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According to confidential listings viewed by The Globe and Mail, one house is listed for 12 per cent below the $2.56-million price Mr. Khan agreed to pay the developer in 2022 – a discount of just over $300,000. The second one is listed 6.5 per cent above his $2.5-million purchase price.

About a month ago,Mr. Khan received a verbal offer for one of the properties that was $650,000 below the original value, according to his realtor, which he didn’t accept. Since then, no one has shown any interest in buying the rights to his sales contract.

With the developer, Caivan Communities, expected to finish construction this summer, Mr. Khanwill soon have to secure mortgages and take possession of the properties. He worries he can no longer afford to close on the deals – which would put him at risk oflosing his $700,000 in deposits. (Caivan did not respond to a request for comment.)

“My concern is, you know, what about my hard-earned money that I have put down for two homes?” Mr. Khan said. “I’m really worried now about what’s going to happen.”

Many preconstruction buyers across Ontario are in a similar predicament, especially those who bought between 2020 and 2022 when the real estate market was booming and preconstruction homes were selling at much higher prices.

In the past they could have negotiated a private sale – known as an assignment sale – before taking possession and closing on the properties. But that market is gone now as demand for new construction homes is drying up because homebuyers and investors can find cheaper homes on the resale market.

The assignment market gives preconstruction buyers – with a developer’s approval – a way to sell unfinished properties in private deals brokered by real estate agents. It used to be a thriving market where buyers turned an easy profit as home prices soared, and was often used as part of an investment strategy to flip homes before buyers were required to close on properties.

But while preconstruction homes are flooding the markets, buyers can no longer find people willing to take over their purchase contracts, and many can’t afford to cover occupancy fees or carry the mortgages if the sales close.

“Alarm bells are ringing,” said Jeff Carr, a realtor with Re/Max Plus City Team Inc., who said his brokerage has received calls from hundreds of preconstruction buyers inquiring about getting out of their purchase agreements. “A lot of people went into it blindly. There were a lot of agents out there that didn’t properly explain to purchasers what they were actually getting themselves into.”

He added: “I think for a long time, the market was so hot, and it honestly was quick and easy to sell assignments with a significant amount of profit that people just thought that train was going to continue to roll along.”

The situation is set to worsen this year with developers on track to finish building thousands of preconstruction homes in Ontario.

Even if buyers are willing to pay a premium for a brand new property, they face more hurdles with an assignment sale. That includes not being able to view the property in person because it is still under construction; additional fees such as the development levies and occupancy charges, which include the interest on the unpaid balance of the purchase price; and the fact that appraisers say the preconstruction prices of the pandemic years are typically 10 per cent to 30 per cent higher than today’s value.

“Why would a buyer come onto the assignment market if they can get the same on the resale market?” said Labeed Butter, a realtor who specializes in assignment sales under his company Assignment Pros. “Even though they are willing to lose their entries deposit, their properties are not selling because they are above market value,” he said.

Preconstruction sellers are not just at risk of losing their entire deposit, but also may have to pay more ifassignment buyers are not willing to pay anywhere close to the original price. It is up to the seller to pay the developer the difference between the original and assignment sale prices.

Ari Zadegan, who has worked on assignment sales for about 17 years, said this is occurring more frequently. Recently, her real estate firm TheZadegan Group sold a client’s preconstruction condo contract for 16 per cent less than the $886,000 original price. The client lost her $177,000 deposit and had to pay an extra $33,000 as she missed the closing date by two months because she was looking for a buyer for her contract.

Ms. Zadegan said the current downturn is longer than previous real estate slumps in 2017 and 2008 with price gaps now in the hundreds of thousands of dollars instead of tens of thousands.

Mr. Khan’s properties are privately listed with Ms. Zadegan. After six months and no real offers, Ms. Zadegan is hoping for some kind of compassionate resolution with the developer.

“We recognize that everyone is going through this pain. The builders did not expect this. The buyers did not expect this,” she said. “You’ve got to understand we are in unprecedented times.”

“You’ve got almost 96,000 units under construction, due to complete and deliver over the next three years,” in the Toronto-region according Fraser Wilson, a former senior vice-president with pre-construction sales experts International Home Marketing Group. It was industry standard that perhaps 20 per cent of those units went unsold when those projects launched between 2018-2022. Now though, his contacts in the industry are finding that the amount of unsold product is increasing as more and more buyers walk away from their purchase contracts.

“The developers are now entering a phase where consumers are saying ‘I’m not going to be able to close on this unit. Sorry, keep my deposit, seek legal action.’ We’re just on the forefront of that taking place,” he said.

It’s a phenomenon lawyer Mark Morris recognizes as he sees increasing numbers of clients coming to his Legalclosing.ca business looking for some kind of Hail Mary pass to keep them from defaulting on contracts that carry stiff financial penalties. In his view, the market is in the middle of the “pain cycle” of a real estate correction when first the buyers, then the builders and finally the lenders lose money.

“Lender pain is really not all that acute, and they’ve made provisions for losses,” said Mr. Morris. “Builder pain is becoming quite acute, they are looking at greater defaults. They are trying to pre-empt it by getting further financing proofs [including mortgage pre-approvals earlier than normal]. They are getting very worried about it.”

Real estate analysts note that consumer pain began as soon as interest rates began to rise, making existing mortgages more expensive and killing both the assignment market – a sort of condo futures marketplace where pre-construction buyers used to try to swap contracts that had seen some potential equity gains over time – and slowing the resale market down to where condo prices began to drop.

“Two years into the slowdown, it’s biting because builders are delivering,” said Pauline Lierman, vice-president market research with Zonda Urban. “People have talked about this for so long and now it’s happening.”

Builders are taking a varied approach to dealing with the issue. Large-scale builder CentreCourt Developments currently has more than 40 claims in Toronto civil courts demanding that preconstruction buyers who defaulted at two of its buildings repay any losses compared to the agreed price and the eventual resale price.

As an example of its standard legal claim, on Aug. 30, a CentreCourt holding company (Church Residences GP Inc.) filed for at least $534,767 in damages from a buyer who in 2020 agreed to purchase a unit on the 32nd floor of the condo tower at 199 Church St. Centrecourt’s filing states that when the unit was ready for occupancy in June, 2024 – with a new adjusted price that was about $70,000 higher – the buyer who had already paid a $136,998 deposit asked for a delay of one month before eventually defaulting.

According to listings on Condos.ca, a similar-sized unit one floor below is currently for sale at $1,183 per square foot, but over the summer another similar-sized unit priced at $1,358 per square foot on the 10th floor sat unsold for 142 days before the listing was terminated in late September.

Legal claims against buyers are still a relative rarity, but Mr. Morris warned that a lack of court action doesn’t mean builders are sleeping. They can sue now, before they’ve “crystalized” their loss through a resale of a defaulted unit, or they can sue up to two years after they take the loss. Many, he warns, are taking the patient approach.

In hotter market conditions developers were able to sell these units through real estate agents or even to established clients. But with Toronto’s condo resale market sitting at nearly seven months of inventory builders can expect these units to sit empty for months, creating a costly drag on balance sheets.

Mr. Wilson’s solution is to launch a new auction site – www.inventorycondos.com – to assist buyers and builders find the actual market price of unsold units, a process he acknowledges may result in some losses for builders.

“They have their bottom line, they have to achieve a certain price,” he said, noting that some recently completed units are still being marketed at prices per square foot far above anything moving in the resale market. “Anybody who’s got a calculator will not be able to make sense of the prices that are being sought.”

A recently completed site he’s already signed up to auction unsold units is 8 Haus at 2433 Dufferin St., Toronto by Royalpark Homes.

“We need to find each other somewhere in the middle, and an auction is the mechanism to do that. We have to move this unsold inventory in order to get the market balanced,” he said.