Icona Condos has officially been cancelled by the Gupta Group, the developers of the project. If you’re familiar with the pre-construction scene at all, you’ll know that this is the second massive pre-construction condo development to be cancelled in 2018, closely following the cancellation of Cosmos Condos.
Cosmos cancellation was announced earlier this year by Liberty Development and was met by uproar from the buyers who put their faith (and their capital) in the hands of the developer and were subsequently hung out to dry when the developer, “couldn’t obtain satisfactory financing.”
Coincidentally, both Cosmos and Icona Condominiums are located in Vaughan. This city is quickly becoming a hot pre-construction real estate market. As of 2017, it surpassed Oakville as the most expensive suburb neighborhood in Ontario outside of Toronto to live in.
With incredible infrastructure plans, plenty of industry and jobs, as well as proximity to the downtown core, the extension of the TTC subway to Jane & Highway 7, had developers bidding on neighboring plots of land for master-planned communities. We have long expected Vaughan to go through a condo boom similar to that of the Square One community in Mississauga.
So, Why Did Both Cosmos and Icona Condos Get Cancelled?
Icona Condominiums certainly did not get cancelled due to a lack of sales. Both Cosmos and Icona sold out in absolute record-breaking time with more worksheets during their VIP sales launch then they had units to sell. The latter was one of the most hyped-up development last year, and Cosmos didn’t fall short either. [1]
Is the city bad luck for pre-construction investors? Why are there recently cancelled condo projects in Vaughan? Absolutely not. Those who bought in the first phases of Centro Square or any of the developments on Highway 7 near Jane did extremely well in appreciation, and will continue to do so.
Liberty (Cosmos Developer) and Gupta (Icona Condo Developer) will have you, and their purchasers, believe that they were forced to cancel the developments due to “not obtaining satisfactory financing.” In the world of Pre-Construction developments (more info here), the 20% down-payment that purchasers fork over the developer before occupancy isn’t enough to fund construction, in fact, it’s not even close.
Typically, the builders need their development to hit the 75% sold-out mark before the banks finance the construction of the development. Both projects were almost entirely sold out, so obtaining financing shouldn’t have been a problem.
“While the developer cites financing challenges as the reason, I am much more concerned about the hundreds of people that have purchased a condo where they could live, experience and enjoy life in our community.”
– Vaughan Mayor Maurizio Bevilacqua
Our Further Analysis…
Nonetheless, the developers protect themselves in the contract by stating that they can cancel the project if they don’t get financing, or in many cases, “satisfactory” financing – whatever that entails, exactly.
Generally speaking, in the rare cases that these pre-construction developments get cancelled like Icona Condominium, it’s due to profitability. [2]
While there’s no way to know for sure (yet), I’d wager that the land gets re-sold to another developer at a higher price for a larger profit margin than building the development would have yielded. Since originally selling out over a year ago, the property values in the GTA in the condo segment have surged over 20%. Cancelling the project, selling the land to another developer, and repackaging the same product allows for huge profitability.
When this happens, the purchasers of the development are given their 20% deposit back in full. Sometimes with interest, often not. The interest gained in these cases are nothing remotely close to the appreciation in the value of the property they had purchased.
Often, in these cases, first-time home buyers are priced complete out of the market or are forced to buying further out of their ideal area, or a smaller unit. The results: Icona Condos cancelled. Period.
What’s Stopping Developers from Doing This All over Vaughan?
Right now, not a whole lot. Contracts allow for builders to cancel, that’s what you sign up for as a buyer, the possibility it may never be built. However, there is a class action lawsuit against Liberty currently underway for the cancellation of Cosmos – and it looks promising.
All it takes is one or two of those to weigh in favor of the purchasers, and the profitability of reselling the land or cancelling a development is suddenly non-existent at the risk of a lawsuit. We hope that cancelled condo projects in Vaughan will stop with Icona Condominium.
If Icona Condo was Profitable, Why are There More Developments that are Being Cancelled?
Builders (the good ones) care more about their long term reputation then they do a short, one time play for profit
Tridel, Daniels, Great Gulf, Diamante, Menkes, and the list goes on – would never, and I mean never, cancel a development and ruin their stellar reputation with their purchasers and the brokers who promote and believe in their product for one short-term profit play.
It just wouldn’t happen, they have way more at stake, their reputation is what allows them to price their projects 5-10% higher than the competitors who don’t have that Gold reputation yet. We hope that new developers will learn from their competitors to lessen cancelled condo projects in Vaughan, especially.
So, What Can the Buyers Do to Protect Themselves from This Bulls#!t?
I’ve said it before, I’ll say it again, and I’ll say it until the day I stop selling pre-construction units like Icona Condo. All condo buyers must protect themselves from buying from these developers.
Buy into a BUILDER, not a BUILDING. Who is the Gupta group? No, seriously, who are they?
That question is why I didn’t promote their development. If I don’t know a builder, or the builder has anything less than a perfect track record of completing good developments in Toronto or around the world, then I won’t sell their condo development – and you surely shouldn’t buy into it either.
References:
1. Lauren O’Neil, Another huge condo development in Vaughan has been cancelled, retrieved from https://www.blogto.com/real-estate-toronto/2018/09/icona-condos-gupta-group-vaughan-cancelled/
2. Lisa Coxon, Cancelled Toronto condo project highlights risk of buying pre-construction, retrieved from https://www.lowestrates.ca/news/cancelled-toronto-condo-highlights-risk-buying-pre-construction-25289
