No one saw the housing bust coming when buyers were drunk on high priced multi-million dollar homes, putting down hundreds of thousands in deposits, hoping to close on their dream homes with all time low interest rates with some hoping to flip them for big profits. Well many Canadians are now finding out the hard way that gambling their hard earned money on housing can be detrimental to their pocketbook as well as their heath with many enduring sleepless nights brought on great stress .

By DESIBUZZCanada Staff With News Files

TORONTO –No one saw the housing bust coming when buyers were drunk on high priced multi-million dollar homes, putting down hundreds of thousands in deposits, hoping to close on their dream homes with all time low interest rates with some hoping to flip them for big profits.

Well many Canadians are now finding out the hard way that gambling their hard earned money on housing can be detrimental to their pocketbook as well as their heath with many enduring sleepless nights brought on great stress .

 An example of this kind of buyer is an Indo-Canadian uber driver, who is among a group of Ontario residents who purchased pre-construction homes in Brampton at the peak of the recent real estate frenzy and who are now struggling to close on their deals because of a perfect storm of rising interest rates, falling home prices and stricter federal mortgage rules.

First-time homebuyer Gurcharan Rehal agreed in October 2021 to pay $1.959 million, plus $90,000 in upgrades, for a single-detached home that would house himself, his wife, their two children and his mother, reported CBC News.

“We thought, if we live hand-to-mouth, we can still afford it,” Rehal, an Uber driver who also earns income as a property manager and from a business in India, told CBC News. 

But with his closing date approaching next month, he’s so far been unable to secure a mortgage.

An appraisal recently estimated the home’s value at $1.7 million — more than $300,000 less than what he agreed to pay for it. On top of that, he says the mortgage rate he was pre-approved for would have required monthly payments of between $5,500 and $6,000, but now he’s being quoted amounts between $12,000 and $15,000 per month.

Coming up with hundreds of thousands of dollars to cover the difference upon closing — in addition to the $260,000 down payment he’s already made — and making exorbitant monthly payments is something his family simply can’t afford.

“Me and my wife, I think we haven’t slept for [the] last three months,” said Rehal. “Our kids, they can see the stress on me and my wife’s face.”

CBC News also spoke to seven other people aside from Rehal who bought homes at the Paradise Developments Valley Oak community in late 2021 or early 2022. They all said they’re having trouble getting financing due to the sudden real estate downturn brought on primarily by the Bank of Canada raising interest rates in an effort to tame inflation, which has sent mortgage rates skyrocketing and home values plunging.

The buyers, who are mostly from the Punjabi community, say they want to honour their commitments, but with interest rates so high, many no longer qualify for mortgages.

Those that do qualify are being offered hundreds of thousands of dollars less than the amounts they’re on the hook for because appraisal values have fallen dramatically over the past 10 months. Existing mortgage rates would mean unaffordable payments, they say.

Meanwhile, buyers who planned to sell their existing homes are finding few interested buyers as home sales decline across the country.

The buyers CBC spoke to say there are around 100 people in the same situation at the development. They provided a contact list showing approximately 60 households.

“We are not able to eat, we are not able to rest,” said Poornima Malisetty, who purchased a detached home in the Paradise Valley Oak community with an in-law suite for $1.9 million that’s now being appraised at $1.6 million. 

The buyers are asking Paradise to extend their closing dates or reduce their purchase prices, and have protested outside the developer’s sales office.

In a statement, Paradise Developments said it works collaboratively with purchasers throughout the purchase, construction and closing period.

“Paradise Developments makes business decisions, enters into contracts with suppliers, hires employees and commits to the contracting of numerous building trades based on agreements we have signed,” the statement said.

“Whenever purchasers raise individual issues with us, we look to address them in accordance with our policies and the terms of our joint agreement of purchase and sale. Based on having finalized and completed these agreements, construction is now advancing on the homes in this community, and we look forward to completion.”

Rehal says Paradise has offered some buyers a three month extension on the closing date in exchange for more money on their deposit, but with the future of interest rates uncertain, he’s not sure if he’ll take them up on it. They and the other buyers are still communicating individually with Paradise and hoping the builder will extend their closing dates or reduce the prices.

John Pasalis, president of residential real estate brokerage Realosophy Realty, said the situation highlights the risks of buying pre-construction in a hot housing market.

“They’re not buying a home. They’re signing up on a contract that obligates them to buy a home in the future at some pre-determined price,” said Pasalis.

Buyers who want to break their contracts risk losing their deposits. But if those buyers walk away, builders could also sue them in an effort to recover the difference between the original purchase price and the price they end up selling the home for.

That’s something Paradise might do in this case. CBC viewed an email sent to one homebuyer where a lawyer for Paradise threatened legal action to recoup “all costs, loss and damages it may suffer as a result of your client’s failure to complete this transaction.”

The average sale price of a detached home in Brampton went from $1,608,894 at its peak in February to $1,197,119 in November, a decrease of more than $400,000, or 25.5 per cent, according to data from the Toronto Regional Real Estate Board (TRREB). The number of detached home sales in the city dropped to 142 from 460 in the same period.

Courtesy CBC News