Recently, several clients have approached me, stating that my pre-sale property is about to expire. However, due to high interest rates, I am unable to proceed with the transaction. What should I do?

Hello, everyone. I am Lawyer Geroge Lee. Welcome to the “Talk and Reason” show. Today, we are going to share and discuss legal issues related to the purchase of pre-sale properties.

Typically, when we talk about pre-sale properties, we are referring to the purchase of pre-sold apartments. In general, in the past few years, customers have paid a deposit, and now the developer is notifying them that the final transaction is imminent. So, what legal consequences might arise if there is a breach, and the transaction cannot be completed?

Firstly, the consequence is that the developer will confiscate the previously paid deposit and then, based on the current market price, sell your pre-sale property. If the selling price is higher than your purchase price, it means the developer has not incurred any losses. In this case, they cannot claim damages because there are no losses, but your deposit will be forfeited.

If the developer sells your pre-sale property at a price lower than your purchase price, they will still pursue the price difference after confiscating your deposit.

For example, if you purchased a two-bedroom apartment at a price of one million and already paid a deposit of ten thousand, if you fail to complete the purchase on time, the developer can confiscate your deposit and then sell your pre-sale property. If the selling price is one million, the developer incurs no losses. However, if the developer sells it for ninety thousand, they have the right to pursue damages of ten thousand from you.

So, someone might ask, can I transfer my pre-sale property?

Certainly, but according to your purchase agreement, any transfer must be approved by the developer. Especially in the current market conditions, finding someone willing to accept the transfer might be challenging due to high interest rates. Moreover, pre-sale properties purchased in the past few years were during a peak period, and current property prices may be lower than the peak. Therefore, the likelihood of a successful transfer is not very high.

When considering the purchase of a pre-sale property, there is significant risk, especially in a scenario of rising interest rates and declining property values. So, when signing a pre-sale property purchase agreement, it’s crucial to pay attention to the following points:

1. Completion Date: You must be aware of the property’s estimated completion date and the potential consequences of any delays. Delays could impact on your relocation plans and financial commitments.
2. Purchase Price: Make sure to have a clear understanding of the property’s purchase price, including any adjustments or additional costs such as taxes, development fees, and condominium (apartment) fees. Ensure that the price aligns with your budget.
3. Payment Plan: Review the payment plan, including the deposit amount and deadlines for installment payments. Be prepared to meet these financial commitments.
4. Property Management Regulations and Changes: Understand any regulations related to property management and be aware of any potential changes.
5. Transfer and Resale: If allowed, understand the conditions and restrictions related to transferring or reselling contractual rights before completion. This could affect your ability to sell the property during the construction period.
6. Termination and Cancellation: Familiarize yourself with the termination and cancellation clauses of the contract. Understand the situations in which you can cancel the agreement, such as failure to secure financing or significant construction delays.
7. Potential Risks: Pay attention to potential risks, including market fluctuations and changes in development plans, and understand how these factors might impact your investment.

However, generally speaking, many pre-sale property agreements contain clauses that heavily favor the developer, leaving little room for negotiation or improvement. For example, the developer may have valid reasons to postpone the delivery of the property without facing any penalties. If you are dissatisfied with the postponed date, you may be eligible for a refund but cannot demand compensation.

Another crucial clause is that if the developer encounters significant issues, such as financing problems, they can choose to abandon the construction project and request that you waive any compensation claims, among other things. In Richmond, recently, several developers have left behind unfinished buildings, leaving customers unsure about what to do.

So, when we purchase pre-sale properties, we are taking on significant risks, especially in a downturned market. Homebuyers should carefully review presale agreements and, when necessary, seek legal advice. Understanding the terms and conditions of the contract, as well as the reputation and regulatory compliance of the developer, is crucial for making wise and secure investments in pre-sale real estate.

Returning to the issue raised by our earlier client, I have many clients who, in the current situation, would rather incur losses than proceed with the purchase because the current interest rates are three times higher than in the past, making it unaffordable for many.

Alright, that concludes today’s topic. Please stay tuned, like, and leave comments in the comment section about legal issues you’d like to know more about. Goodbye.