Picture this: In 2020, you were told that a 500-square-foot condo in downtown Toronto was “a sure thing.” You put down a $50,000 deposit, signed papers for a $700,000 purchase price, and waited excitedly for completion. Now it’s 2025, and that same unit just appraised for $500,000.
You’re facing a $200,000 shortfall. Your bank won’t finance the full amount. The developer is threatening to sue if you walk away. And you’re not alone—thousands of GTA investors are in the exact same nightmare.
Welcome to Toronto’s pre-construction condo crisis. Here’s what’s happening, who’s affected, and what your options are.
Table of Contents
The Perfect Storm: How We Got Here
The Math That No Longer Works
The Legal Nightmare: What Happens When You Walk Away?
Your Options if You’re Stuck
Who’s Most Affected?
What Happens Next?
The Bottom Line
Key Takeaways
Financial Shortfalls: Banks are appraising units 10-30% below purchase prices, leaving buyers with massive “appraisal gaps” to cover in cash.
Legal Consequences: Developers are actively suing for the difference in resale price, lost deposits, and legal fees.
Investor Exodus: Rising interest rates and negative cash flow have caused investors to flee the pre-construction market.
Market Outlook: Continued pain is expected through 2026, with a slow recovery projected for 2027-2028.
The Perfect Storm: How We Got Here
Toronto’s pre-construction market wasn’t supposed to collapse like this. For years, the formula was simple: buy early, flip for profit, or rent it out and watch values climb. But between 2020 and 2025, everything changed.
What Went Wrong:
Interest rates skyrocketed: From 0.25% in 2020 to 5% by 2023. Borrowing costs more than doubled.
Prices collapsed: Average GTA condo prices dropped 10-30% from peak levels. Pre-construction units that sold for $1,400/sq ft in 2021 are now worth $1,100/sq ft.
Investor exodus: Investors comprised over half the pre-construction market in 2021. Most have now exited. Rental income can’t cover carrying costs.
Financing shortfalls: Banks appraise units 10-30% below purchase prices. Buyers must cover the gap in cash or walk away.
Project cancellations: Nine projects cancelled in 2025 alone, leaving 2,581 units unbuilt.
The Math That No Longer Works
Here’s a real example from a Liberty Village condo project:
| Item | 2020 Expectation | 2025 Reality |
| Purchase Price | $700,000 | $700,000 |
| Bank Appraisal | $750,000 (estimated) | $500,000 |
| Mortgage (80% LTV) | $560,000 | $400,000 |
| Cash Needed at Closing | $140,000 | $300,000 |
| Additional Cash Required | **$0** | $160,000+ |
Most investors don’t have an extra $160,000 lying around. This is why they’re walking away.
The Legal Nightmare: What Happens When You Walk Away?
Walking away isn’t as simple as forfeiting your deposit. Ontario developers are actively suing buyers who can’t close. Nearly 130 lawsuits have been filed by just two developers (CenterCourt and MOD Developments) against buyers.
What Developers Can Sue For:
Your deposit: Typically 15-20% of purchase price ($105,000-$140,000 on a $700,000 unit)
The difference in resale price: If they resell your unit for $500K when you agreed to pay $700K, they may sue for the $200K difference
Carrying costs: Property taxes, condo fees, and utilities they paid while holding the unit
Legal fees: Yes, you may have to pay their lawyer costs too
Real Case Example: One investor is being sued for over $1 million after purchasing 10 pre-construction units. He lost his deposits AND faces additional damages.
Your Options if You’re Stuck
If you’re facing this situation, here are your realistic options:
Option 1: Come Up With the Cash
Cover the appraisal gap. Borrow from family, refinance your primary residence, or tap into savings. This is painful but avoids legal action.
Pro: You own the unit and can potentially wait for market recovery.
Con: You’re pouring more money into a declining asset. Negative cash flow if renting it out.
Option 2: Negotiate With the Developer
Some developers offer blanket appraisal programs or price reductions rather than face mass defaults.
Pro: Might reduce your cash needs at closing.
Con: Not all developers are offering this. You may still overpay.
Option 3: Walk Away and Face Legal Consequences
If the math truly doesn’t work, walking away might be your least-bad option.
Pro: Stop throwing good money after bad. In some cases, the loss from a lawsuit is less than the loss from owning an underwater property.
Con: Developers will sue. Credit score damage. Potential bankruptcy if damages exceed assets.
Option 4: Sell Your Contract (Assignment Sale)
If your agreement permits, try selling your purchase contract to someone else.
Pro: Exit the deal without closing. Recover part of your deposit.
Con: Assignment sales market has collapsed. Selling at 10-30% below your purchase price means a huge loss.
Who’s Most Affected?
Not all buyers are equally hit. Here’s who’s suffering most:
High-Risk Group: Investors Who Bought Small Units (Under 500 sq ft)
These “shoebox” condos were marketed heavily to investors. They’ve seen the steepest price drops and worst rental cash flow. Many are now worth 30-40% less than purchase price.
Medium-Risk Group: Buyers in Oversupplied Areas
Liberty Village, CityPlace, and areas with massive construction completions face inventory glut. Supply far exceeds demand.
Lower-Risk Group: End-Users Buying Larger Units in Prime Locations
2+ bedroom units in established neighborhoods (Yonge-Eglinton, Annex, High Park) have held value better. End-users who plan to live in the unit long-term can weather the storm.
What Happens Next?
The market won’t recover quickly. Here’s the realistic timeline:
2025-2026: Continued Pain
More project cancellations
Inventory glut from completions (30,793 units completing in 2025)
Prices may drop another 5-10%
Reduced immigration = less rental demand
2027-2028: Market Bottom & Recovery Begins
Inventory absorbed as no new projects launched
Supply shortage emerges (very few starts in 2024-2025)
Prices stabilize then gradually recover
Interest rates normalize around 3-4%
The Bottom Line
If you’re trapped in a pre-construction deal:
Consult a real estate lawyer immediately. Don’t make decisions based on developer pressure.
Run the numbers honestly. Calculate the true cost of closing vs. walking away.
Don’t panic sell. If you can afford to close and hold, the market WILL recover. Just not quickly.
Learn from this. Pre-construction is inherently risky. Never buy what you can’t afford to close on.
Consider opportunities. If you have cash, distressed assignment sales and resale condos offer value.
The pre-construction condo market was built on speculation and cheap money. Now that both are gone, investors are learning painful lessons about real estate risk. The ones who survive will be smarter—and more cautious—next time around.
About the Author: Aman Harish
Aman Harish is a Co-Owner and Mortgage Broker at Canadian Mortgage Services. With over 14 years of experience navigating the complexities of the Canadian lending landscape, Aman specializes in helping homeowners and buyers develop proactive renewal strategies and optimize their debt structure in challenging economic climates. His commitment is to ensuring clients not only secure the best rates but also build long-term financial resilience.