MIAMI (CBS4) – Condo king Jorge Perez said on national television recently that he would be collecting 100% deposits on new condos he is building in South Florida.
On Tuesday. his company, the Related Group, backtracked on that policy saying the deposits are more like 50% to 80%. Still, all the deals are cash and business is booming.
A perfect example is just across from Downtown Miami’s Mary Brickell Village. A parking lot that sold for $9 million five years ago just sold for $32 million.
“There is a heck of premium being paid for land right now in and around downtown Miami? Why? Because condo development is coming,” Peter Zalewski of CondoVultures.com said.
Zalewski who has tracked the condo market through recession and back believes we are on the edge of a pre-boom. Every day new cranes are appearing on the Downtown Miami skyline.
According to CondoVultures.com research 24 condominiums are under construction in South Florida right now. That’s about 4,000 units. In the pipeline are 141 new buildings. By the end of July, Zalewski believes there will be about 20,000 new condos in the pipeline.
Thirty blocks from the parking lot Related just purchased is their latest venture to smile about. There is no building standing at Icon Bay’s construction site, yet it’s sold out.
Carlos Rosso, in charge of Related’s condominium division, smiles as he confirms he is indeed sold out.
Rosso has a lot to smile about these days. The 300 unit Icon Bay site won’t open for another two years. Already though he has nearly half the buyer’s money. And they’ll pay the rest, in cash, before he hands over the keys.
“They see it as a savings account. A little piggy bank. They are giving money and in two three years they are going to have a brand new apartment in Miami.” Rosso said.
Buyers forking over cash for condos started about a little over a year ago. Zalewski says it’s not new outside of the United States. Miami though has never seen it.
“It’s almost like layaway. You go into Walmart or one of these retailers and you put down some money and you keep paying and paying and paying and eventually you get that product. That’s what the condo developer is doing today.” Zalewski said.
Related Group started collecting 40 to 80 percent deposits over the last year. Since then other developers have followed suit. Essentially the banks are being left out of the boom. Developers collect the cost for the building before the first shovel his the construction site. When the building is built the profits pour in.
Rosso explained “I think it’s a good system particularly for Miami but for the recovery we have been going through in the last year.”
Still the move is very “un-American.” In a nation that borrows to buy cars, clothes, cell phones and homes, buying all cash is highly unusual.
Zalewski said it certainly is getting attention outside of South Florida.
“This is a phenomenon that is not occurring, from what we can tell, anywhere in the United States. To the point where Wall Street and the central bank is really starting to pay attention.”
Both Rosso and Zalewski believe the days of 20% down for condos are gone. Banks are not interested in taking on the risk. Once the market becomes saturated with condos again demand for loans may return. The buyers investing in cash condos right now are expected to rent the units once the take them from the developer.
The idea is the return rates will be better in rentals than traditional stocks and CD’s.
When that changes, flips will likely follow.