What to do if your pre-construction condo has dropped in value

Canadian home buyers and investors who bought condos a few years ago are now finding their property values on closing are below their purchase prices. This is not a situation that many envisioned when they bought their pre-construction condos during the post-COVID frenzy.

How did we get here, where condo prices have dropped?

Nation-wide, condo prices spiked by over 29% between January 2021 and April 2022, according to the Canadian Real Estate Association (CREA). Since the peak in spring 2022, condo prices have fallen 12%. The decline in the Greater Toronto Area (GTA) has been even more pronounced, with CREA reporting condo prices down 19%. 

A Toronto condo buyer who bought in spring 2022, at the peak benchmark price of $730,500, may have put down as little as 5%, or $36,525 for a downpayment. The current benchmark condo price of $593,000 (as of April 2025) implies that initial deposit plus more than another $100,000 of value has been wiped out. Even if the buyer still wanted to close on the purchase, their chosen lender might no longer want to finance it.

What options do you have if you’re unable to close on your pre-construction condo? Let’s look at different scenarios.

What happens if you sell your condo at a loss

To determine potential financing, lenders typically use a property’s appraised value at closing—not when the buyer signs the purchase agreement, even if they get a pre-approved mortgage. And when prices drop, buyers may find they cannot borrow as much of the purchase price as they had expected. 

Some real estate developers work with banks to provide financing based on the purchase price rather than the appraised value. This may allow a purchaser to borrow more money, but it does not change the fact they may be buying an asset that is “underwater,” with more debt than value.

 

A buyer in Canada could try to find other sources of financing like savings, borrowing against real estate they already own, or borrowing from family or friends. Private lenders may lend more than a bank, albeit at higher interest rates and with more fees and restrictions. Or they could try to sell the unit before closing on it. This is called an assignment sale. However, the buyer’s deposit on the property may be less than the property’s price decline, and they could even have to pay the assignee to take over their contract and close on the condo instead. Note that assignment sales may need approval from the developer or be subject to additional fees. So, selling before closing may not be possible or practical. 

If you can’t sell the condo—even at a loss—and you can’t get a mortgage, what other options do you have?

Can you walk away from a pre-construction condo?

If a purchaser cannot sell a pre-construction property before its closing date, they might think about just walking away. The problem is that a purchase agreement is a contract, and breaking that contract has repercussions. 

The purchaser would forgo their deposit, but the losses may not end there. If the developer sells the unit to another buyer for less than the original contract price, minus the deposit paid, they may sue the original purchaser. 

So, a buyer who walks might be on the hook for losses to make the developer whole based on the initial purchase price. And the resulting legal fees could make a pre-construction condo buyer’s losses even steeper.

What if you rent out your condo?

In recent years, losing money on a rental condo has become a rite of passage in Canada—for real estate investors hoping to eventually benefit from price appreciation. However, when prices fall, and buyers are highly leveraged with borrowed money and their cash flow is negative, this can be a recipe for disaster. 

While carrying costs for a rental condo have risen due to higher mortgage interest rates, as well as higher condo fees, property taxes and home insurance costs, rents are falling in many cities. In fact, for April 2025, Urbanation and Rentals.ca reported that apartment rents in Toronto fell on an annual basis for the 15th straight month.

Canadian real estate investors often like to hold onto an asset in hopes that it will recover, whether it is a real estate investment or a stock. I like to take a different approach.

If you had the asset value in cash today, would you buy it? If the answer is “no,” you should consider selling it. This is easier to do with a stock where the selling commission might be a few bucks, and a bigger decision with real estate with higher transaction costs. But investors should generally look forward, and not backward, when trying to determine how best to proceed with an investment.

What if you declare bankruptcy?

If you cannot come up with the cash to close on your condo, bankruptcy is an option. Monies owed to a developer, including debts from a lawsuit from breaching your purchase contract, could be extinguished by a bankruptcy. 

Some of your assets, like pensions, registered retirement savings plan (RRSP) contributions made more than 12 months prior to a bankruptcy filing, and life insurance products might be protected by bankruptcy laws. Vehicles and personal items might also be exempt up to certain limits. Rules vary by province or territory. 

Declaring bankruptcy is typically considered a last resort. It will cause significant damage to your credit score and may take up to seven years to discharge to begin rebuilding your credit. 

A consumer proposal may be an alternative to bankruptcy. Your creditors must agree to a lesser settlement for repayment—a reduced amount to be repaid over a period of time. A consumer proposal is negotiated through a licensed insolvency trustee (LIT).

Where to go for advice when you lose money on a condo

If you bought a pre-construction condo and it’s now underwater, it’s best to seek professional advice. 

A mortgage broker can help explore your financing options. You should seek advice well ahead of closing to make sure there are no last-minute surprises. 

A real estate lawyer can help you understand your legal responsibilities and potential repercussions.

If your finances are really under pressure, a licensed insolvency trustee can help evaluate a consumer proposal or even bankruptcy. Other professionals like an accountant or financial planner can help you assess the tax and financial implications of keeping or selling a condo. I genuinely feel bad for people who find themselves in dire straits after a pre-construction condo purchase. I fear the worst may not yet be behind us.  

Read more about real estate investing:

The best 5-year fixed mortgage rates in Canada Is real estate the best investment for a Canadian retiree? Revising the fair market value of a property for tax purposes Is transferring your principal residence to your corporation a good idea?

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