Speculators Disappear as Luxury Investments Lose Their Luster

Focus: ALTERNATIVE INVESTMENTS

Steven Pomeranz Image Steven Pomeranz Host, The Steve Pomeranz Show

Miami is suffering from a glut of luxury condos, and building is ongoing, with some estimating that it currently has enough inventory to last for the next 6-8 years.

One of the greatest risks in building these large projects is the disconnect between current demand and the time it takes to finally complete a project. What may look like a good bet today, can sour quickly if demand dries up due to an economic recession or just plain old overbuilding. Demand doesn’t even have to fall off a cliff. Considering the amount of borrowed money needed to get these projects off the ground and completed, even a slight softening can bring things to a crashing halt.

I’m not saying that is where we are today, but developers are getting desperate, offering huge incentives to brokers for sales. Realtors are advising clients to cut their asking prices dramatically if they want to sell in the next 2 years. Otherwise, they should expect to hang on to their property for a lot longer.

In New York City, the pain was being felt most severely in homes listed for over $20 million. According to broker Darren Sukenik, “Nobody is drinking the Kool-Aid anymore. When it was go-go times and people were just throwing money around, people bought into that dream.”

Of course, the people buying into the dream that he refers to had very large stacks of money sitting around that they could play with by speculating on extremely expensive real estate.

A Russian oligarch lost hundreds of millions of dollars on art investments in the past few years, but does that actually make a dent in the art market, and even if it did, who would be hurt other than big-time art collectors?

 
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