Pros and Cons of Condo Assignment

The Pros and Cons of Buying and Selling Condo assignment in Toronto Real Estate

Friday Aug 19th, 2022


As a Toronto Realtor, we will learn more about the advantages and disadvantages of investing in condo assignment.
The main difference between condo assignment in Canada and condo assignment in China is that in Canada, the original buyer (Assignor) of the pre-construction condo is allowed to sell, or assign the sales agreement to a new buyer (Assignee).  This new buyer can then finalize the agreement with the developer at the time of occupancy. 
Condo assignments can provide maximum leverage, but is it a investment vehicle suitable for anyone?
What are some of the pros and cons of buying and selling condo assignment?

Why may Assignors wants to assign, or sell their pre-construction condo assignment?

There are situations when the a buyer for the new-construction may choose to sell the assignment before the building is fully finished.

Situation #1:  Many new immigrants who are not currently landed and living in Canada but knows that they will be moving to Canada in the next few years, and looking to prepare for the future.  These new immigrants will be interested to purchase a condo that is ready in the next few years. Between the few years of waiting for the construction to finish, sometimes family situation may change.  Some may decide to not emigrate to Canada, or moved to a new city for work.  

Situation #2: At the time of occupancy, some new immigrants who intended to finish the purchase may still not be eligible to become a landed resident of Canada, at which they will be subjected to the 20% Overseas Buyers Tax. 

Situation #3:Some may have lost their job which may impact their ability to get loans and mortgages to close the agreement.

Situation #4: Some may think of condo assignment as an investment vehicle.

Advantages of using Condo Assignment as an Investment Vehicle

In good real estate times, we can use Condo assignment as a leverage, to increase our profit.

No Limitation in Purchases

Since there is no limitation in purchasing real estate in Canada, as long as we have enough cash, we can purchase as many pre-construction projects as we wish.

Mortgage is Only Needed at the Time of Closing, rather than signing purchase agreement

In contrast with purchasing pre-construction projects in China, when one will need to get mortgage at the time of signing the pre-construction purchase agreement, those in Canada only need to arrange for financial needs when the unit is ready to be occupied, which may be 3-4 years away.

The Lower the Deposit, The Higher the Leverage

Generally at the time of signing the pre-construction purchase agreement, one will need to put 20% of the total price as deposit within the first few hundred days (6-months to 1 year).  Some developers may allow for 10% or even 5% of deposits only.  

Let’s look at an hypothetical example of how one can use assignment as an investment lever.

The original price of a pre-construction condo is $500,000, and developer requires 20%, or $100,000 as deposit.  Three years later, the condo is sold at $600,000, so the net profit is $100,000.  If we divide the net profit of $100,000 by the original price of $500,000, the profit gain is 20% over 3 years.  Not bad! However, the effective profit margin is much more than 20% - as the only use the down payment of $100,000, to realize the gain of $100,000. The effective profit margin (profit rate of cost) is 100%, which is 5 times more than if one is purchasing the condo outright.

This hypothetical example shows that the less percentage of the required deposit, the higher the profit margin.
A real case from our clients shows that last month, we help our clients sold a luxury condo the he purchased from 3 years ago.  The 1000 sq ft condo originally purchase price was $666,000, and is sold at $810,000 3 years later, net gain of $144,000.  From the simple calculation of profits, the gain divided purchased price (144,000/666,000), profit margin is only about 22%.  However, because the down payment for the pre-construction 3 years ago, was about $100,000, the effective profit margin, which is the gain divided by down payment cost (144,000/100,000) is 144%!

Try to match the 144% return within 3 years with any other type of investment vehicles, and you will realize that pre-construction assignment is a very powerful leverage.

Pros and Cons of Condo Assignment

Disadvantages of Buying and Selling Condo Assignment

Now, when assigning the pre-construction agreement, there are associated costs.

Realtor’s Commission

First, there are the realtors’ commissions between 4-4.5% from the seller.  Between 1.5-2% of the commission will be paid to the seller’s agent, and 2.5% of the commission will be paid to the buyer’s agent.

Personal Capital Gain Tax

Second, taxation for condo assignments are different from resale properties, in which the net profit of the property appreciated value will be capital gain the for taxpayer for the current year.  If the assignment is intended to be a principle residence, then the net profit is not taxable.  However if the assignment is intended as investment, then 50% of the gain will need to be taxed.  If the seller is a at a high-income tax bracket, say 45%, then a net gain of $100,000 will need to be taxed 45% or more.

Paying 13% HST

Third, selling condo assignment in Ontario may be subjected to 13% HST on both the down payment and the net gain.  From our $500,000 hypothetical example above, when the $100,000 deposit and $100,000 net profit combined, the 13% HST payable of $200,000 is $26,000.  Check with your accountant regarding the HST information, as there may be situations when the assignment is not considered as an investment (such as family situation changed – not immigrating now).
Back to our real client case.

With the sold price of $666,000, a 4% realtor’s commission is $32,400.  So the effect profit margin is now (144,000-32400)/100,000 = 112%.
And, let’s say the real estate market is not as good. Instead of being sold at $810,000, the property is sold at $710,000.  At this time, the profit margin will drop to 16%, and the effective profit margin is down from 144%, to 44%.

Now that we have understand the pros and cons of using pre-construction assignments, we should understand when to apply.

When the Toronto real estate market is strong, buying an assignment is effectively a powerful investment tool.

Moreover, the condo assignment should be considered as an insurance, to protect against personal and family’s financial situation that one may not anticipate.  

Buying and Selling Toronto Real Estate

Whether you are buying your first condo, or selling a single-family home, Team Priscilla Han Realty can help you.

We are proud to serve the whole Greater Toronto Area (GTA), including but not limited to the CIty of Toronto, North York, Markham, Richmond Hill, Vaughan, Aurora, Scarborough, Mississauga, Oakville , Pickering, and Oshawa.

We help research properties that are best tailored for home buyers, providing them with instant notification of newly available properties, access to exclusive deals that are not on the MLS.  

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Reach out to us at, or call/text: 647-360-8963 for a free consultation or home evaluation. Visit our website, for more up to date videos, blogs, and listings.

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