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getting back to Normal (continued)

FUTURE OF THE MARKET

Eddie Canaday, developer of projects in Seaside, Blue Mountain, Panama City Beach, Perdido Key and a 900 acre planned community near the coast in Alabama states "I don't see that there is a bubble and it can't burst as the cost to rebuild the product is so much higher than it was a year or two ago--it creates an inherent value." A bubble bursting is when economic conditions change as it did in Dallas with the downturn of the oil industry and Los Angeles with the downturn in the defense and high tech industry. "1,000 people are moving to Florida daily and people still want to vacation at the beach," Mr. Canaday also pointed out, "The product we have is difficult to produce. The stringent building codes, the entitlements process and the unique coastal location with white sands and emerald waters make it almost impossible to duplicate any where in the US where you can drive to the beach. This is the number two drive to location in the state of Florida behind Orlando and the typical length of vacation days in Florida is 3-4 days while it is 7-8 days along our coast. Also, you can drive to the beach within 90 miles of any location in the state of Florida. So if you live anywhere in Florida you can be at the beach on the Gulf coast or Atlantic in aan hour or so drive.

Market dynamics will always fluctuate and there are well defined historical cycles that can be reviewed for guidance when making real estate decisions. Those guidelines can than be reviewed with current economic trends and conditions to make a well informed decision. Good real estate transactions offer something unique to the market often defined by price, location or level of amenity. Good Real Estate developments can occur during market down cycles and often maintain value longer in slowing market conditions and appreciate faster in rising markets. The primary question is can that opportunity be recreated under current or short term conditions at a lesser cost. Many of the opportunities a few years ago were similar in location, cost and amenity. Today we have seen construction costs increase dramatically, land costs have increased at a pace similar to the increase in the end unit price and buyers are taking more time to evaluate the level of finish, location and financing options available to them. In this changing market good real estate developments will continue to occur and those projects that were more of the same will take longer to develop, finance and sell.

Demand

Mr. Canaday also emphasized, "Projects now slowing down creates a lag in the supply chain which will eventually create a shortage and even higher pricing than we are experiencing today. The demand will certainly return because the beaches are desirous as people are drawn to the water. There will be great demand for primary and second home purchasers and the transfer of wealth over the next 20 years will continue to fuel the demand." We are also seeing cash purchases with 1031 Exchange transactions on the rise. The November 2nd Ernst and Young presentation amplifies this relaying that "the second home market remains strong. Many baby boomers have paid off the mortgages on their primary homes and are investing some of the equity in second or vacation homes. "With 79 million affluent boomers, demand for second homes will continue to grow as more boomers reach retirement age," Friedman said. Second home demand has been particularly strong in Florida, where foreign buyers have taken advantage of a weak dollar to buy homes. In Orlando, European buyers, led by the British, own one of every three homes, according to Friedman.

Preconstruction has always been attractive to buyers because it was priced under the current market value of existing and precompletion pricing. Precompletion references condominiums/developments meeting sales requirements for the construction loan and are currently under construction. The details of the building, amenities, interior finishes, and Association budgets are already defined. Now with the construction costs increasing we will experience precompletion and resales at more attractive pricing than new preconstruction. It is important to remember we are not selling commodities but a lifestyle and many purchasers enjoy immediate occupancy and use of the property as a second home/vacation rental and have learned real value begins to build once the building can be occupied and enjoyed. There are countless examples of purchasers selling their properties as an assignment of contract, and two to four years later learning they left hundreds of thousands of dollars on the table. So, the message here is, you did not miss it just because you did not get in on the first sales wave. Don't be fooled by the misconception you must get in on the ground floor offering. When there is superior product offered at a price at less than new preconstruction or at a comparable price to new preconstruction it deserves consideration.

Also, each opportunity must be carefully considered and evaluated before discerning the best buy. A preconstruction opportunity offered in a planned community at prices higher than precompletion has merit in that on-going sales and marketing will create value for years.

There is a consensus with everyone we talked to that the best buys out there today may well be precompletion and existing units because the Developer cannot build those same units today for the selling price that purchasers now have contracted. For those that stay the course the returns should be well worth the wait.

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