Recent news headlines paint a grim picture of the Miami condo market, suggesting an impending collapse. Key factors contributing to this perceived crisis include the implementation of stricter building safety regulations following the tragic Champlain Towers South collapse, a surge in insurance costs, and the impact of rising interest rates. But is the situation truly as dire as it seems?
To gain a deeper understanding of the current market dynamics, we spoke with Sep Niakan, a seasoned real estate broker with extensive experience in the Miami market.
He emphasized that in recent years, insurance costs have risen significantly, impacting both single-family homes and condominiums. For condominiums, a major contributor to rising monthly association fees is the substantial increase in insurance premiums.
Furthermore, the rising cost of labor, driven by high inflation, particularly in South Florida with its low unemployment rate (below 4%), has also significantly impacted association fees. This inflationary pressure has increased the cost of employing staff to manage and maintain the condominium complexes. Elevated mortgage interest rates, currently hovering around 6-7% for 30-year fixed mortgages, are also deterring some potential buyers.
As a result, the total active condo listings in the Miami area (Miami-Dade, Broward and Palm Beach Counties) have risen sharply over the last two years.
Mr. Niakan acknowledges that “there will be some pain for a number of people over the next couple of years, and then a lot of it will wash out.” However, he pointed out that much of the negative news focuses on extreme cases, such as older buildings facing substantial special assessments exceeding $100,000 or $200,000. The fact of the matter is that condos need to take care of business.
The new condo laws require more inspections and more often require reserves, which is savings accounts for condos so that when they have major repairs and major renovations that they have to do, the money’s already sitting there. So those are definitely some tailwinds as well.
He argues that the new condo regulations, while initially disruptive, will ultimately benefit the market. “This is because a building savings account called reserves is assessed every 10 years,” explains Sep. “These reserves are crucial for ensuring adequate funding for future maintenance and repairs, ultimately safeguarding the long-term value and safety of the building.” And so right now, a lot of buildings are playing catch up with those new requirements, which is causing some turbulence in how buyers are perceiving things and with the expense of owning a condo.
Even buildings constructed in the 2000s are now reassessing their reserves and undertaking necessary capital expenditures to keep their building in tip top shape. “All of this pain that everyone’s going through – either minor pain or major pain, depending on the situation – will ultimately yield an end result in a couple of years for the buildings being where they need to be,” Sep emphasizes.
He further acknowledges that “there will be some buyouts. There will be opportunities where the old market will be replaced by something new and extraordinary. Some buildings, located in prime locations, will attract developers seeking redevelopment opportunities.” Sep has witnessed this firsthand: “On a personal note, my parents live in one of the buildings that actually had an extreme case. And then I own an investment property that is also undergoing a special assessment, albeit not as extreme.”
Sep, speaking not only as a broker but also as a condo owner, emphasizes the impact of rising association fees. “A couple of my buildings have seen significant increases,” he explains. “In my parents’ building, they’re facing a special assessment of over a hundred thousand dollars. This understandably causes panic for some residents, leading to a wave of selling activity.” He also emphasized that even if residents are forced to sell, their properties have likely appreciated significantly in value over the past few years, potentially mitigating some of the financial hardship.
However, Sep maintains a balanced perspective: “There are some people that are selling, there are some people that are going to be fine. We always have to be sensitive to those who cannot afford it and might need to make life changes.” He acknowledges that while challenging, these changes may ultimately benefit residents in the long run. “Maybe where they go to next is better,” he reflects. “It’s a period of transition, with some people being forced to make lifestyle changes. But in the end, this is a natural part of the evolution of the market.”
According to Mr. Niakan, the Miami market presents a nuanced picture with varying price trends across different segments. While some segments may experience price declines, other segments, such as luxury and pre-construction, are likely to continue to perform well.
Mr. Niakan emphasizes that the entry-level market is facing significant pressure due to higher interest rates and increased monthly expenses. However, he notes that limited inventory in this segment is supporting prices. ‘The lower price properties actually don’t sit on the market for long, and there is less months of inventory available,’ he explains.
For properties above the entry level, price trends are influenced by both price point and building age. ‘Newer properties, typically less than 10 years old, are generally faring better than older properties, especially those built in the early 2000s or before,’ Mr. Niakan observes. The recent change in condo regulations has shortened the inspection interval from 40 years to 25 years for buildings within three miles of the coastline in Miami-Dade County. This stricter requirement emphasizes the importance of regular building inspections for safety and overall health.
‘While a 25-year inspection doesn’t necessarily indicate a problem building, buyer perception and fear can play a significant role. This can lead to hesitation among buyers even for well-maintained older buildings,’ Mr. Niakan explains.
Buildings constructed between 2000 and 2010 are often undergoing necessary updates, such as roof replacements, AC repairs, and upgrades to cooling towers,’ Mr. Niakan explains. ‘These required capital expenditures, often resulting in special assessments, can impact buyer decisions.’
Conversely, the pre-construction and luxury segments are experiencing strong demand. ‘Premium luxury and ultra-luxury properties are performing exceptionally well,’ Mr. Niakan states. ‘This is largely due to the influx of high-net-worth individuals moving to South Florida, many of whom seek larger, more modern, and more luxurious residences. The existing inventory often fails to meet the specific demands of this affluent demographic, driving demand towards pre-construction projects.’
Mr. Niakan emphasizes the multifaceted nature of the Miami real estate market, with performance varying significantly across different segments. While acknowledging the presence of current challenges, he emphasizes the dynamic nature of the market, which is inherently subject to both headwinds and tailwinds. Mr. Niakan highlights that Miami’s enduring appeal lies in its desirable climate. He emphasizes that Florida’s attractive tax environment, with no state income tax, and its business-friendly and landlord-friendly policies continue to draw investors and residents to the region.
