The End of Downtown Miami's Crazy Condo Boom May Be in Sight
Real-estate booms don't last forever, as anyone even passingly familiar with Miami's history should know, and it appears the most recent downtown condo boom might have hit its peak.
A new report from the Downtown Development Authority (DDA), which focuses on Miami's urban core from Brickell up to midtown, indicates that a slowdown may be coming. Thankfully, unlike the last time around, that doesn't mean we're heading for a bust.
The DDA's study notes that while new sales and resales of existing units are still going up, the average rate at which they're increasing is slowing. Prices rose just 16 percent in 2014, down from 27 percent in 2012 and 22 percent in 2013.
The exchange rate between the dollar and several European and South American currencies has also become less favorable for foreigners, meaning foreign buyers are now getting less bang for their buck -- or euro or Brazilian real. So demand among foreign buyers is now down.
However, because the rules of the free market mean it still makes more sense for local developers to sell Miami condo units to foreigners than to actual Miamians, they have a back-up plan: the Chinese. The report indicates business groups and public organizations have begun to try to tap that big red market, so we'll see how that goes.
The report also finds that foreigners are less interested in more out-of-the-way, secondary condo towers that are planned or under construction. Locals, however, are interested, except most of them can't afford the down payment.
As for locals, the report also notes that rental rates are growing, pricing many locals out of the greater downtown area, and they're leaving for other areas of Miami.
However, the good news is that a slowdown in the downtown real-estate market won't lead to a complete destabilization of the local economy. This time around, most developers required buyers to put down a 50 percent deposit, meaning there's less risk involved. Of course, it's that 50 percent deposit requirement that has priced most locals out of buying new-construction properties in the area in the first place.
The DDA also expects to see some announced projects cancelled or placed on the back burner soon.
"We will most likely see the first 'shelved' condo project of this cycle within the next six months," the report states. "This is actually a sign of a healthy market as the market is determining the success of each project in the pre-sale phase rather than having a highly leveraged product completed and delivered to market substantially unsold. Significant levels of unsold inventory delivered to market typically force distressed pricing. Shelving the development plans before construction commences is not failure; it is prudent."
So, essentially, this is a healthy slowdown, but it comes after a boom that has left Miami's urban core increasingly out of the price range for all but the richest.
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