage commission for both parties.

2) Personal income tax

The taxation of the assignment is different from that of ordinary house sales. If it is a self-residence house, the capital gain after the sale is not taxed at all. If it is an investment of an existing or resale house, half of the capital gain will be taxed as income for the year. However, an assignment requires the full amount of capital gain as income to be added to the seller's total income for the year for taxation. For example, if the seller is a high-income earner and is in the highest tax bracket, a net gain of $100,000 would be taxed at a rate higher than 45%.

3) Sales tax HST

According to the latest tax law in Ontario that came into effect in May 2022, regardless of whether the original purchase intention is for self-residence or investment, an assignment is subject to a 13% sales tax (HST) on the capital gain. In the hypothetical example of $500,000 above, the 13% HST payable on the $100,000 increment would be $13,000. It is recommended that sellers of assignment consult an accountant to verify the latest HST policy.

The amount of various taxes and transaction fees involved in the assignment cannot be underestimated. The so-called high return on investment is not absolute. When the Toronto real estate market is strong, we can take advantage of the investment attributes of pre-construction sales. Because when the market is good, house prices often rise rapidly within a few years of waiting for the house to close, making the capital gain more than enough after deducting various expenses and taxes. At this time, the assignment can naturally ensure high returns.

But more often, assignment should be used as an insurance. It is to transfer unplanned properties for the purpose of protection or insurance when there are unpredictable changes in personal and family plans and financial conditions, so as to reduce unnecessary losses.


6. Assignment cost and fees for the Assignee

Let’s take a look at a real case of an assignment done by Team Pris Han Realty, how to calculate the total cost of the transfer.

The pre-construction unit is located in downtown Toronto, and will be available for temporary occupancy on September 3, 2021. The official closing date with the developer is October 26. So this is an off-plan property in the city center that can be handed over immediately and is ready for occupancy. (For the relationship and difference between the temporary move-in date and the closing date, please refer to "Procedure and Precautions for Purchasing Off-the-plan Houses" Link xxx)

This property is a two-bedroom, one-bathroom condominium in downtown Toronto. The transfer price of the pre-construction is $728,000, and the original purchase price is $610,990.


1. Deposit

The Assignee needs to pay the deposit that the Assignor has previously paid to the developer. In this case, the original buyer at the time was an overseas buyer, so his deposit was 35%, amounting to $213,850. This is a relatively high deposit payment.

2. Capital Gain

The Assignee needs to pay the Assignor the capital gain (CG) of the assignment, that is, the assignment price minus the original price. In the case, the CG of the uncompleted property is $728,000 minus $610,990, which is $117,010.

But our case is quite special, because the seller as an overseas buyer, had to pay a relatively high deposit of 35% (local buyers usually pay 15%~20% deposit).

If the Assignee would have to pay the deposit $213,850, plus the capital gain of $117,010, then $330,000 cash is needed to take over the assignment. This cash requirement is challenging for many buyers.

Therefore, the seller made the decision to discount on the payment method, that is, the buyer who will take over the assignment is required to pay only 20% deposit on the Assignment Closing Day, plus the capital gain. This way, the cash required will be reduced from $330,000 to $239,208.

The price difference, which is 15% of the original price (35% deposit - 20% deposit), is $91,652, which can be collected on the final closing date. Some banks can make loans based on the transfer price instead of the original contract price. When the Assignee, formally gets the purchase contract of the unit from the developer, the Assignee can apply for a loan from the bank, part of which is used to pay the developer, and the other part is used to make up the deposit to the Assignor. The difference of $91,652 can be set out in the contract and the lawyers of both parties will implement it. Other sellers with high deposit payments, or overseas sellers can also use the method of accepting delayed payment of cash required for the transfer of pre-construction (Assignment Closing Cost) to attract more buyers who take over the APS, and the balance will be collected on the final closing date.

3. Land Transfer Tax

Whether it is a new house or a resale house, buying a property in Canada will require you to pay the land transfer tax on the closing date. If the pre-construction is in the urban area of Toronto, the buyer has to pay both the land transfer tax in the urban area of Toronto and the land transfer tax in Ontario. If it is an area outside Toronto, you only need to pay Ontario's land transfer tax. If the buyer is buying a house for the first time in Canada (First Time Home Buyer), the buyer can get a First Time Buyer Rebate from the government.

Click (go to URL) to use the loan calculator to calculate the land transfer tax and mortgage loan.


4. Development Charge

When the developer hands over the units, the government will charge various municipal fees such as water and electricity connections. The developer will pass this fee on to the buyers proportionally according to the size of their unit. This fee is called Development Charge. The developer has written the upper limit of each unit in the original purchase contract. In our case, we have a two-bedroom unit. The upper limit of the development charge stated in the contract is $12,500, so the Assignee must pay this amount when the unit is officially handed over.

Note that the assignee must confirm through their lawyer with the developer if the upper limit of the development charge in the original contract is still valid after the transfer of the pre-construction and has not been cancelled. Otherwise, the Assignee, as a new buyer, may have to pay high development charge fees if he loses the developer's original preferential fee.

5. Occupancy Fee

After the Assignee takes over the APS, the time period from Interim Occupancy Date to Final Closing Date generally ranges from one month to six months. During this period of temporary occupancy, the developer will charge the buyer a temporary Occupancy Fee every month. Because although the buyer has the key to move in or rent out, the property ownership still belongs to the developer. This is equivalent to the developer renting out the property to the buyer, so a fee is required. In our case, the Occupancy Fee of our property is $1,485.15 per month. But the payment time is not long, the temporary occupancy is September 3, but the official closing date is October 26, so the buyer only needs to pay the temporary occupancy fee for less than two months.

6. HST and tax rebate

Except for a few things, everybody has to pay a 13% sales tax HST when purchasing things in Ontario. New homes are no exception, subject to HST. If the new house is purchased for self-residence, the government will provide a partial tax rebate (the HST Housing Rebate), which is given to the buyer through the developer. At this time, the developer's selling price has already included sales tax and partial tax rebates, and self-occupied buyers do not need to pay HST. But if the property is an investment, the buyer won’t benefit the tax rebate. Properties above $500,000 need to pay $24,000 HST, and the buyer must hand over this money to the tax bureau (CRA) through a lawyer when handing over the house. However, when the investor buyer rents it out and gets a one-year lease contract, he can apply to the government to get back the HST through an accountant.

Note: For the Assignee of the pre-construction sale, in many cases, whether it is for self-residence or investment, it is necessary to pay HST through a lawyer at the closing date. Afterwards, self-occupied buyers can apply for refund of tax rebates by proving their self-occupancy through materials, or investment buyers can apply for tax rebates with a one-year lease. Many accounting firms have this business of applying for HST tax refund on their behalf, and the fees range from several hundred to one thousand Canadian dollars.

7. FAQ楼花转让的常见问题




疫情后钥匙的交接通常由卖家通过卖家经纪在房产处留在有密码的钥匙箱(Lock Box)里。买家律师登记好产权,交接成功后把密码告知新主人。有时,买家希望提早把新买的家具送到新家。除非买卖双方通过签署提早交房日的协议 (Amendment) ,否则这在多伦多并非轻而易举就能达成。进场新屋的安排,买家应安排在交房日之后。

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