High-rise developers reeling in slow market
The real estate market has been correcting itself for the past several months after years of ridiculous inflation growth in both sales and price.
This correction has also been referred to as a “Bursting bubble.” Regardless of what you refer to it as, the current market status is affecting investors, sellers and developers.
The September 7, 2006 article, “Cooling Market Taking Toll on Housing Projects,” written by Al Heavens of Realty Times, explains how real estate developers may be most affected by the slowing market.
Developers have been most affected in lavish downtown projects. During the housing boom, high-rise condominiums in densely populated urban downtown areas were being constructed every time you drove down the street, and were selling at astronomical rates.
The downturn of the market has affected the nation as a whole, especially luxury abodes that, quite frankly, were over priced to begin with.
“Tuesday's second-quarter numbers from the Office of Federal Housing Enterprise Oversight showing home prices increasing at a 4.7 percent annual rate, the slowest since the fourth quarter of 1999, won't help steel their courage.”
Even though developers are falling on tough times, most are sticking it out with the hope that the market will turn back around soon.
Many developers have this thought process but the reality of the situation may be quite different. As previously mentioned, the market is trying to correct itself. The market was never supposed to flourish the way it did the last couple of years. As a result, the current market conditions may remain a constant for months or years.
As if the reduction in sales were not enough to frustrate developers, the cost to do business has also drastically increased.
“Some of the projects are being squeezed out by rising construction costs. One developer of a 31-story luxury high-rise told me that when the hole was dug for his project 16 months ago, building costs were running $400 a square foot. Today, the costs are $700 a square foot.”
Another factor that is contributing to the decrease in developers’ business is neighborhood opposition. Many people who have lived in the city for months, years or decades fight developer construction when a high-rise condominium blocks their view of the ocean, a park or the skyline, which will also decrease their property’s value.
“It's not much different in the older suburbs. In my community, a couple sold their house after unsuccessfully suing a neighbor for adding a third-story to his two-story bungalow.”
Developers have weathered storms before. But the urban high-rise trend may be coming to an end. This will force developers to focus on other areas in the real estate market. Unfortunately, these areas are already occupied by a variety of developers.
High-rise developers will have a difficult time supporting their business until the next housing boom.
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