Real estate agents in South Beach have been living in paradise, enjoying one of the hottest construction booms in the country in the wake of the housing bust. Things have been so heated that the area has been a magnet for condo flippers – including many institutional investors – interested in making a quick profit.
According to a report by Wolf Street, the condo boom in Miami is now creating a supply issue. Some neighborhoods, including New Edgewater and Brickell, part of Miami’s “condo corridor” by the waterfront, are seeing a surplus of new condos. Miami is seeing exceptionally high luxury condo inventory in most areas, estimating as much as over three years’ worth of inventory overall in the current market. Sellers in the Edgewater, Midtown and A&E District areas have an incredibly high inventory of 7.5 years, putting sellers in a vulnerable position. Miami Beach is faring a bit better but still a buyer’s market at a little over two years of inventory. Andrew Stearns, founder of StatFunding, noted that the New Edgewater area is facing a surplus.
“There is an unprecedented glut of new pre-construction condos coming to market there too, but different neighborhood.”
There are several projects in Brickell, including Bond Brickell, a tower with 328 units that was completed late last summer. An analysis by StatFunding found that the 318 units (97 percent) but the developer still is holding 10 units, with four listed for sale. Of the sold units, many went to pre-construction condo flippers. Of the sold units, 69 of those units are listed for resale on the MLS.
Reconstruction condo flippers are making leveraged bets when they purchase condos from the developer during construction with a small deposit and make payments as the construction of the condo is completed. In a booming market, lenders are eager to extend these short-term loans. When the building is completed, the pre-construction flipper closes the sale and then tries to unload the condo at a profit. This phenomenon has driven the current condo glut, even amid an increase in sales. According to data from the Southeast Florida Multiple Listing Service (MLS), 4,467 high-end single-family homes and condos were for sale on March 31 — a 124 percent increase over the same day in 2013, when there were 1, 996 listings. EWM president Ron Shuffield agreed that this raises potential issues.
“There are more properties on the luxury market right now than we’ve ever had in history. When you have a stockpile of four years’ worth of supply of luxury condos, that’s too much.”
Bond Brickell, there are a number of other construction projects underway. Another 1,700 new units (in the list above) will be completed over the next 12 months within blocks of Bond Brickell. Stearns noted that this issue will create added issues.
“Because there have been zero resale transactions at Bond Brickell, the actual market value of the units in the project is uncertain. With 14 out of 69 Bond Brickell resale listings listed for a loss, asking prices indicate that Bond Brickell units cannot be resold unless sellers are willing to take a loss on resale.”
The tipping point will come when prices drop enough for buyers to enter the fray. However, the loss flippers have to take might be significantly larger than indicated by current asking prices. When prices drop enough, there will eventually be a buyer. But that price hasn’t been reached. Jill Eber, a broker-associate for The Jills, which markets luxury properties, said price reductions may be the key to keeping the sales momentum going.
“We’ve been seeing sellers bringing their prices down for the past year. A lot of people who were holding back on buying have jumped in because of the reductions.”
