This year, investors and agents are having trouble closing their units. The assignment climate has shifted in favour of buyers, making entrepreneurs wait for another seller’s market.

Year-over-year condominium sales transactions have fallen in Vancouver, the Fraser Valley, Toronto, Ottawa and Halifax.

Because of rising interest rates and falling prices, the assignment market is now more rigid for real estate investors to make sound deals.

“Through bankruptcy, more users lose their life savings (to assignments), so we’re calling for government intervention and to scrap the 13 per cent tax”

The Canadian real estate market has seen its fair share of highs and lows in the past few years. Investors and real estate agents have taken advantage of rising demand and housing prices to find lucrative business opportunities.

One growing section in Canadian real estate is the assignment market. How have investors fared in this field? What can you expect in the future? Here’s a guide on the Canadian assignment market and its outlook.

Assignment market favouring buyers

The assignment market was red hot in 2021, with investors buying many properties due to low interest rates. However, 2023 has slowed down due to several factors.

Now, some investors and real estate agents are in a bind because they’re having trouble closing their units. The assignment climate has shifted in favour of buyers, making entrepreneurs wait for another seller’s market.

The assignment market’s conditions depend on where your targeted areas are. Most major Canadian assignment markets have seen a downturn, but a few are on the upswing for investors.

Re/Max’s 2023 National Condominium Report shows that year-over-year sales transactions have fallen in Vancouver, the Fraser Valley, Toronto, Ottawa and Halifax. Edmonton saw a slight increase at 3.1 per cent, and Calgary enjoyed the most significant increase at 22 per cent since 2022.

Why is the assignment market facing tough times?

The assignment market’s downshift has come relatively quickly in the last year, but it’s unsurprising for investors. These reasons show why the market is facing challenging times.

High interest rates

The driving force behind the changing assignment market is rising interest rates. As TradingEconomics.com shows, Canadian interest rates dipped below 1 per cent in 2020 and remained low until 2022. Frequent incremental increases have led to interest rates hitting 5 per cent in 2023, making the market sway out of sellers’ favour.

As a result, the assignment market is now more rigid for real estate investors to make sound deals because of falling prices.

Eric Skicki is an industry professional who has seen this change firsthand. As CEO of BrokerPocket — Canada’s largest marketplace for off-market listings, with over 11,000 agents on the platform currently – Skicki says demand will remain high in metropolitan areas like Toronto, but interest rates have harmed investors and end users.

“Let’s say an investor would have bought this (assignment). They’ll be able to rent it out last year for $3,000, and their carrying costs would have been maybe $2,700,” Skicki illustrates. “That same condo is closer to $5,500 now. That was more than a year and a half ago before the interest rate hikes.”

Although Canada’s 5 per cent interest rates are lower than reported rates in the United States of above 7 per cent, Canadian rates are the highest they’ve been since the mid-to-late 1990s.

Assignment tax

The housing market for buyers has been challenging in the past few years, so the Canadian government has helped residents buy their first homes with a tax-free savings account. The Department of Finance says over 150,000 Canadians are eligible for the New tax-free First Home Savings Account program, allowing them to contribute up to $8,000 a year. While the program is terrific for home buyers, it comes at a cost for investors and real estate professionals.

The Department of Finance levies taxes and funding to support the program, taking some revenue from those in the assignment market. Canada extended GST to assignment sales of newly constructed housing, setting the rate at 13.5 per cent. The government aims to curb speculative trading in the housing market, but Skicki says Canada should reverse the policy.

“It was put in with good intention,” Skicki says. “However, since then, there (have been) over-stimulants from the government in the sense that too many measures were put in place to cool the market.”

Navigating a changing and challenging market: What does the future hold for assignments?

Professionals in the assignment market may struggle due to existing interest rates, and the immediate outlook seems to be more of the same. The Bank of Canada could raise interest rates again to combat inflation if economic conditions persist. Fortunately, the Bank also predicts inflation rates will decrease over the next few quarters. If the trends are correct, you may see the market revert to sellers with increasing assignment prices.

If interest rates stay this high, Skicki fears there could be a significant economic impact.

“There are a lot of end users who are going to be hurting right now — it’s builders and then end users,” Skicki says. “If something is not done soon, you’re going to see more builders go under.

Calling for an end to assignment tax

“Through bankruptcy, more users lose their life savings for this thing, so we’re calling for government intervention and to scrap the 13 per cent of tax on assignments,” explains Skicki.

The current situation brings to mind the 2008 economic crisis for Skicki. He says this time around, reverse effects will happen to the economy. Skicki thinks blue-collar jobs will generally be safe, but those working in tech could see ripple effects in a chain reaction if the government doesn’t take action for the assignment market and its investors.

How can investors and real estate professionals navigate the current market?

Market conditions make it challenging for the average real estate agent and investor to buy and sell assignments. However, you can help yourself and your colleagues by following these tips.

Use off-market listing services

Finding assignments is more complex because they’re not on the typical MLS websites. Instead, it’s imperative to use off-market listing services for your needs. For example, BrokerPocket has 11,000 agents on its platform, letting agents communicate with one another and access exclusive listings.

One of BrokerPocket’s primary features is its ease of access for users. Simeon Papailias, co-founder of REC Canada, says BrokerPocket is the most secure and sophisticated platform he uses for off-market listings. You can filter by criteria like geographical location and amenities, making the app accessible to industry professionals.

Security is a significant feature for BrokerPocket users and has become a platform feature. Real estate agents can keep their client’s identity a secret and ensure confidentiality throughout the transaction. Papailias says BrokerPocket has become a regular tool and essential for day-to-day work in the industry.

Additionally, users have access to a referral network. BrokerPocket says agents can gain back with every converted user, increasing their ease of access. The platform’s objective is to promote off-market properties and effectively refer clients to other agents.

Educate clients

Selling assignments has become tougher amid the high interest rate environment. Buyers look to condominiums for their affordability but lose that advantage once the market prices them out with high demand and high interest rates. Right now, Skicki says real estate professionals looking to enter the market should educate their clients because lacking knowledge could lead to adverse outcomes.

“Make sure you educate your client of where the market is because where the market was last year, people were looking to make anywhere between $50,000 to $100,000 or $150,000 on their assignment,” Skicki says. “But (as of now,) advice to agents would be ‘your clients did well if they’re breaking even.’”

Stay informed

While educating clients is vital, so is educating yourself on the market. For example, if you want to enter the assignment sector, find locations where the market favours sellers, such as Calgary and Edmonton. While the competition may be higher, you’ll have better luck with selling and completing transactions. Skicki says the lack of knowledge and numbers can harm professionals if they don’t do their research.

“There are many people who are failing to close their units and do not understand how much transactions and prices have fallen since last year,” Skicki says. “Even those who are not aware do not have any data to back those claims up.”

Ultimately, Skicki recommends partnering with experts and finding a lawyer specializing in assignments. These professionals will help you navigate the assignment world, considering how different it is from resales.

It’s also crucial to time things right by watching market conditions. Papailias says now isn’t a good time to get into the assignment market if you’re a seller. However, the real estate market is ripe for buyers because sellers are motivated to let go of their properties. Buyer agents who want to get into new construction see the market in their favour, but the tides could turn if interest rates fall.

Real estate is challenging for agents and investors due to the market’s ups and downs. Currently, the Canadian assignment market demonstrates an inopportune time for sellers due to interest rates and the GST on assignment sales.

If your clients are interested in the assignment market, speak with industry experts about getting started. Lowered interest rates could turn the market back in the seller’s favour.