Pre-Construction Homes Downfall: Canadian Home Buyers Are Losing Their Homes, Deposits, and Life Savings!
Over the past decade, thousands of Canadians jumped into the booming pre-construction housing market—especially in the Greater Toronto Area—drawn by low interest rates and the promise of future value. For many, it seemed like the safest and smartest way to own a home, particularly for first-time buyers.
Fast forward to 2025, and many of these same buyers now face a harsh reality. The market has changed dramatically. Interest rates have surged, property values have dropped, and buyers who signed contracts years ago under more favourable conditions are struggling—or completely unable—to close on their homes. As a result, many are losing not just their homes, but also their life savings, deposits, and even facing lawsuits.
Understanding the legal risks of pre-construction purchases is crucial. With the right legal advice, buyers can protect their finances, avoid breaching contracts, and make more informed choices in an unpredictable real estate environment.
Major Challenges Facing Pre-Construction Properties
1. Rising Interest Rates
Over the last few years, Canadian banks have increased interest rates in response to inflation. Buyers who were once pre-approved at 2–3% are now facing rates of 6–7%. In addition, the mortgage stress test—which requires buyers to qualify at rates 2% higher than what they’re offered—has made it even harder to get financing.
Many buyers who initially qualified for a mortgage are now being denied, leaving them unable to close their deals and fulfill their contracts.
2. Declining Property Values
Property values are no longer rising—they’re dropping, especially for pre-construction units. In many cases, prices have fallen 18–30% below the original purchase price by the time of closing.
This decline leads to appraisal shortfalls: the home is worth less than expected, so lenders offer smaller loans. Buyers are left to cover the difference—often tens or hundreds of thousands of dollars—out of pocket. When they can’t, it often leads to a breach of contract.
3. Delays, Income Changes, and Life Circumstances
Pre-construction homes are typically expected to close within 18–24 months. However, due to construction delays, material shortages, rising costs, and labour issues, many projects are postponed well beyond that timeline.
In the meantime, a buyer’s personal circumstances—job loss, reduced income, family changes—may change dramatically, making it harder to qualify for a mortgage or afford the purchased property.
4. Strict Developer-Favoured Contracts
Most pre-construction contracts are heavily weighted in favour of developers. These agreements are rigid, with few escape clauses for buyers.
For example, assignment clauses—which allow buyers to sell their contract before closing—are often restricted and/or come with high fees, making it difficult to get out of the deal or recover any investments.
What Happens If You Can’t Close the Deal?
1. You Forfeit Your Deposit
If you're in breach of your Agreement of Purchase and Sale (“APS”), the builder is entitled to keep your deposit. Unlike resale homes—where deposits are held in escrow—many pre-construction deposits go directly into the builder’s trust account, giving them legal rights to retain the funds immediately.
2. You Could Be Sued by the Builder
Builders have the legal right to sue for the difference between your original purchase price and the final price they resell the unit for, plus additional costs like legal fees, interest, and carrying charges. Courts in Ontario tend to side with builders in these disputes, holding buyers responsible for fulfilling their contractual obligations.
3. Your Credit Score Will Take a Hit
A failed closing and any resulting legal actions can severely damage your credit score. This can affect your ability to get loans, credit cards, and/or future mortgages.
The Bigger Picture: Market Impacts and Buyer Risk
As more buyers default:
Builders are re-listing units at lower market value, which drives prices further down.
Buyers lose not just their homes but also legal and financial stability.
If a court grants a judgment against a buyer, a writ of execution can be placed under their names thus, affecting their other properties. This means if they sell or refinance, they must first pay the builder’s awarded damages.
This ripple effect weakens buyer confidence and harms the broader real estate market, making investors and homeowners alike more hesitant.
What Can You Do? Get Legal Help—Early
If you’re struggling with financing, appraisals, or any other issues affecting your ability to close, don’t wait until it’s too late.
Speak to a real estate lawyer as soon as you anticipate trouble. A lawyer can:
Review your contract and identify any options or risks.
Communicate with the builder on your behalf.
Help negotiate extensions or settlement terms.
Defend you in legal proceedings if needed.
Delaying legal help can cost you tens of thousands—or more.
This article is intended as general information and not a substitute for legal advice. Every situation is different, and outcomes vary based on the specific facts of your case.
If you’re dealing with a pre-construction home and worried about losing your deposit, your home, or your financial future, contact our office immediately to understand your rights and protect your investment.
The Six Law Group
By Lia Pimentel