| MIAMI THE SLUMP |
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Repossessions are on the increase, sales are notably dwindling, up to 80% in the Orlando area, and a large number of real estate developers are on the edge of bankruptcy because of numerous and poorly targeted offers. There are more than 20,000 apartments being developed in the centre of Miami alone, not including the 22,000 existing apartments in the county of Miami-Dade, which were for sale on the market last April and that should also be added to the count. Knowing that construction represents 20% of employment it is easy to imagine the disastrous consequences this could have on the local economy.
How have we arrived at this situation? SPECULATION!
The real estate boom between 2001 and 2005, as well as the Florida acquisition system, strongly favoured speculation. Indeed, this system allows an apartment to be reserved with a 10% deposit of its asking price on the understanding that the balance (a minimum of 80%) is paid when the building is completed. This represents a 2 to 3 year wait between making a reservation and signing the final deed. Under such conditions it is tempting to delay apartments and sell them before the building works end in order to make substantial profits. This practice, which enabled real estate developers to rapidly obtain the reservation quotas required by banks for financing their building works, generated an inflation on prices and overproduction. To this day 50% of sales are made by speculators. It is estimated that more than half of present real estate projects will be cancelled as the speculators, confronted with the collapse of the market, will prefer to lose their deposits and thus make operations unrealizable. Furthermore, most buildings are not adapted to the existing market. Apartments are expensive, too expensive, and often too large, which rules out the possibility of taking them over in their current condition. It truly seems that you have to be a millionaire to buy an apartment in South Beach, Sunny Isles or Coral Gable. That's the first problem of the crisis. The second concerns those buildings still under construction, almost completed and which were financed by the banks but whose final deeds have not yet been signed. What will happen to these buildings if a large number of people who put down a deposit do not sign the final deeds once they are finished? All these observations lead us to believe that the crisis is a serious one and far from over.
How to resolve the situation? Florida has numerous advantages to bring to the table (exceptional weather conditions, important financial and commercial markets...) and it should attract a large share of the baby boom generation that will soon reach retirement. Moreover, the weakness of the dollar compared to the euro should favour foreign investment, provided that the offer be better adapted to the demand and that the property tax calculation be quickly readjusted. This tax, added to the condominium charges, makes real estate investment unprofitable. From now on, it will be necessary for this sector to better fulfil its mission: real estate developers by building products that correspond to an actual market demand and estate agents by better advising their clients. Real estate is not the stock exchange, much less a casino. S.R |
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