How to avoid another bust

South Florida’s latest condo boom is on the verge of surpassing 40,000 units in the tri-county area of Miami-Dade, Broward and Palm Beach counties, and that’s just on sites located east of I-95 .

It’s easy to assume that the region is destined for another one of its dramatic boom-and-bust periods, but there are some factors that could make this cycle, which began in 2011, different.

First, there’s the pace of construction. Through August, less than 27 percent of the announced condos are under construction or completed. An additional 35 percent of the announced units have the necessary approvals needed to begin construction. The remaining 38 percent are seeking clearances to build.

This suggests developers are building in phases, in hopes of avoiding another dramatic bust like the crash of 2007. Industry watchers reason that developers will be able to put projects on hold, or even cancel planned towers, if the market shows signs of overheating.

Contributing to the impression they want to avoid repeating history is the second big factor that may mean this time things are different: Many developers are requiring buyers to commit to 50 percent deposits when they enter contracts to purchase new units. Most required 20 percent deposits during the last boom.

Today’s rich deposits are considered a way of keeping speculators out.

Despite these precautionary steps, however, the sheer number of new condo units in the tri-county pipeline has some market observers concerned about a future glut.

Bullish investors note the number of new units planned still trails the level from last decade’s building boom, when nearly 49,000 units were built over seven years in South Florida’s seven largest coastal markets.

Bearish investors point out the need for new units is limited. Some 1,200 condos remain unsold from the previous cycle as of June 30, an analysis of government records shows.

What is undeniable is that nearly three-quarters of all new units announced to date are slated for Miami-Dade County, where foreign nationals represent a large percentage of the preconstruction buyers.

Broward County, with a smaller pool of foreign buyers, represents about 17 percent of the announced new units, and Palm Beach County, with the fewest international purchasers, accounts for about 9 percent.

Much like the last boom, Greater Downtown Miami is the most active market for new condo units during this cycle, with more than 60 new condo towers and nearly 18,300 units proposed as of Aug. 31. In the previous boom, nearly 85 new condo towers with some 22,200 units went up there.

A pair of Broward County markets rank as the next two most active markets this cycle. Developers plan 21 new condo towers with more than 3,625 units in the Hollywood-Hallandale Beach market. The Downtown Fort Lauderdale and Beach market has 23 announced towers, representing more than 2,400 units.

Rounding out the top five most active markets are West Palm Beach, with nearly 2,125 proposed units, and Sunny Isles Beach, with nearly 2,115. The Aventura market in northeast Miami-Dade County ranks a close sixth, with nearly 2,110 new units proposed.

The unanswered question is whether developers, buyers and brokers will remember the painful lessons from the last cycle that started so optimistically a decade ago, before ending in a devastating crash.

Peter Zalewski is a real estate columnist for The Real Deal and the founder of 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.