Top five South Florida condo trends to watch for in 2016

Among them: a stalling rental market, increased commissions and canceled projects

Jan.January 05, 2016 06:00 PM

In practically every industry, January is a time for gazing into the proverbial crystal ball to predict what the next 12 months could hold for the market, and then taking steps to capitalize on the anticipated trends.

In embracing this theme, my first column of the year is dedicated to anticipating the trends in the South Florida condo market that are likely to emerge east of I-95 in the tri-county region of Miami-Dade, Broward and Palm Beach in 2016.

Fortune telling, so to speak, is clearly not a science, so the odds of correctly predicting future market trends is extremely difficult if not outright impossible, especially in a complex economy such as South Florida where domestic and international issues are constantly changing the local landscape.

Understanding that the chances of being wrong — and being widely criticized for it — are probably greater than being right, here are the five trends to watch for in reverse order for the South Florida condo market during this upcoming year:

5. Rental market begins to stall

Cheap rental rates were one of the main benefits for residents to emerge following the 2007 crash of the South Florida condo market, due to overbuilding and easy financing. At the time, owners of newly constructed or recently converted condo units slashed lease prices in order to attract tenants and generate revenue. As the units became inhabited and the economy recovered, landlords started raising prices at an aggressive pace to recoup some of the defector subsidies that were effectively provided to tenants during the downturn.

The record high rental rates now being achieved in South Florida has led to a flurry of construction of rental units and preconstruction condos that began to come onto the market in 2015 and are expected to continue for the next three years. More supply of rentable units is likely to mean lower rental prices in the near future, unless South Florida’s economy suddenly adds an industry that can generate a large number of high paying jobs.

4. Real estate commissions increase

The supply of preconstruction and resale condo units in South Florida is rising to some of the highest levels since the previous cycle that stretched from 2003 to 2010. As owners and developers want — or need — to sell their existing or planned units, the last element of a real estate deal these individuals are typically willing to revise is the price.

Watch for real estate commissions to rise to new highs in 2016 in an early attempt to transaction units before having to reduce prices.

3. Cancellation of more proposed condo projects

The original plans for nearly 20 new South Florida condo towers with more than 2,800 units have been changed since this current real estate cycle began in 2011. These projects were revised for a number of reasons, ranging from changing market conditions to developers flipping land for hefty returns.

Watch for a growing number of proposed projects to pivot if they fail to meet their presale requirements during this winter buying season that ends in April.

2. Foreign buyers increasingly shop for value

The South Florida condo market emerged from the boom-bust era of the last decade as a result of a weak U.S. dollar and cheap condo prices. Foreign buyers rushed into South Florida to take advantage of the value created by the struggling U.S. economy and an oversupply of condo units on the market. In the last 18 months, the dollar has gained significantly against most international currencies concurrently as South Florida real estate prices have rebounded to levels last seen at the peak of the previous real estate cycle.

Watch for foreign buyers — who still want to park their money in South Florida — to increasingly look for cheaper alternatives, whether it be in the quality of the condo units or their location.

1. Mortgage financing increases 

South Florida’s current real estate cycle has primarily benefitted the out-of-town cash investors who have been buying up properties with the intent of renting out the units to local residents who are financially unable to purchase. An argument can be made that a lack of access to financing is a primary reason for the low level of local participation up to this point in the current cycle.

As the Federal Reserve proceeds on a trajectory to raise interest rates and inherently bolster bank profits in 2016, watch for more lenders to increasingly take chances on making loans to primary users who are beyond ready to move out of pricey rental units.

The unanswered question going forward is whether the year 2016 will prove to be a time of transition to slower growth for South Florida’s real estate market.

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, a preconstruction condo projects website, in conjunction with the Miami Association of Realtors.

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(Illustration by Andrew Colin Beck)

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