The Effects of the Global Economic Crisis on New Construction
Luxury Investment Real Estate
One would have to look back to the US depression of the 1930’s to find an economic crisis that has caused such rapid asset value depreciation, wealth evaporation and meaningful tremors that have shaken the very base of the world’s financial system.
Frozen credit markets have brought global banks and businesses to their knees and have left leveraged organizations gasping for air and the ability to satisfy operational necessities such as payroll.
Finally, Federal Reserve actions put into place to thaw the credit markets, stem increasing foreclosures, bring buyers back into the market, and ultimately bottom the real estate market is starting to show some signs of progress.
Because we specialize in the world’s finest pre-construction resort real estate, we maintain an overall macro-economic view of the economy and a firsthand experience of many local real estate markets. What has been occurring in the luxury pre-construction resort real estate market as a result of the economic squeeze is interesting and is leading to the ultimate example of Darwin’s theory “The strongest will survive and win…” in this luxury niche segment of the real estate market.
Most of the pre-construction luxury resort real estate projects are currently in one of the following statuses:
Cancelled or Postponed:
Many planned new resort real estate projects, even some planned with the best brands, have been delayed for a period of time until the market gets a bit more strength and credit becomes a bit easier to obtain.
Average projects that have broken ground but never had the proper brand support, project plan and/or where fully leveraged against a credit option based on pre-sales, have mostly gone under due to lack of financing. The exposed projects, no matter the pre-sales successes, were forced to abandon or postpone the project indefinitely as credit restrictions tightened.
Funded but Pace Slowed to Match Sales:
Many of the stronger projects are still building and sales continue to move forward albeit at a pace that models the pace of slower sales to limit exposure and capital outlay in slower times. These projects are well-branded and well-capitalized and are in the strong position.
Sourcing Funding and Slowed Building Pace
Some projects are in building phases of well sold phases and have the funding to complete and deliver. Many are now sourcing additional funds in preparation of future phases and launches. These projects are also in a strong and superior position.
Looking Forward:What This Means for Buyers
New construction luxury resort real estate is much like most other industries in that it will obey the laws of Darwin’s theory and the strong will survive and prosper. The strongest communities being built today are in an excellent position to prosper long term.
What many buyers were presented with as viable alternatives and competition is getting eliminated and postponed. The strong will be the first to complete, deliver and build long term value for their owners. This will give the strongest real estate projects the ability to lead and direct the development of their specific locales. With the elimination of weaker and less viable real estate alternatives, the strongest resort real estate communities will be the centerpieces and most desired addresses of the exclusive locations in which they have been created. This will lead to the maximum opportunity for long term, mature appreciation and owner enjoyment.
Gone are the days of under-funded amateur real estate hopefuls, borrowing their way to throwing up a bunch of repeatable condos near a highly desired locale and calling it a well positioned luxury resort real estate project. The less important and average quality real estate projects would sell mostly on lower prices and hopeful expectations and weren’t the type of projects that were ever going to make an important, positive difference to the locales in which they were established.
The best resort real estate projects are strategically planned in the most desirable locations with the appropriate supporting brands, and amenities. They are comfortably capitalized, are often supported by the local governments, and are recognized for the positive growth and contribution they will make to the landscape, and macro-economic fabric of the area.
Although buyers could have less real estate projects to choose from in the near term with respect to the number of newly developed resort real estate projects, buyers will be in a long-term advantaged position if they choose to acquire the right pre-construction residence in an important real estate project.
Due to the globally weak macro-economic environment and slower sales, the most well-branded, luxury real estate projects have not been able to increase prices as much as desired during the construction phases. Thus, buyers will be able to purchase resort real estate that is in the process of being built, for pre-construction prices so they won’t have to wait as long for residence delivery, which will enable them to enjoy their second home residence sooner.
Also, the pre-construction unique and rare real estate projects will be delivered to owners in the future time frame in which many experts predict that the macro-economy and real estate market will be on much more stable and growing footing. This will put owners in an excellent position for long term appreciation as their luxury resort real estate has become much rarer and thus valuable to an increased supply of desiring buyers in a fresh real estate market of increasing financial optimism and stability. This future imbalance and lack of supply against increased demand for the finest, best positioned luxury resort real estate could put strategically acting owners in the advantaged position of long term value and appreciation in years to come.
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