The cold spell blanketing South Florida’s luxury condo market will continue in 2020, experts say
“The Miami real estate market is not a magic unicorn that will defy supply and demand fundamentals”: Ana Bozovic
Luxury condo inventory in South Florida continues to climb to all-time highs, as sales volume remains stagnant — just as high-end projects such as Paramount Miami Worldcenter, Brickell Flatiron, Ritz-Carlton Residences, Miami Beach, and Residences by Armani/Casa are opening their doors.
According to real estate data firm and brokerage Analytics Miami, third-quarter transaction volume for luxury condo sales of $1 million or more dropped 32 percent below 2013 levels, while inventory skyrocketed 146 percent compared to the same quarter of 2013.
Sellers are experiencing sobering price corrections. The average price of a luxury condo in 2019 was 82 percent of its original listing price, compared to 88 percent in 2018, according to multiple listing service data compiled by Berkshire Hathaway HomeServices EWM Realty.
These indicators point to another down year for luxury condo sales, even with the influx of deep-pocketed investors from New York, Connecticut and California fleeing the SALT tax implications in those states. And only a small number of new projects will be announced or launched in 2020, as developers wait for sales volume to catch up with the supply.
The Real Deal spoke to several prominent real estate power players to get their annual take on where the South Florida real estate cycle currently stands:
Edgardo Defortuna, president and CEO of Fortune International Group: “The speed of sales will be less than in the past decade, but better than the last couple of years. Overall, I am very bullish and optimistic, even though the number of transactions are going to be less and price points are going to be higher. But we don’t see that many projects being launched [this] year, so the absorption of the existing inventory is very good.”
David Martin, president and co-founder of Terra: “I think 2020 is going to be a year where we will continue to see a demand coming from the American market; specifically the SALT tax states. As to whether there is a pop or not is a question of supply. And I have seen a very controlled supply in the for-sale residential market. I think the market has been very resilient and will continue to be so.”
Taylor Collins, principal of Two Roads Development: “Normally in an election year, there is a slowdown. I expect the first three quarters will be like the last three quarters of 2019. Overall, the economy is doing very well, absorption is up and good pricing is holding steady. We’ve had a bull market for a very long time and now we are in extra innings of that bull market.”
Nathan Zeder, a broker associate and principal of The Jills Zeder Group: “For the most part, the market was okay. In 2020, we will see more of the same. The reality is that there has been a price correction from two, three years ago. It’s not a lack of buyers, but they are very educated. They know what condos are selling for. It’s about convincing sellers to get in line with what the market is. There was a lot of supply coming online in 2017, 2018 and 2019, but fewer in 2020. That is absolutely slowing down and the condo market needed it. There are a lot of external factors working in Miami’s favor such as the SALT tax flight we are seeing out of the Northeast U.S., the Midwest and California.”
Ana Bozovic, founder of Analytics Miami: “There is a clear trend of decreasing transaction volume with an increase in the supply. In mid-November, downtown Miami had 62 months of inventory past $1 million. Miami Beach ended with 46 months of inventory past $1 million. Yet Miami and Miami Beach ended October and November with only five more sales compared to the same period in 2018. There is a lot of talk about sales upticks due to investors fleeing tax structures in New York and other states, but I don’t see domestic buyers picking up the slack. I see a continuation of 2019: Stagnant to decreasing sales volume with inventory floating around all-time highs. The Miami real estate market is not a magic unicorn that will defy supply and demand fundamentals.”
Rose Sklar, principal of The Sklar Team: “People who bought at pre-construction prices and now want to sell will lose money. There is a lot of inventory that we need to clear out. And they are competing with developers that are throwing in a year or two of maintenance fees as incentives and paying 6 percent commissions. You can’t compete with something like that.”
Ron Shuffield, CEO of Berkshire Hathaway HomeServices EWM Realty: “We know that the high-end condo market in excess of $1 million began to soften in fall 2015. We have been talking about this for four years. The good news is that sellers are finally recognizing that a pricing adjustment has a very direct and quick benefit to selling sooner. We are already seeing sales pick up and inventory is decreasing. In September, October and November, the inventory of condos went down 6.5 percent and sales were up 5.5 percent compared to the same quarter in 2018. We still have too much inventory, but we are starting to chip away at it.”
Marcelo Kingston, principal of Multiplan Real Estate Management: “I believe Miami is coming on strong. I don’t see a lot of new inventory for high-end luxury condominiums along the oceanfront. There is opportunity for boutique projects to create new pockets. But the larger projects you find in Sunny Isles Beach, Brickell and Edgewater will suffer.”
David Arditi, principal of Aria Development Group: “The velocity of sales is definitely down for the luxury condo market. There were a lot of projects being delivered so I am expecting a slowdown in sales velocity and transaction volume. But I don’t expect anything drastic in terms of price cuts. There is definitely more movement in the $700,000 and under price point. I think we saw pricing in some submarkets that were a bit irrational. For people who bought condos as an investment, with the intention of reselling, may be willing to take a hit. So the beneficiaries will be those investors coming in now.”
Robert Barthelmess, managing partner of BGI: “When you are looking at the luxury condo sector, depending on which submarket, there is an inventory of more than 12 to 24 months. If you are looking to resell, you will have to do a price discount. I am seeing discounts of 10 to 20 percent. So prices will be a little depressed by the end of 2020 and early 2021. But the market will stabilize as we see more people migrating from New York, New Jersey and Connecticut.”