The condo market in Miami seems to be booming. After all, condo sales jumped 15% in 2011 and luxury developers are snapping up properties to cater to those that have money and want to be on the beach. But the market may not be as stable as one would like to believe.
The market in Miami and surrounding areas seems to be splitting in two: those who have, and those who have not. Luxury properties jumped last year, with big money buyers taking advantage of the record-low prices, but middle-market condos stayed largely stagnant.
To cash in on the growth, developers — largely international — are banking on a continued demand for lavishness and are developing condos that would make the average homeowner’s head spin. For instance, Germany-based Porsche Design Group’s proposal to build a car elevator with their new building — for people who want to live sky high and take their cars with them.
And while high-end developers are grabbing up open properties to cater to the seemingly endless need for better condos, they are taking a big risk. A large chunk of buyers in that market are international — specifically from the UK. With the UK facing a possible recession just around the corner, that pool of high priced buyers may dry up.
This construction boom could be less of a sign of optimism and more of a sign of impending overbuilding followed by slow buying and empty condos.
But while the luxury market faces a current boom and future risk, the middle market isn’t really going anywhere. To offer a comparison: Luxury homes in Miami — those above $800,000 — saw a 26.9% annual gain in sales for November, while middle-market homes priced between $200,000 and $600,000 saw a comparatively paltry gain of only 7.6% annual gain in the same month.
Cash-strapped middle-class homebuyers just aren’t as attracted to the condo market in southern Florida as those with thick pocketbooks who have been largely unaffected by the poor economy. Even though prices are down, middle-market buyers aren’t taking advantage of the market, and condos in their price range continue to sit vacant.
So, while numbers for condo sales in the Miami area seem to be promising, they deserve more cautious optimism than I feel developers are giving the area right now. While their risks may be rewarded in substantial returns, it strikes me as odd they are going in so deep in a market that largely depends on buyers who may disappear sooner rather than later.