Vultures' Market for Florida Condos on the Horizon

The Investors’ Business Daily article by David Devoss accurately notes that condominium conversions are on the wane. Many apartment owners have made the decision to either not move forward with the legal reclassification of condominium; or, in many instances, to actually revert the status of their units back to that of apartment.

What has not slowed is the construction of new condo developments up and down Florida’s peninsula coastlines despite the sluggish sales figures. According to the Florida Association of Realtors, condo sales for the month of October 2006 fell a staggering 31 percent from the same month a year earlier.

After the red hot years of 2000~2004, inventories of unsold condominiums, nationally, began to climb during 2006. Result – a glut of unsold units in formerly healthy markets. Those developers who paid heed to the unfolding scenario applied the necessary corrections by canceling many planned condominium projects, but Florida is quite a different story.

Florida condominium units at fire sale prices should hit the market within the next 18-24 months. This happened in the late 1970’s and early 1980’s. It will happen again for some familiar and totally unfamiliar reasons. Insiders have seen the signs for the last two years in the aftermath of Hurricanes Ivan, Dennis, Rita, and Katrina.

Developers rarely know when to say “when.” If one is good, then one hundred is even better. Amid the destruction from the monstrous hurricane seasons of 2004 and 2005, the immediate and understandable response was to rebuild, repair, and reinvest. The problem is that the fervor to rebuild the Sunshine State has taken on a “no holds barred” mentality where condo construction is taking place despite the warning signs! Condo sales in 2006 fell 40 percent in Ft. Lauderdale, 28 percent in Miami, 31 percent in West Palm Beach – Boca Raton, and the rest of the state fared no better. The per unit sales decline was 55 percent in Fort Myers, 35 percent in Fort Pierce-Port St. Lucie, 35 percent in Punta Gorda, 63 percent in Naples and a crushing 85 percent in the Space Coast areas of Melbourne, Titusville and Palm Bay.

Maybe it is the siren’s call of balmy breezes, palm trees, the Gulf of Mexico coupled with the professional pride that attaches to owning concrete and steel towers with exotic addresses like Oceanview Drive and Biscayne Boulevard. Whatever the reason, there are statewide political realities that will most certainly push the number of unsold condominiums decidedly upward.

● Florida Governor, Charlie Crist, will soon have Florida voters cast their ballot on a referendum to double the homestead tax exemption from $25,000 to $50,000. It will pass because homeowners will flock to the polls.

● Assessment caps will be placed on business personal property tax bills similar to what is already in place for Florida homesteaders.

As the sources of ad valorem taxes dry up, the burden is shifted squarely to the shoulders of vacation unit owners, both homes and condo units. This situation mixed with off the chart property insurance rate hikes after the damaging back to back hurricane seasons of 2004 and 2005 will force existing tenants of those rentals to pack up and move on while those contemplating a Florida move for several months out of the year will apply the brakes and consider other destinations.

Break out your checkbooks, the sale is coming!