Miami’s condo market in Downtown is cooling down as construction costs explode, land prices skyrocket and foreign currencies fall. However, this time, nobody is truly expecting a crash.
There is a little slowdown though than is noticeable through the resale prices for condos that are growing at a slower pace. They went up this year by 16% as compared to a 22% increase the year before. Developers are afraid it would act as an obstacle to hit their profit targets on time, thus slowing down the pace of preconstructions.
Indeed, the demand becomes higher and higher in the construction area and available contractors are getting hard to find. Not only is there a shortage in skilled workers but the ones that can do the job are now pushing their margins. If we only consider Downtown, 22,000 condo units are under development at an average price of $563/sqft which falls right in between existing condos such as 900 Biscayne or Paramount Bay.
It looks like condo developers are victims of their own success. Land prices reach $80 million for 2.05 acres of bay front at 300 Biscayne Blvd for example! Land is scarce but no one can predict yet if the market has already topped out or not.
When did the slowdown start? It seems as if it dates back to last summer when gasoline prices started to tumble along with a strengthening of the dollar. National condo sales dropped by 15% as compared to last year because such factors impede mid-tier foreign investors from buying in Miami. Domestic buyers remain, having difficulties to afford 50% deposit that developers require.
No need to worry too much, there is little leverage in the market this time around. Actually, a softening can be a sign that we are in a healthy market. In that case, construction costs will stabilize. We are starting to witness an equilibrium point between demand and supply.
Such slowdown affects certain markets more than others: the rental market for example benefits from thinner margins, so that could impact them greatly. Developers respond to that question with new projects providing urban living, to attract a young dynamic audience with affordable prices.
The luxury condominium industry stays safe, as the ultra-wealthy do not suffer from little “pebbles in the water”!