StatFunding Press Release
StatFunding Releases November Miami Preconstruction Condo Market Update
November 10, 2016StatFunding issued its November Miami Preconstruction Condo Market Update today. Over the last 6 months the Miami preconstruction condo market has seen an increase in underwater condo sellers, more underwater closed sales, a huge build in inventory in the condo market as a whole, an increase in developers stuck with unsold units, and the first failing condo project.
Within the last 6 months 20 out 47 resales (43%) of new preconstruction condos were sales for a loss versus 3 sales for a loss for the six months prior to May 1, 2016, an increase of 677%. As of November 1, 2016, 70 preconstruction condo owners are willing to take a loss to sell their condos as indicated by underwater listing prices versus 14 underwater sellers as of May 1, 2016.
In Miami-Dade County 10,000+ additional units are currently in construction and will be delivered within the next 24 months. If the current rate of sales continues and 35% of those units are listed for resale and another 3,614 resale condos will be added to the existing inventory, then there will be a 468+ month supply of resale condos listed for sale. That is not sustainable. With the disequilibrium in the market something will probably have to give. Pricing will probably have to adjust to demand
The overall Miami condo market also appears to be in trouble. Over the last 3 years inventory has increased from about 8,000 units to over 14,000 units, and transaction volume is down about 30% year over year. “In May 2016 we released our first Preconstruction Condo Market Update. At that time we noted the obvious pressure building in the market, which resulted in condo flippers selling units for a loss and sellers listing their condo with prices that would result in losses for the seller. The data indicated that the trend would likely continue with the massive amount of inventory coming to market in a short period of time. Unfortunately, our prediction was correct,” noted Andrew Stearns, founder and CEO of StatFunding.com.
As the market has deteriorated developers are now getting stuck with unsold units. These unsold units are probably negative carry for the developers. As a result, some developers have not repaid their construction loans, others have taken out bridge loans secured by the unsold units. In the early part of this condo cycle (from 2012 – 2015) all developers were able to sell all units in their projects. “The inflection points of previous condo cycles have been marked by developers getting stuck with unsold developer units. It looks like we may be experiencing the same thing all over again,” commented Stearns.
The market has also seen the first stoppage of construction of a condo project. In September 2016 the developer of the H3 Hollywood, a 247 unit condo project, halted construction of the project midway through construction. “Most preconstruction buyers do not understand that most of their deposit is used as working capital to build the condo project, and that if the project fails they might lose their deposit,” Stearns said. “We can only hope that the H3 work stoppage is an anomaly and not the start of a trend.”
The data in the StatFunding Market Update indicates that we appear to be in the early stages of a distressed preconstruction condo market. Based upon available data, the next 24 months will likely see the distress continue and increase.
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StatFunding.com is a platform that allows individual and institutional investors to take fractional or whole participations in commercial real estate loans. StatFunding periodically releases internal reports on market conditions, which are widely considered to be the most in depth and accurate analysis of the state of the Miami condo market.
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