The Chicago Tribune addresses what we’ve been chattering about for several months: it’s a buyer’s market for condos downtown.
In “Rising Expectations,” buyers and developers discuss the incentives that are being offered to move product as the market has slowed. They interview a 20-something looking for a “deal.”
With sales down sharply in 2007 but the supply of new units slated to rise dramatically, many developers are encountering house shoppers like Nirali Shah, a 29-year-old pathologist assistant.
While eyeing a Streeterville high-rise with lake views, this first-time buyer says she won’t commit to purchasing a condominium unless the developer gets into a bargaining mood.
“I’m waiting for the seller to bring down the price at least 10 percent, to include a $65,000 parking space or a year of free assessments,” said Shah, who is prepared to spend about $650,000 for a newly built unit.
“It’s a buyer’s market,” she said with assurance.
Here are the stats:
- 6,274 new units will be completed this year, a 50 percent increase over 2006 completions and 100 percent more than 2005
- 1,326 of the 6,274 units are unsold. According to the Tribune, a unit is considered sold when the buyer puts down a deposit and signs an agreement.
- Through the third quarter of 2007, new downtown condo sales were down 35% (wonder why we haven’t seen the fourth quarter numbers yet?)
We know that these stats are a little misleading. Flippers have bought at least 20% (maybe as high as 30% or 40% in some buildings) so that will skew these numbers. I would estimate the “true” number of unsold units is more likely 2,800 units as at least 30% will be coming back on the market as flips.
Developers are apparently trying to reassure buyers:
“There remains a reluctance to make a decision primarily because buyers fear the market will crash, harming their number one investment,” said Ron Shipka, Jr., president of The Enterprise Companies, a Chicago-based developer with six downtown projects under way.
He tries to reassure consumers by showing them that since early 2007 re-sold units in Enterprise buildings have appreciated in value. His company also offers $5,000 to $7,000 in upgraded finishes for new projects.
Incentives are the name of the game. There are going to be freebies given out everywhere. At the minimum, buyers should be asking for free parking.
One recent study by Chicago Agent magazine found that 71 percent of developers interviewed said they intend to offer upgrades, 52 percent will offer agent incentives and 48 percent mortgage assistance.
Meanwhile, 65 percent said they would offer a combination of incentives.
What is a good incentive or a reduction? Is it upgrading the kitchen cabinets? Is it installing marble floors in the bathrooms? Is it free parking? Or is simply giving the buyer $5,000 enough?
At the Streeterville high-rise that attracted the interest of Shah, Park View at River East, other buyers are signing contracts with incentives that amount to $5,000 to $15,000 per unit, said a spokesman for the developer the MCL Cos.
For instance Swapan Goddam, a 34-year-old doctor relocating here from Atlanta, has agreed to buy a two-bedroom unit on the 20th floor with a Lake Michigan view.
“They’re offering some incentives like $5,000 off the parking or $10,000 off a $550,000 unit,” he said. “But buildings in Streeterville and Lake Shore East aren’t offering as much as neighborhoods like the West Loop that aren’t selling as well.”
Goddam is willing to pay a premium to be near the hospital where he works, restaurants and entertainment. Furthermore, “with new construction, assessments are lower and resale values higher,” he said.
But Shah’s concerns about the housing market are holding her back.
“What if something happens and I’m not able to re-sell?” she asked. “I’m hoping in the next few months, something will change.”
Will condos sell with these types of incentives? Stay tuned.