The profitability of renting luxury condominiums in South Florida is yet to be proven. The high inventory and output of extravagant amenities determining high prices, tied to the stagnation of wage-increase for potential renters have been a sign of trouble for the investors’ industry.
For investors, these condos lost their attraction to be considered a sound, profitable investment, after evaluating the cost of association fees, assessments, and taxes.
The downturn in prices for these condos, “already happened” said Josh Migdal, Miami attorney who represents clients in multiple jurisdictions and is known for his work on behalf of the Federal Deposit Insurance Corporation (FDIC) in the wake of the mortgage meltdown and the condo market.
Huge Supply of Million Dollar Condos
The condo oversupply is clear in luxury projects, yet absent in affordable projects. Condo Vultures’ website weekly distributes the Market Intelligence Report for residential real estate in Miami-Dade, Broward, and Palm Beach counties, recently reported that there is a 70-month supply for condos costing at least $1 million.
Last year, a news report found a “home luxury glut”. There was a 124% increase in condos and luxury properties over the same time in comparison to the previous four years.
Last year, Ron Shuffield, President of EWM Realty International, a 54-year-old real estate brokerage, with 10 offices in South Florida said, “There are more properties on the luxury market right now than we’ve ever had in history.”
Peter Zalewski, the founder of Condo Vultures, told the Herald, “there’s a 32-month supply of condos in downtown Miami alone, so the only way you’re going to move a condo in this market is to lower your price.”
Although in the second quarter of 2017, there was a median worth decline for condo/townhouse of 22% in zip code 33132, and 10.1% in zip code 33140, the recent trends in Miami real estate luxury prices finally saw growth in January of 2018, and have reached the highest price gains since July 2005. The luxury market in Miami is growing according to Danielle Hale, chief economist for realtor.com®.
Shrinking Supply of Affordable Condos
There has been a crunch in affordable housing in the United States; consequently, affordability for renters is becoming an issue. Florida families spend more than half their income on rent, lead by a shrinking in the inventory of rental units and the increase of rental prices.
According to the Brooking Institute, a research leader non-profit organization for solving problems facing society at the local, national and global level, the supply of affordable condos within the $200,000 – $300,000 range in Miami-Dade has been shrinking, while the county’s median household income stays at $45,900.
The advice for investors looking for condos is to do their homework, analyze their investment prior to commitment, and align their costs with the return. Also, to look for alternatives outside the multi-million-dollar market areas with lower prices. An example of these areas is Homestead which has been undervalued, but where a significant appreciation has been occurring during the last two years.
Despite the variation in inventory supply, price, and climate change among other factors, it is well known that Miami-Dade is still one of the most attractive markets in the country to invest in real estate.