“Miami’s luxury condo craze burning out on strong dollar,” or so states a recent newspaper headline.
The truth is that because of the dollar’s rise in foreign markets, some of the traditional foreign buyers of Miami’s luxury condos have lost their purchasing power and as a result, it has slowed condo sales.
We have felt the impact of these results at our SLS Lux Brickell project. The project, a joint venture with The Related Group, has sold over 85 percent with non-refundable deposits and is under construction, so buyers know they will get their units.
Our largest group of buyers, which are from countries such as Brazil, Argentina and Venezuela that are affected by economic turmoil and unfavorable exchange rates, has dropped modestly.
Predictably, certain media outlets are rushing to assume that the dreaded ‘bubble’ is bursting and we will soon witness the return of empty condominium towers and falling prices, similar to the situation in 2008. Sales are always slower in summer months, but our sales are continuing, even from South America.
Having survived the last cycle, I can attest that there are huge differences between the 2008 to 2011 market and the one we are in now.
The entire approach to condominium sales – namely, the advanced sales unit non-refundable purchase deposits – has, fortunately, kept most of the overly eager novice developers out of the market.
At the same time, Miami is experiencing an influx of new buyers from unexpected countries, such as Italy, Switzerland, Germany, Russia, Mexico and China, as well as an increase in domestic buyers. The strong yuan in China, for instance, makes Miami real estate look like a great bargain since our luxury condominiums are much cheaper than prices in Beijing or Hong Kong.
As a result, we are now seeing buyers from China whom we have not seen before. Mexican buyers have also become a new force in the Miami market. We’ve even seen 15 percent of buyers coming from the U.S. – mostly end-users from the Northeast and Chicago who want to escape to Miami’s lifestyle.
The Allen Morris Company has been through many cycles over the past 57 years we’ve been in existence, and I can tell you from experience that the Miami real estate market easily jumps to extremes. If you don’t know this, it can take you by surprise.
The current slowdown on international exchange rates is just a typical cycle we often experience in Miami, which will naturally adjust to market pressures over the next couple of years. This is the best thing that could happen to our current growth cycle, taking us from an intoxicating high to a normal, healthy growth market.
Because pre-sales have slowed and construction costs have risen for new projects, new developments will delay pushing more product on the market and allow for an orderly absorption, actually protecting the values for buyers and developers alike who have already pre-sold and started construction.
The worst thing that could happen to our market is an unrestrained rush of new development without committed buyers. The combination of required non-refundable deposits, construction lenders requiring minimum pre-sales, and lower exchange rates is the best possible combination to keep us from being flooded with an oversupply of speculative condominiums in the market.
This is a sign of a sane and healthy market that is safe for investors to explore.
Sometimes what may look like the sky is falling is in fact, “red skies at night, sailor’s delight,” and clear sailing ahead!