"Ruined": Pre-sale homes are bankrupting people in Canada

Sudip Sehgall stands outside a townhouse he was supposed to purchase in Surrey. (Arash Randjbar/Daily Hive)

Sudip Sehgall thought a South Surrey townhouse would be the key to realizing his Canadian dream.

But he ran into trouble closing and the developer wouldn’t let him reassign the unit. Now, after being forced to forfeit his $82,000 deposit, he wants justice.

“I’ve been ruined. Me and my elderly parents in India. Our life savings are gone,” he told Daily Hive Urbanized.

Sehgall, who’s lived in Canada for about five years, finalized the deposit for a two-bedroom home in The Boroughs project built by Qualico’s StreetSide Developments in 2022. He was elated about his new home, visiting the site weekly and likening it to “watching a baby grow.”

Sudip Sehgall (Arash Randjbar/Daily Hive)

But things took a turn when changes to laws in India meant Sehgall wasn’t able to sell his property there. He was counting on the sale of the home in India to provide the capital to close the deal on the $820,000 property in South Surrey.

Sehgall asked the developer if he could reassign the unit. He even found two people willing to take it on. But to his dismay, Streetside said no.

“This is beyond my wildest dreams, that this can happen and has happened,” he said.

Arash Randjbar/Daily Hive

The developer wouldn’t comment on the case, only saying it’s an ongoing and private legal matter.

“We understand that purchasing a home is a significant financial decision and we strive for customer satisfaction and clarity throughout this important journey,” Jonathan Meads, StreetSide Developments’ vice president, told Daily Hive Urbanized.

@freshdailyvancouver A new immigrant says his Canadian dreams have been shattered after losing an $84K deposit on a townhouse in Metro Vancouver #Vancouver #Surrey #Canada ♬ original sound – Freshdaily Vancouver

Sehgall isn’t the only one having trouble in Canada’s pre-sale housing market. The sharp rise in interest rates Canada saw post-pandemic has made the pre-sale market more volatile. Experts say first-time homebuyers are bearing the brunt of the risk, and difficulties between downpayment and closing are pushing more Canadians into bankruptcy.

Rebecca Casey, a Metro Vancouver mortgage broker, says she’s seeing more clients experiencing difficulties with pre-sale homes lately. The buyers may have qualified for a mortgage at their agreed-upon purchase price two or three years ago, but interest rates being several percentage points higher now means they no longer qualify for the amount they’d have to mortgage.

For example, perhaps they’d gone through the process to make sure they qualified for a $400,000 mortgage, but two years later, with interest rates 4.5% to 5% higher, they may only qualify for a $300,000 mortgage.

Homeowners and investors typically have more protection in the form of other assets to leverage, but first-time buyers, who pre-sale projects are often geared towards, may find themselves with few fallback options to come up with the extra money required. Casey is seeing creative options being explored — and family stepping in to help.

She’s surprised to hear Sehgall’s developer wouldn’t let him reassign, saying that refusing wouldn’t be worth the bad press for most developers.

“Those are very, very few and far between cases. I have heard of it. It does happen,” she said. “But for the most part, it’s a reputational nightmare for the developer.”

You might also like:

Scott Terrio, a Toronto-based consumer insolvency professional, says he’s also seeing significantly more clients in his practice pushed to the brink by pre-sale difficulties.

“During the zero interest era, which lasted for 12 years, we didn’t hear a lot from homeowners because everybody’s equity was going up 20% per year. Nobody needed us,” he said.

But now, people who bought pre-sale units in 2020 through 2022 are taking occupancy, but with the Greater Toronto Area’s softening housing market their condo may come in appraised at a lower value than the original purchase price — which Terrio says lenders don’t like.

“First of all, you can lose your deposit — which can be substantial… and some of these developers are turning and suing people as well,” Terrio said.

He went from seeing no pre-sale buyers about insolvency to helping between 10 and 12 in recent months. He works with clients to create bankruptcy plans or consumer proposals — the latter being repayment plans that aren’t as devastating to a person’s credit as bankruptcy is.

“This country has been built on a house of cards for 10 years, all because money was free,” he said. “You’re seeing what’s happening in a shaky economy.”

As for Sehgall, he says he can’t even afford a lawyer after the loss of his deposit. He’s also not sure whether StreetSide has found a new buyer for his townhouse. But he doesn’t want to give up. He’s sharing his story in the hopes he’ll have his deposit returned, along with interest.

“I’m not going to let go of the fight,” he said. “It ought to have been a smooth transition into owning a house, and not a minefield.”

With files from Daily Hive’s Arash Randjbar