Reprographers in Florida, rejoice! I wouldn’t worry too much about the risk of another bust, I’d worry more about a halt to what’s going to happen.
South Florida's New Condo Boom Risks Another Bust
04/02/2012
South Florida Sun-Sentinel
By Paul Owers, Staff writer
If you're in the market to buy or sell in a high-rise, be careful. Some experts see another condo collapse on the horizon.
More than two dozen condominium projects, including five in Broward and Palm Beach counties, are being added to the South Florida skyline in the next few years, according to CondoVultures.com, a consulting firm.
By the end of 2012, as many as 10,000 units could be in the planning stages, the firm said. That's nearly a quarter of all the existing condos that sold in South Florida last year, according to the Florida Realtors.
Developers insist the market will be improved, with demand for luxury units strong by the time they're finished building.
But when most of these condos are ready for occupancy in 2014 or later, they'll be competing with the leftover supply from the housing boom, creating a glut that threatens to send the recovering market into another tailspin, analysts say.
"The music is starting again," said Peter Zalewski, principal at CondoVultures. "We think there's going to be disappointment."
Consumers would be better off buying existing condos rather than waiting for the new wave of construction and the uncertainty it brings, Zalewski said.
Livia Periu, a New York resident looking to buy in South Florida, said another housing bubble is possible, but she's not overly worried.
"You'd think the builders would have studied the market so we don't fall into the same situation that we had before," she said.
From 2003 to 2011, developers built roughly 49,000 condos in Palm Beach, Broward and Miami-Dade counties east of Interstate 95, CondoVultures said. By the end of last year, less than 10 percent of those units were still in developer hands, according to the firm.
But all those buyers aren't living in the condos. Many were sold at deep discounts to foreign investors paying cash. They're renting the units with plans to sell when prices pick up.
Leading the new development charge is Miami's Jorge Perez, who rose to prominence during the boom before struggling when South Florida condo prices cratered by more than 60 percent. Trump Hollywood was among several projects he handed back to lenders.
Undaunted, Perez's company, The Related Group of Miami, now is proposing a handful of developments in the three counties, with a half dozen additional condo projects under consideration.
Related is targeting wealthy Latin American investors willing to pay cash upfront, said Carlos Rosso, head of the company's condo division. He said the buildings proposed now won't lead to another downturn.
"It's a slower pace and a lot less volume," he said. "It's a good way to come back."
Still wary from losses during the housing meltdown, many lenders aren't offering construction financing. So Related and other developers are requiring buyers to pay up to 80 percent of the cost of the condos before closing. That means a buyer would pay $640,000 up front on an $800,000 condo.
During the boom, buyers typically put only 20 percent down.
With the buyers' money in hand, developers don't need loans to finance construction of the projects.
Related has nearly sold out at Apogee Beach, a 49-unit condo in Hollywood where prices start at $1.8 million, Rosso said. At one of its Miami projects, My Brickell, 85 percent of the 192 units are under contract, Related said.
While response has been good so far, interest in luxury units is bound to weaken, analysts say.
The investors who scooped up bargains from the bust will be ready to sell during the next couple of years -- right around the time the new wave of construction hits the market.
That could soften rental rates, prompting nervous investor-owners to unload the units.
"Is the market as deep as (developers) believe it to be?" said Lewis Goodkin, a longtime Miami-based housing consultant. "I think the answer is: No, it isn't."
But Silvia Coltrane, who hopes to tear down the Howard Johnson's on Fort Lauderdale beach and build 170 condos, said Fort Lauderdale is not overbuilt because city officials were careful not to allow that.
"I'm bullish on the market," she said. "There's a certain stability to it."
Overbuilding won't happen now because there's virtually no construction financing, developers say, adding that not all of the planned projects will go forward.
Still, at The Related Group, Rosso admits some apprehension about the number of builders getting back into condo construction.
"It's very strange to see how fast the market can heat up," he said.
powers@tribune.com, 561-243-6529 or Twitter @paulowers
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