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The record breaking increases in property prices during 2005 was
excellent news for existing owners of second homes in the Sunshine
State, but if you are considering buying a property in Florida
this year what is happening? Has the scorching market continued,
or are there storm clouds overhead? Is property in Florida still
a good buy? To a large extent the answer to these conundrums may
well depend upon where, when and for what reason you are considering
buying, a second/holiday home, seasonal retirement, relocation
or investment.
Tempting Offers
Property price increases in some of the more popular areas of
Florida have been amongst the highest in the world, during the
past two years, accelerating from an average year on year growth
rate of 10% for a number of years and then in certain cases exceeding
40% in 2005, catching even the experts on the hop. This led to
a significant further influx of funds into property. However sums
have not always been done and there are unfortunately examples
of a lemming mentality where some investors have been badly or
unwisely advised to pour their funds into some developments where
the sales spiel is worthy of an Oscar nomination in the best acting
category and very impressive glossy brochures and DVD presentations
have been the motivators rather than hard fact and substance.
When examining the facts rather than the hype, it is interesting
to note the view of a number of experts that property prices in
certain parts of America could follow trends in Australia and
Britain, where after similar periods of high property inflation
and increases in interest rates there has been a slowing down
to single figure property rises.
Top Locations
On the positive side there are sound demographic reasons for investing
in specific locations in Florida. The population of North America
is approaching 300 million people. Many Americans, particularly
those in the northern states have enjoyed holidays and look forward
to eventual retirement in Florida. Many Europeans similarly enjoy
an annual holiday in Florida and have in recent years considered
a second home. A major factor over the next 15 years will be the
unprecedented number of post war baby boom generation who will
be retiring and again many will be attracted to Florida, already
over 1000 people a day relocate to Florida, however Orlando is
often not the preferred destination of these new residents.
Apart from year round sunshine, Florida is one of the few states
with no state income tax and properties have been traditionally
very good value. The state is creating jobs at a prodigious rate.
Good weather, low costs, a growing population, a strong tourism
industry all add to the appeal, along with a proven track record.
In Demand
Residential and commercial development in the next quarter-century
will need to eclipse anything seen in previous generations in
order to serve America's growing population, according to a Brookings
Institution report. Almost 60 million new housing units will need
to be built by 2030 to accommodate the growth. The U.S. population
is expected to increase 33% to 376 million by 2030. That's 94
million more people than in 2000. To serve that population, almost
60 million housing units will have to be built. Consumers continue
to be optimistic about the economy in Florida.
It is estimated that over 500,000 Brits live in Florida permanently
or temporarily and over I.2 million British tourists visited Florida
last year. British visitors were initially attracted to Florida
over thirty years ago to see the newly built Disney World and
have been coming in ever greater numbers since. Delighted by what
they found, thousands settled, started businesses, bought homes
and spread throughout the State. Orlando, Ft Lauderdale and Sarasota
have become the areas where most Britons took up permanent residence.
The British are the top foreign employers in Florida, employing
over 50,000 people directly and are the USA's largest investor
Risky Business
Within this favourable background picture however there are specific
locations where I would flag up areas of concern, or indeed opportunity
depending upon your investment perspective or lifestyle requirements.
Higher end off plan condo developments on some of the Atlantic
coast areas such as Miami, with fairly long build times and where
there is a high proportion of investors intent on selling (flipping)
as soon as their homes become available should set alarms ringing
- what happens if investors flip at the same time? As the market
demand begins to soften who will buy? In a situation where investor
properties are released simultaneously there is often strong buyer
resistance to paying the investors profits. A combination of huge
inventory levels and overtly optimistic sales claims serve to
emphasise the need for guidance based on fact, not motivated by
the size of the sales agent's commission cheque!
Buyer Beware
Another area of concern is Orlando / Kissimmee, at least on home
developments and condo hotels where there are an ever increasing
proportion of overseas investors. Some of these owners who bought
at the peak of the recent boom, spurred on by the urgency of the
limited availability at the time, on the basis of expectations
of increasing visitor numbers and guaranteed rentals are often
dependant upon rental payments to cover their mortgages and therefore
may be vulnerable. Although jobs are flowing into Orlando which
provides opportunity for long term rentals and commercial property
the much hyped off plan options targeted at British buyers need
much more careful consideration and independent guidance than
has been the case in the past - very much a case of buyer beware.
Areas of this market now have an over-supply of new properties
with attractive commission and bonus rates being offered to real
estate agents and investment advisers to get property sold, as
high as 11% on certain developments. These developments featured
heavily in some glossy adverts and slick salesmanship raise several
questions on the impartially of the advice given.
British clients are unfortunately sometimes seen by some as easily
impressed, lacking background research and subsequently an easy
touch. Buying a dream without doing the homework and obtaining
impartial independent advice, or walking straight in and swallowing
the sales spiel can leave you out of pocket. I was particularly
concerned when listening to some of the advice being given to
would be buyers of Florida properties, particularly by a couple
of the companies promoting their apparently independent property
investment advice at the largest property exhibition in London;
it sounded so convincing but was completely inaccurate, and that's
a polite way of putting it!
When property is bought on the basis of frothy sales messages
with the buyers unaware of the implications of the huge commission
payments or the limitations of guaranteed rental payments, at
the very least you are leaving yourself vulnerable to changes
in the market.
Florida Hotspots
The general consensus from the research experts would seem to
be that property prices in Florida will continue to rise, albeit
at a slower rate than last years unsustainable 40% and in some
locations price falls are possible to correct an imbalance between
supply and demand in the market. In other areas given the property
shortage and the continued demand from North American baby boomers
and the limited land availability, ongoing gains nearer to the
historic norm of 10% are likely. Due to zoning restrictions rental
properties remain hard to find in these desirable locations, and
thus limit the competition from other villa owners. Resale properties
can offer a better opportunity than off plan at the present time.
Thus 2006 is turning out to be a buyers market; there are genuine
bargains to be identified, particularly in areas that have slowed
down following recent gains but which will always be keenly sought
by baby boomers looking for that retirement paradise or investors
seeking property at the right price. There are particularly good
resale properties away from the traditional Central Florida area,
however many UK companies overlook these opportunities as they
pay lower commission rates. Areas to look out for in 2006 include
Bradenton, Venice, Mount Dora, Bonita Springs, St Petes and Fort
Myers. In summary the time to act is now in the present market,
before it's too late. Many people are kicking themselves that
they did not buy that dream condo in areas like Siesta Key a few
years ago, which are now way beyond their price range, instead
they were seduced by the Orlando hype and missed better opportunities
for consistent growth elsewhere - the key is to take advice on
where the next growth areas will be.
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