CBC reported the other day that Bill Eden's Eden Developments had stopped construction of its only active development, the Sophia. In a situation eerily similar to the Riverbend development that cancelled the contracts of pre-sale buyers earlier this year The Sophia, located in Mount Pleasant, was nearing completion and now it looks like pre-sale buyers who bought 2-3 years ago may be forced to buy back in at today's prices if they wish to keep their units, and if they can afford too.
I have a thank a few people for the heads-up on this one. Firstly a commenter, the mysterious mr. x, from my post about the cancelling of Eden Developments other projects, the Elyse and Montgomery Estates, mentioned this on the 21st, and yesterday I first found news of the CBC story (which I can't find on their site) about this on Yatter Matters. Thanks guys, and good luck to you Sophia pre-sale and especially assignment buyers.
This story originally appeared on my Vancouver real estate blog, the 604homesblog.
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Matthew - Hopefully there is some protection on any deposits these presale buyers placed. Is there any warning flags that these buyers could have seen?
Penny - Yes, the original purchasers should get their deposits back, maybe plus a small amount of interest, but those that bought their units on assignment (they bought the contract from the original buyer) could have more problems. The problem is that the market has done probably 15% per year for the past few years in Mount Pleasant neighbbourhood of Vancouver so these buyers may not be able to afford the same units at today's prices.
Thanks for you comments!
Mike - It strikes me these guys might be taking over the project, but that is just a first impression. I can't believe that that links to the original marketing site with the REALTORs names and everything.
Okay nevermind that, further digging on that site indicates that it is just part of the Eden Group. Still, you think they would nuke everything off the web about Sophis before the news broke about this. You might be interested in the comments on my other blog about the Sophia cancellation. Thanks for your comments.
That is interesting about Laurelwood. Did Bill Eden have anything else of interest to say (that you can tell us here)?
I heard on the radio the morning that he is says that buyers shouldn't worry, that they will still make money on their investment. That the places have gone up so much that it doesn't matter. Here is the Bill Eden story on CBC.
This is puzzling. Cancellation of project in US is mostly because the developers can't get the financing. If 3 years ago every lender loved condos and were ready to finance usually with 51% units presold, a lot of Lenders stopped financing condos, and the rest require at least 75% of units presold or more, which is practically impossible.
What surprises me though is that looks like those, who have reserved 2 years ago, will have today's price?
Here the buyers put small ($5K-$10K) deposits, but after the condo docs were recorded with the State, they were writing contracts, and from that moment the price was fixed. Change in the marketplace did not affect the Buyers. It was an interesting time when Buyers were flipping right and left, and developer could do nothing.
Jon, Thanks for your comments. With this development I believe that it was pretty much 100% sold out and the building is 85% complete now. My understanding/guess is that basically the due to rapidly increasing construction costs and the fact that this developer dos not have a long track record the lenders are not willing to give him anymore money.
The lenders will take control of the project. The original contracts will most likely be cancelled and deposits returned (maybe with some small amount of interest, or not) and those buyers may get first crack buying their units back.
It's not the change in the market that has effected the buyers but rather the change in ownership of the development. The buyers contract is with original developer, but they will not be able to convey title to the buyers now so new contracts need to be drawn up and the new developer will need the increased dollars to pay for completing the project. (Deposits here are usually 20-25% total over the first 6 mo. to a year after signing the contract.)
I hope that explains. You may be interested in another post today on my outside blog. Another Vancouver developer has put 2 projects into receivership.
Does this mean that the Buyers did not have contract with fixed prices? If this project was presold, their money problems stem from the increased cost of construction? Was it a miscalculation on a huge scale?
Here we see that developers get the deposits, but never able to get it to actual construction. The contract specifies that if the developer chooses not to develop, they simply return the deposits, which are anyway in Escrow accounts, so they are safe.
Every place is different.
Jon - Yes the price in their contracts was fixed in their contracts to buy at the Sophia, but to complete the contract the seller (developer) must be able to give them title to the unit. Since the seller under that contract is no longer the seller he cannot hand over the title.
Increased cost of construction and miscalculation/inexpedience by the developer is the cause of these problems it would appear. Construction costs have been going up sharlply here ov erhte past few years as we lead up to hosting the 2010 Winter Olympics. The buyers will at the least get their deposits back, but prices have gone up so much that they may not be able to buy back in at today's prices.