The Real Deal Miami

South Florida condo market braces as Russia’s credit rating downgraded

Ruble lost 46 percent of its value against U.S. dollar in 2014

January 27, 2015 12:00PM
By Peter Zalewski

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Sunny Isles Beach (inset: Peter Zalewski)

Sunny Isles Beach (inset: Peter Zalewski)

Condo developers who are relying on foreign buyers to purchase a significant number of the more than 41,000 new units proposed for South Florida during this cycle were stung with more bad news on Monday.

Less than two weeks after central bank monetary maneuvers in Western Europe sent the euro plummeting, the influential rating agency Standard & Poor’s has downgraded Russia’s foreign-currency sovereign credit rating to “junk” status, according to Bloomberg.

The S&P credit rating downgrade means the cost for Russians to access capital on the international market will likely rise to levels that could curtail any notable economic growth and further weaken that nation’s currency, the ruble.

Even before the downgrade, the ruble was already trading at its lowest exchange rate against the U.S. dollar in at least 15 years, according to the currency conversion website OandA.com.

In fact, the ruble has lost about 46 percent of its value against the U.S. dollar in the last 12 months due to falling prices for oil and ramifications from international sanctions that were imposed following Russia’s annexation of the Ukrainian region of Crimea.

In announcing the downgrade, S&P forecast that Russia will be faced with increasingly difficult times for the foreseeable future with the nation’s economy expected to grow only by “about 0.5 percent annually” for the next few years, following growth of nearly 2.5 percent in each of the last four years, respectively.

“We do not currently expect that the government will be able to effectively tackle the long-standing structural obstacles  perceived corruption, the weak rule of law, the state’s pervasive role in the economy, and the challenging business and investment climate — to [lead to] stronger economic growth over our 2015-2018 forecast horizon,” according to an S&P statement.

Even before this week’s downgrade, concerns were already being raised about the ability of Russian investors  a key buying pool for condos in the tri-county region for at least the last two decades  to continue their pace of purchasing some of South Florida’s most luxurious units.

“An apartment in Miami, even the most glorious beachfront apartment, is not a priority right now,” New York Attorney Marlen Kruzhkov reportedly said in a recent press report.

Arguably, no city in South Florida knows the impact of Russian condo investors more than Sunny Isles Beach in Northeast Miami-Dade County.

The Russian presence in Sunny Isles Beach is so prevalent that acclaimed U.S. author Tom Wolfe included a fictional Russian oligarch who lives in the barrier island city in his 2012 book “Back To Blood,” which examines the interaction of cultures in South Florida at the beginning of the 21st century.

To meet the perceived international investor demand for luxury condos in Sunny Isles Beach, 19 new towers with nearly 2,500 units are slated to be developed in this city of less than 22,000 residents, according to the U.S. Census Bureau and the preconstruction condo projects website CraneSpotters.com. (For disclosure, my firm operates the website.)

The unanswered question going forward is whether the Russian investors who had planned to purchase preconstruction condos in South Florida  and especially Sunny Isles Beach — will still have the interest and buying power to do so once the new towers are eventually built.

Peter Zalewski  is a real estate columnist for The Real Deal who founded Condo Vultures LLC, a consultancy and publishing company, as well as Condo Vultures Realty LLC and CVR Realty brokerages and the Condo Ratings Agency, an analytics firm. The Condo Ratings Agency operates CraneSpotters.com, a preconstruction condo projects website, in conjunction with the Miami Association of Realtors.

  • real

    I told everyone on this site 8 months ago all the way until now this was going to happen and these greedy developers can eat it. They built on a fad and a hype not on economics. I hope the related group takes the hardest hit, everyone in that company is arrogant and they use cheap materials for their interiors. Real Deal stop taking money from brokerages and developers to post articles about being sold out and this is the best market everywhere, you are lying to buyers and losing your credibility as a real estate blog site, and if you ar not taking money from them then you need better writers that actually know what is going on

    • marc rosado

      Why are you so angry?

  • real estate veteran

    This is a knee jerk analysis. One could just as easily say that Russian buying will increase as Russians rush to get their money out of rubles and into dollars, fearing that the ruble will plunge even further. Florida real estate is a perfect vehicle for Russians to do so. Plus they get the benefit of a beautiful piece of paradise.

    • mondo condo

      Agreed, superficial at best. Russian’s buying expensive Sunny Isles condos would typically have significant non-ruble based net worth. Cheers

  • no intersefd

    Why are you even stating such a fact that makes no economic sense for even the saviest russian buyer. You make no sense, russian slowing down the buying hurts developers because locals can not afford the buildings, its as simple as that. developers are building for the internal clients and now that they slowed down buying they are screwed because the developers now know that they have no one. aventura sunny isles brickell miami beach and so on had a 60 percent slow down on buyers, is that coincidence

  • Connie Noskowitz

    We know that some developers such as Donald Trump can do almost anythingQ

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