What a difference a year makes. Last summer, demand for holiday homes in Florida continued to be frantic. America’s Sunshine State remained a paradise of fat profits for developers and estate agents, builders toiled in blistering heat trying to keep pace with demand, and would-be buyers — many of them British — queued for hours just to get on waiting lists. The US travel industry claims that, after Spain, Florida has been the second most popular place abroad for Brits to buy. Of the state’s 76m visitors last year, the British were the largest single overseas nationality — some 4.3m — and more than 150,000 were looking to purchase a holiday home.
On paper, Florida’s appeal is obvious. Although further away than that other suntrap, Spain, it has great family attractions, fabulous beaches, English-speaking locals and excellent shopping, while an average three-bed, two-bathroom villa (complete with pool) is the stuff of cramped British dreams. If you bought in the right area (near a theme park, for example) rental income was seemingly assured.
With five years of record growth — between March 2001-2006, the statewide median house price rose 104% — and double-digit annual capital gains, Florida has been one of America’s fastest-moving property markets. Its strength is underpinned by several factors, including strong domestic migration, a booming economy and a reputation as a retirement idyll.
Come 2006, the property market has slowed to a snail’s pace, the bottom has fallen out of holiday-home rentals and, despite a weak dollar and a glut of available properties, British buyers, along with other foreigners, are turning their backs on Florida.
The Florida Association of Realtors said last month that local sales of existing single-family homes and condominiums have been in a double-digit freefall for six consecutive months. One British-based agent, who insists on anonymity, admits that he hasn’t sold any Florida properties for months.
“The market is completely flat,” he says. “It is undergoing correction. Houses were built so quickly and prices went up so quickly that it is only natural that they would calm down a bit. It is certainly a buyers’ market at the moment.”
So what has gone wrong? It’s a combination of bad weather, America’s worsening reputation abroad, rising costs, and sheer greed. For the rising number of Britons who now want to get out, it is a mix that is creating headaches now the euphoria of owning what appeared to be their dream home has worn off.
Escalating fuel surcharges on airline tickets have added to the uncertainty, raising the prospect of future rises in fares. It hasn’t helped that British Airways is at the centre of an investigation by the Office of Fair Trading and the US Department of Justice, amid allegations of a fare-fixing cartel. Add the expense of entry tickets to places such as Disney World and Universal Studios in Orlando and Busch Gardens, the adventure park, in Tampa Bay, and even folk from Britain, despite the strength of sterling against the dollar, are opting for cheaper holidays.
When Nick Noble, a Royal Mail manager from Camberley, Surrey, and his wife, Debbie, bought a three-bedroom, two-bathroom home in April 2003 for $187,000 (£124,000), they felt as though they were on to a winner. The villa is in Rotonda, a residential community of about 7,500 people, on the Cape Haze peninsula on Florida’s west coast.
I bought there last year, after nearly becoming the victim of the greed that has been driving the market. My girlfriend, Mary Dannfald, and I had abandoned the off-plan purchase of a villa at Lakewood Ranch, near Sarasota, when the developer increased the price by more than £100,000 despite running nearly a year late with the build. The villa we so nearly bought remains unsold at the even higher price of £325,000, double the original advertised price in a year.
The difficulties faced by British owners in Rotonda who want to sell up are indicative of what is happening all over Florida.
The Nobles’ house backs on to woodland, has its own swimming pool, and is on an extended plot of about an acre. When they bought, house prices were rocketing by 40% a year and properties were selling within hours of coming on to the market.
Now, things are very different. “Buyers seem to have disappeared,” says Debbie. “We had planned to spend holidays at the villa two or three times a year, then rent it out to cover the overheads. However, we decided to put it on the market more than a year ago, but have now been forced to reduce the asking price to less than $300,000 (£157,000) and still can’t find a buyer.
“It has been very frustrating, since we need the money to buy a property back in the UK so our son Stephen, a graphic designer, can rent it from us, because he can’t yet afford his own house. Now we’re still trying to rent out the villa, but even the renters have vanished.”
Monthly overheads total £211; annual property tax, housing association tax and tangible property tax (levied on furniture in all American rental homes) adds up to another £3,000.
“The bills keep mounting up,” says Noble. “We really didn’t take into account all these charges when we first bought the house. We’re lucky we didn’t have a mortgage as well, because by now we’d be in big trouble.”
Statewide, utility and home insurance bills have been driven sky-high by hurricane after hurricane: 16 swept through the Caribbean and Gulf last year and the first storm of the 2006 season hit in June. Their trails caused massive hikes as the insurance and power companies attempt to recoup the losses sustained during particularly bad seasons. Sharply steeper bills are not only hurting existing homeowners, but are making potential buyers wary.
Interest-rate hikes are not helping either. The 17 Federal Reserve rises since June 2004 mean the rate of interest on a typical 30-year fixed rate mortgage is now 6.76%, up from just over 4% when the round of rises began.
Meanwhile, Florida tourism industry representatives acknowledge that the spectre of 9/11 has not completely faded, and America’s “war on terror” has not helped allay fears about the dangers of travel, or done much for its international reputation.
“America’s image abroad is in crisis right now,” warned Roger Dow, the Travel Industry Association’s president at last month’s US state department advisory commission meeting in Washington. “We do little to encourage international travellers to pay us a visit, while challenging entry requirements give travellers a reason to go somewhere else. We should be welcoming more visitors. Making America the international destination of choice is good diplomatic policy.”
Meanwhile, investors who had hoped to make swift profits find their money tied up in property they can’t sell without slashing the price; British buyers, lured in by claims of big holiday-rental profits, find there are too many properties chasing too few lets. The market is awash with holiday-home bargains. A year ago, one estate agent in Venice, 20 miles south of Sarasota, in the state’s southwest, had 24 properties for sale on his books. The agent, who doesn’t want to be named, now has 257 listed.
“We are still going through a stare-down between buyers and sellers,” says Jack McCabe, chief executive of McCabe Research and Consulting, a property consultancy based in Deerfield Beach. He warns the situation will worsen. “It’s the tip of the iceberg for both the Orlando market and the south Florida market.”
It took Keith Pulver, a building surveyor from Pinner, Middlesex, three months to sell the villa he bought in Rotonda three years ago. He had to drop the price by £20,000 to £204,000. “It’s a relief,” he says, “but before the money is paid, the US tax authorities have retained 10% for capital gains unless I can show there is no profit on my original investment.
“If rentals hadn’t slumped this year, then I wouldn’t have sold. I originally purchased it as a long-term investment and believed the developer when he said I’d be guaranteed 26 weeks’ rental a year. That wasn’t, of course, written into the sales contract, so there’s no legal recourse.”
Pulver’s situation is one that Peter Stanhope, who moved to Florida 12 years ago, knows well. The founder of the Florida Brits Group, which provides investment and management advice for Britons looking to buy there, he says anyone who needed a guaranteed rental return shouldn’t have bought in the first place. He also warns that although rental returns may have been marketed abroad as “guaranteed” in Florida, “guaranteed” rentals are not allowed to be sold in the state.
He is also concerned about lengthy delays on projects promised up to two years ago, where construction has not yet begun.
“The Florida market has had its day for the time being,” says Bill Blevins, managing director of Blevins Franks International, an independent firm providing tax and investment advice. “Prices are not just levelling off, but in many cases developers are jittery to the point of making deals that would not have been available a year ago, and with the US dollar at current levels, this may be an opportunity to buy for anyone who wants to hold the asset for the longer term. “It is too risky to be a short-term speculators’ market. There is much better value to be had at present than for some time prices in some developments are 15%–20% off the previous high prices.”
So, depending on your point of view, it’s not all bad news. For opportunistic investors with the time, money and patience to buy in for the long haul, there are bargains to be had, and the real bottom-feeders are still waiting for further price drops.
“I have just been contacted by five of the largest hedge funds in America, and they are all interested in the opportunity to buy distressed properties,” says McCabe.
The jackals — or should that be alligators — are closing in.
Discount deals
Reduced by almost 25%, this four-bed house in Bradenton, 12 miles north of Sarasota, set in an acre, with a pool, is for sale for £367,000. Built four years ago, it was for sale for £482,000 last year. RSVP Associates, 00 1 941 752 6911, www.savills.com/abroad
In the gated Emerald Island Resort, a 10-minute drive from Disney World, this four-bed villa is on sale for £225,000, cut by £11,000. Fully furnished, it is set up for holiday and short-term lets. Keller Williams Realty, 020 7993 8487, www.smartfloridaproperties.com
The price of this three-bed, two-bath house in Florida Pines, a 30-minute drive from Orlando airport, has been cut by £12,000 to £135,000. It is seven miles from Disney World’s main gate. Keller Williams Realty, 020 7993 8487, www.smartfloridaproperties.com
An hour’s drive from Orlando airport and half an hour from the big theme parks, this three-bed villa with pool at Southern Dunes Golf & Country Club is for sale for £129,000, having been cut by £4,000. Florida Homes 1st, 020 8464 5991, www.florida-homes-1st.com
