In the wake of the Great Recession, when traditional development loans were in short supply, local condo developers shifted financing onto buyers by requiring 50% deposits. Now, more and more developers are lowering the requirements, sometimes to as little as 10 percent.
Thank the increase in younger domestic buyers, abundant inventory and the specter of a potential economic dip, say South Florida market experts.
Most reductions are at projects nearing completion. While that practice isn’t new, it has become more widespread — and at far greater reductions.
“It’s a more recent phenomenon,” said Joseph M. Hernandez, chair of the real estate practice group at Weiss Serota Helfman Cole & Bierman. “When [developers] face competitive pressures, or for a number of reasons, they can lessen the down payment.”
At Metropica, a 263-unit mixed-use development in Sunrise, developer KGH International is requiring a 10 percent deposit payable in two installments for locals, to attract younger buyers, with 25% for foreign buyers. That’s down from the initial requirement of 50%. A one-bedroom in its Tower One building costs $450,000.
Earlier this year, after it had sold 80% of its inventory, the 131-unit Aventura ParkSquare dropped its deposit requirement from 30% to 10%. Twenty-four units remain with a starting price of $520,000.
“We’ve lost a lot of Latin American buyers. Many buyers that we would want to entice to buy have cash-flow issues,” said Liza Hernandez, vice president of sales for Aventura ParkSquare.
In the past, she said, she saw Brazilian, Argentinian and Turkish buyers able to afford the 50% deposits: “The market was much more bullish. There was this impending factor that their money would cost a lot more if they waited.”
At Brickell Flatiron in downtown Miami, sales opened in 2014 with a 50% deposit requirement. After a few years it dropped to 40% and in April, to 30%. Fewer than 40 of the building’s 527 units are still available, with prices starting at $650,000.
“It’s not necessary to require a buyer to put more than 30% when they’re going to be [closing] in a number of weeks,” said Vanessa Grout, president of CMC Real Estate, developer CMC’s sales arm.
The Flatiron deposit reduction came as the project received Fannie Mae approval — two moves likely to attract domestic buyers.
It’s those local buyers who are driving the trend, said Terri Bersach, a real estate broker with Coldwell Banker Residential Real Estate who represents Metropica.
“Developers are always looking for incentives to move inventory and tracking market trends,” she said.
“When you look at the generational size of the millennial, the number of buyers we anticipate — they like more urban settings. Things like that are going to affect [the market.].
It’s a practice likely to last as Latin American economies lag and worries about a U.S. recession continue.
“I think that has more to do with the overall macro-environment,” said Joseph Hernandez. “The further down the socioeconomic ladder you go, the more buyers are affected by this. There are murmurs of an economic recession. A lot of people are nervous about that and developers are no different. They want to clean out their inventory before any recession hits.,”
He’s seeing projects with units priced from $1 million to $5 million starting sales at a 25% to 30% deposit rather than waiting until inventory has decreased.
But don’t expect them to drop too low, he said.
“The lower the deposit, it’s more likely that a buyer that can’t close will walk away,” he said. That means less risk to the buyer — but more for developers.
This story was updated to correct the quote by Vanessa Grout.