The bulk of the preconstruction condo buyers have reportedly come from overseas with a high concentration of Latin American investors.
A combination of factors — ranging from advantageous currency exchange rates to flight capital seeking a stable destination, strengthening condo prices to rising rental rates — have contributed to international buyer interest in preconstruction condo projects that are not scheduled to be completed for at least two years.
Domestic buyers, however, have reportedly abstained from South Florida’s latest preconstruction condo wave. A variety of factors are reportedly contributing to the lack of participation by domestic buyers, including concerns about recovering preconstruction deposits if proposed projects are not completed.
Efforts are under way to create some form of condo deposit insurance for preconstruction buyers in an attempt to satisfy this concern.
During the last South Florida condo construction boom, developers typically collected deposits of 20 percent of the contracted purchase price of units and did not require any additional buyer funds until the towers were completed.
This 20-percent-deposit structure is blamed for allowing some preconstruction condo buyers to forfeit a majority of their deposits rather than closing on units in a downward market.
Under the new preconstruction deposit schedule, buyers are required to commit to a series of payments — based on administrative and construction milestones — that equal about 50 percent of the purchase price. At least one project has requested an 80 percent deposit while another project has asked for 30 percent.
The new 50-percent-deposit structure is a strategy designed to increase the odds that preconstruction buyers ultimately close on their respective contracted units during this newest South Florida condo wave.
Going forward, the unanswered question for South Florida is whether developers, lenders, regulators and investors have instituted enough changes to their business models to lessen the chances of another condo boom-and-bust cycle like the one that has stifled the region since 2007.
Peter Zalewski is a principal with the Miami real estate consultancy Condo Vultures. Zalewski, a licensed Florida real estate professional since 1995 and founder of CVR Realty and Condo Vultures Realty LLC, advises developers, lenders and institutional investors .