During the past six years, the scene in South Florida has transformed from low-rise structures to high-rise condominiums hundreds of feet high--South Florida condo market has been booming. But as the building heights rise, so did selling prices. Now, the dramatic hype of condo development is on the verge of landing its way back to ground, as real estate analysts predict.
The apparent upward inertia of the South Florida condo market has been thwarted by inevitable economic realities, making even the most headstrong condo developers of the region recoil. As supply outpaces demand in the South Florida condo market, selling prices already are equilibrating. Values of newly-built condos could pretty much tumble by at least 30% by the time the market plummets. As a result of unbridled overbuilding, lenders are wary of financing condo construction, thus compelling developers across South Florida to cancel, defer or overhaul their respective projects.
In May 2005, T-Rex Capital of Connecticut announced that it would construct a luxury condominium, named Eighty Points West, which will provide views of the West Palm Beach waterfront and a marina for yachts up to 90 feet. It will also have amenities such as a fitness center, theater, and library. However, none of that has started yet, and the company's president Cliff Preminger said that construction has been postponed to next spring.
Metrostudy, a consulting firm based in West Palm Beach, reported that as of June 30, 2006, nearly 52,000 condo units in Miami-Dade, Palm Beach, and Broward counties were either still under construction or already done but still unoccupied. The figures exclude the thousands of units built in South Florida since the year 2000, when the housing boom initiated. Roughly 104,000 units are being planned for the coming years. Analysts doubt that most of these will ever be built.
Analysts trace the condo problems to short-term investors, who bought condos at low pre-construction prices and waited as the units rise in value before having to close on the properties. These investors "flipped" the properties to other buyers for hefty profits, essentially trading condos like shares of stock. This trend systematically induced demands to inflate, steering prices upward while driving developers to build more. For the case of downtown Miami, the epicenter of the condo construction shockwave, the development is fuelled by international money.
Condos also sprung up in downtown West Palm Beach as buyers were enticed by the idea of living near CityPlace, the shopping and entertainment complex that opened in 2000. Fort Lauderdale, on the other hand, isn't as overbuilt because the city restrains further residential building downtown until an affordable housing law is passed. Overall, the insufficient number of long-term owners purchased condos combined with investors dumping properties for sale has created a surplus of properties across the South Florida condo market. More than 11,000 units remain vacant in South Florida, according to Metrostudy. Investors have been getting frantic as they have been advertising all sorts price slashes, plasma TVs and other perks to attract buyers.
While some lenders have discontinued financing for condo construction, others who remain have tightened lending policies, such as insisting at least 60% pre-sales. This starkly contrasts the situation before when some lenders had no pre-sale requirements.
Another striking blow to developers is the continually increasing costs of construction materials. Due to this, several condo developers "have canceled projects, returned deposits, put land up for sale and are at risk of foreclosure." For instance, the Waves Las Olas would not be built in downtown Fort Lauderdale. Neither will the Courtyards at Flagler Village be constructed. Several other projects have been put into cessation in South Florida.
Developers and investors are attempting to salvage anything from the condo slump by converting units back into apartments. Only a few years ago, the condo conversion craze was really hot when developers were buying apartments and turning them into condos to satisfy the insatiable demand. Since the start of 2004, more than 1,800 condo-converted units in Palm Beach County have been reconverted to apartments. In Broward, 1,088 condos have been transformed into apartments, while 672 condos in Miami-Dade have been switched back to apartments. Real estate experts concur that it will take at least two years for the South Florida condo market to bounce back, provided that consumers stop using condos for overnight investments and instead revert to home-buying philosophy of past generations.