I will admit that when I first chose the photo for today’s blog post, it was a picture of a hornet’s nest.

I was going to play off the theme, kicking over the hornet’s nest, but I figured people would have no idea what the photo referenced.  Not only that, it looked ugly as hell.

But if we’re going to have an honest discussion about the issue of developers suing pre-construction condo buyers which is only just beginning in Toronto, we truly are going to kick over the hornet’s nest because I have to ask the obvious question:

Who is to blame?

You have two choices: buyers or developers.

But if you want to flush that out a little bit, you could offer the following two options for your choosing pleasure:

1) Evil, heartless, money-grubbing condominium developers with no soul, empathy, or ability to reason.

2) Naive, stupid, arrogant, entitled, uneducated, wishful, irresponsible buyers with no critical thinking skills.

Sorry, but those are your only two choices!

We live in a world of extremes.  How can I not provide the options like that?

In reality, most people are going to pick a “side” based on the extreme, exaggerated, or hyperbolic view of the situation.

I do hold out hope that there’s an individual somewhere that says, “Guys, guys, hang on – there’s blame on both sides here,” but I think that individual would probably also say, “Can’t we rephrase ‘blame’ as ‘responsibility’?  Because the situation is already tough enough without throwing labels around!”

If you’re not familiar with the story then perhaps your news feed doesn’t attack you quite like mine does.

Then again, one of the TRB readers made reference to the story in our comments section, so perhaps many of you are aware.

Here’s the article:

“This Condo Investor Is Being Sued For $860,000 For Failing To Close. He’s One Of Dozens Facing Lawsuits As Default Rates Soar”
The Toronto Star
April 1st, 2025

First and foremost, let’s give a shout-out to the reporters, May Warren and Clarrie Feinstein for an exceptional piece of truly investigative journalism.  Articles like this don’t write themselves.  These reporters obtained and reviewed 130 lawsuits and then found and interviewed some of the players involved.

This is the best real estate article I’ve read so far this year, hands down.

It’s a sexy title, I’ll give it that.  Even those folks who don’t live and breathe real estate will want to gobble down this piece of delicious click bait!

I read the article twice, and like many columns that touch on a real estate topic with so much at stake and such incredible emotional turmoil, I found flaws.

Not flaws with the article but rather flaws with the ideas, opinions, and actions of those involved.

But before I get to my analysis of the article, a brief refresher on pre-construction condos is necessary for those who are newer to the blog:

Once upon a time, pre-construction condos sold for a discount to resale condos, which made sense, given the inherent risk and the fact that the condo wouldn’t be built for five years.  As time went on, prices rose level, and pre-construction prices eventually surpassed that of resale, which made zero sense in this humble real estate broker’s opinion, but people kept buying.  Eventually, people would pay $1,500 per square foot for something that, if it were ready today, would only be worth $1,200.  This was a ticking time bomb, as I have been writing on Toronto Realty Blog since 2007.

Alright, with that out of the way, let me get to the article.

This is a very lengthy article and I encourage you to read it all.

But as an exercise, it’s amazing just how many fallacies exist only in the first few lines.

Here’s the start of the article:

“The 41-year-old Montreal property manager…”

I understand that not everybody sticks to what they know, and maybe I need to get out of my comfort zone more…

….however, you know you’re speculating when you’re from Montreal and you’re buying pre-construction condos in Toronto.

There are exceptions to the rule, of course.  People invest all over the world!

But this isn’t like your private equity investment in Europe that was invested in through your wealth manager.

This is a random guy speculating on a pre-construction condo in a city that he doesn’t live in.

–

“…knowing he could never qualify for the mortgage on the unit.”

This is where I lose any sympathy for the buyer in the story.

Sorry.  Not sorry.

Fault the agent, if you want.  But fault the buyer for trusting the agent to begin with as well.

Is this really what pre-construction condo “experts” were selling in 2021?  My god is this ever unethical.

How did this conversation go?

“Bro, listen: just buy this 400 square foot condo for $900,000 – on paper, yo!  You’ll never have to close on this.  Doesn’t matter if you can’t get a mortgage because you’re never going to close on it!  Just flip this to somebody else for $1,100,000, or more if we play our cards right.”

How does anybody take this “investment opportunity” seriously?

–

“He said the agent promised he would find a new buyer to take over the deal before the closing date…”

Blame the agent?

I suppose we could argue that this buyer was merely trusting an expert in the field, armed with decades of experience!

But I’m picturing the movie Boiler Room right now, specifically the scene where a young 20-something is on the phone telling a prospect, “I have forty years of market experience!”

So the agent promised to find a new buyer to take over the deal, huh?

Did the buyer ever do the math on this?

For example:

Resale condos are worth $1,400 per square foot today.
Pre-construction condo was bought for $1,800 per square foot today.
Buyer needs to be found for $2,200 per square foot tomorrow.

So condo prices need to increase by about 57% based on prevailing resale prices.

This is what happens when you pay an inflated premium for something that isn’t even built yet!

I wonder if this promise was in writing?

–

“…when condo prices would be even higher.”

Forgive me, but I can’t help but think of this scene in a 1992 episode of Seinfeld:

What could go wrong?

Who needs a crystal ball when you’ve got a lead-pipe lock!

–

Alright, so those are merely my thoughts on the first 109 words of the article!

Here are a couple of other choice sections:

“People don’t lose money in real estate, they’re not supposed to.”

This was what the buyer in the story said.

Seriously.

I’ve mused on TRB for years that people feel they can’t lose in Toronto real estate and that while people are so quick to accept a loss in the stock market, they have this incredibly naive and entitled view of the real estate market in that they feel it’s simply a never-ending ascent.

On a long enough time horizon, real estate always goes up.

The DOW Jones too.  And the price of gold.

A company can go bankrupt and their stock can go to zero.  This isn’t true of real estate.

But within every twenty-year bull-run, there are peaks and valleys!  Only Bernie Madoff was able to produce a returns-chart that resembled a 45-degree line from left to right, and we all know how that turned out.

I’ve been musing about this idea that “people can’t lose money in real estate for years” but this is the first time I’ve actually seen somebody say this for real and mean it.

Man, I feel for this guy.

–

“One group of defendants cited a “force majeure,” a “drastic and unforeseeable change in the real estate marketplace” that made it impossible to complete the sale, in their statement of defence.”

This is incredible.

Look, I know that the lawyer for the defendants has to make an argument, but this takes some serious balls.

A “force majeure” is when a tornado hits your house and you make an insurance claim.

A “force majeure” is not when you overpay for a pre-construction condo and then the market drops.

Imagine if you could claim “force majeure” for every other mistake we made in life, investing or otherwise?

“Yes, well, I know that I put $10,000 on red on the roulette wheel, but it was a force majeure, so I want my money back…”

“Officer, I know I was driving 175 km per hour in a school zone, but it was a force majeure, you see!”

I feel for the lawyer handling this one.  He or she went really, really deep into the well for that…

–

“As a result of droves of purchasers backing out of deals developers are cancelling projects, hurting supply for years to come.”

File this one away, folks.

Because when we’re talking about the massive deficit of Toronto condos in 2028, we’ll also be talking about “that time when no condos were built for three years and when developers were suing buyers…”

–

“He thought long and hard about it, deciding to go ahead when his realtor promised he would ‘double or triple his money,’ he said.”

Ask any of your friends who work in personal finance, “What compounded interest rate would you accept, every year, for the rest of your life?”

Some would say as low as 5%.

Some might say 6% or 7%.  Maybe 8%.

Ask the folks at the Ontario Teachers Pension Fund.

As the folks at the Canada Pension Plan.

We can all shoot for the moon once in a while, but when your realtor tells you about the “VIP” condo sale with the “lead-pipe lock” in a market where “nobody can lose money” and promises to a return of “triple” your money, it all starts to add up, doesn’t it?

–

“…he said he never heard from the realtor, Rahim Hirji, again.”

Do I need to say anything here, or can you guys do it for me?

Just don’t paint us all from the same brush.

–

“Real estate agent Nataliya Katsyukevych also bought into 55 Mercer St., a studio for about $620,000 in March 2020, which she felt was overvalued from the beginning.”

Really?

She felt it was overvalued from the beginning?

Either that’s the worst argument I’ve ever heard as to why a buyer should be allowed to default and not be sued, or that’s the worst reason I’ve ever heard for making an investment in the first place.

That makes zero sense.

–

“He calls the developer’s behaviour ‘predatory’ and ‘unethical,’ even though he acknowledges the builder is within its rights.”

This is an oxymoron, isn’t it?

Or the contract allows for the developer to be predatory and unethical?

If that’s the case, then why sign the contract?”

–

“The mortgage professional also blames the Bank of Canada for not being clear that interest rates would not stay at pandemic lows forever.”

This might be the dumbest quote in the article.

I mean, if we take “forever” at face value, which is FOR   EVER.

Raise your hand if you thought that the Bank of Canada would keep interest at 0.25% until your grandchildren had grandchildren?

Raise your hand if you thought that the cut-throat interest rate set during an unprecedented worldwide pandemic that threatened mankind and the economy alike would be maintained in perpetuity.

–

“I had no idea that I would get sued by the builder for something that I don’t have.”

So the logic here is that you can walk into a casino, gamble on credit, and then claim you don’t have it?

Short-sell volatile technology stocks circa 2001 on margin and then pull your pockets out to reveal nothing but denim lint?

Nah.

It doesn’t work like that.

As the band Metric once sang, “Give me sympathy…”

Except in this case, I just don’t know that we can take it easy on the buyers profiled in this article, since the mistakes made were based on high-risk maneuvers and a seemingly wilful ignorance.

Ben Rabidoux and I were talking last month about how we’ve both been calling this for over a decade.  I’ve been writing about this on my blog since 2007!

And on a personal level, what bothers me more than anything right now is how all the real estate agent are lined up to say, “Pre-construction is awful!  Terrible investment!  When all the while, these were the very same folks that were schmoozing with developers to get their “VIP” status so they could usher clients to the front of the line for magic beans.

I’ve been saying this, over and over, for fifteen years or more.  And now agents are standing up and crying foul?

Mark my words, folks: the pre-construction nightmare stories are going to increase from here…