In a sign the current condo boom is reaching its peak, a pair of prominent developers have relaxed their requirements for 50 percent deposits from prospective buyers. Swire Properties announced it was lowering down payments for a condo at one of its Brickell City Centre residential towers, Rise, to 35 percent, while Property Markets Group is offering some foreign buyers deals that allow them to pay 50 percent deposits in installments prior to closing for units at Echo Brickell, Echo Aventura, Muse in Sunny Isles Beach, and Sage Beach in Hollywood.
The moves come four months after the group developing the Crimson condominium in Edgewater began offering some units to local buyers with only 15 to 35 percent down through a Fannie Mae lending program. The lowering of deposits indicates competition is intensifying in the greater Miami condo market as the current cycle enters its fourth year, said Peter Zalewski, The Real Deal columnist and founder of the real estate websites Condo Vultures and Crane Spotters.
More than 70 new condo towers with nearly 20,000 units have been announced since the cycle began in 2011, Zalewski said. At the same time, condo sales have stagnated in recent months. The Miami Association of Realtors reports condo sales decreased 15 percent in January and only rose 1.4 percent in February compared to the same months last year.
“The decision by a market maker such as Swire Properties to reduce deposits from the current norm of 50 percent can only prompt other developers to revise their presale terms in hopes of remaining competitive,” he said. “This move by Swire very well could be the symbolic start to a race to the bottom for deposits on preconstruction condo projects.”
Zalewski said Swire’s decision could also make it harder for the company to ask future buyers to plunk down 50 percent deposits for units at two additional towers planned for Brickell City Centre. “This will be interesting to watch as some buyers have long memories,” Zalewski said.
However, a PMG principal and brokers pitching buyers the company’s projects, as well as Swire’s Rise condominium, insist loosening the 50 percent deposit requirement does not mean the South Florida market has cooled.
“Swire only changed the deposit structures on the remaining unsold units at Rise and Reach because closings are around the corner at end of this year,” Daniel de la Vega, president of ONE Sotheby’s International Realty, told TRD. ONE Sotheby’s is the exclusive brokerage for Rise and Reach.
“It is not an indication of where the market is heading,” de la Vega added. “All the other projects I am working on still require 50 percent deposits. I don’t see it changing in the near future.”
He also noted Swire, unlike other developers, has never relied on buyer deposits for construction of its residential projects. Swire, a publicly traded firm, is using mostly equity, intra-company lending, corporate debt and complex financing to build Brickell City Centre, according to company statements filed with the U.S. Securities and Exchange Commission.
Echo Brickell rendering
Craig Studnicky, principal of International Sales Group, which is marketing PMG projects, said the developer is allowing some buyers from Argentina and Venezuela to only put down 40 percent with the remaining ten percent paid in installments prior to closing.
“Global buyers, especially ones from Argentina and Venezuela, are having a difficult time moving money out of their countries,” Studnicky said. “It is a lot harder for Argentinians and Venezuelans to move money out than it was a year ago.”
PMG is able to offer flexible down payments to select buyers because the developer’s projects have built enough equity and are fully financed for construction.
“You will be hearing on the street that more developers are lowering deposits to 30 to 35 percent,” Studnicky said. “I promise you those projects are fully funded. The risk is pretty much zero for the developer.”
Ryan Shear, a PMG principal in charge of the firm’s South Florida projects, said that PMG determines which buyers get extended down payment plans on a case-by-case basis. “If someone comes in and wants to make the down payment over a one-year period, we will work out a structure,” Shear explained. “Whether it’s a 30-10-10 split or a 10-10-10-10-10 split, it all adds up to 50 percent.”
PMG also gave away some Tesla electric cars to buyers. “We signed a brand partnership deal with Tesla to co-promote our products and had purchased some Teslas for certain penthouse residences and unique units at various projects to cross promote the partnership,” Shear said. “That promotion has since ended as we have sold all units accompanied with Teslas.”