Buyers Flee From Condo Contracts En Masse

A NY Times article reports that real estate attoryneys in South Florida are busy analyzing condo contracts for the purpose of releasing buyers from them. According to the report most buyers want their money back but many are even willing to lose hefty deposits to get out of unfavorable deals. The MHP has decreased in Broward from last year. This is mostly attributed to investors who never planned on living in their units. Gregg Covin, of Museum Park, has reported 45 of the project’s 200 units resold before closing. Blue, a Hyperion development, has seen 26% percent of its units resold since occupancy. As expected, flippers are flushing out of the market, but taking the MHP down with them. If what real estate consultant Jack McCabe said is true, then up to 70% of buyers may shake out their inventories before all is said and done.

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4 Comments

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4 responses to “Buyers Flee From Condo Contracts En Masse

  1. brad5720

    My favorite line from McCabe in that article (re unoccupied/for sale units): “When you drive by in the daytime, they are gorgeous. But when you drive by at night, there’s no furniture on the patios and only one light on out of ten.”
    ——
    Once developers break ground, there is no turning back and these projects must be completed. But who is living in them once finished? There are not enough renters (especially at rates for high-end, new buildings) definitely not enough end-users, and instead a majority of absentee owners who live in Europe or South America or New York who spend 2-3 weeks per year at their $750K+ condo. Then what do you have? Miami starts to resemble Monte Carlo more than anything…beautiful, glimmeriing high-rises that are nearly empty most of the year.

  2. McCabe may be right, but 70% investors? I’d like to know where he got that number from. If only 30% of the buyers are longterm, then the market correction will take years to pan out.
    There isn’t a light at the end of the tunnel that I can see except a potential boost in retail and commercial activity, which may attract more urban occupants to absorb the inventory shakeout and stabilize the MHP (as it stands its much lower than comparable urban centers), but progress is slow moving. Still, as you say, many towers are going vertical, and they, unlike investors/flippers, aren’t going anywhere, and that is the good news.

  3. brad5720

    I wouldn’t doubt that 70% figure. I see it this way: how many end users sign contracts 2-4 years before they will be able to close? If you’re a primary home buyer why shop for a unit that far in advance?….and to sign a contract for a “concept” nonetheless, by way of a scale model or a sales center or a vacant lot? These projects obtained their pre-sales from mostly investors–Investors assumed they would have the development/construction time to flip, so it made sense for them. It just doesn’t seem practical for end users to make up a significant portion of those initial contract holders.

    You mention that the retail/commerical activity may attract people, which may be true. What’s funny is that alot of the recent retail/commercial was done in response to the planned residential (Mary Brickell/Midtown), and I bet some of these big retailers are nervous–just because a 500-unit building has been completed does not mean that there will be enough residents in that building to justify all the retail/commercial development. I think the same holds true for office development as well.

  4. You’re right about the pre-construction “conceptual” purchase being most desirable for investors, but empty-nesters often buy in advance and rent out or sell their former primary residences in order to occupy their newly built units. Also, there are those that buy pre-construction and wait in their existing owned or rented properties until they can make a move-in. Some end-buyers bought pre-construction not just because of the concept and developer track record, but because of the low prices that pre-construction afforded versus immediate occupancy. Keep in mind, during the height of the boom in 2003-04, most of what was desirable in terms of price, concept, and location was in the form of pre-construction.

    You’re right about uncertain occupancy levels troubling retailers. The retail sector can be dealt a serious but temporary blow as a result of seasonal or incomplete occupancy as well as ongoing peripheral construction. Retailers are still looking at a significant number of units in the development pipeline and although occupancy may be shaky in the beginning, the inevitability of full occupancy will result in a new urban and affluent target market that will not be ignored. None of this can happen until desperate flippers get flushed out. How long this will take is the question.

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