The Glut of Condo Conversions
There was an interesting article in the San Diego Union Tribune on the glut of condo converstions here in San Diego. Most telling is the increasing number of condo conversions coming online here in SoCal, which, coupled with the cooling in the housing sector, has led to an increase in inventory. The following figure illustrates this trend, with over 3,500 condo conversions in Q3 2005.
A condo conversion basically takes an existing apartment building, redoes the exterior, lays new carpets, updates the kitchens, and so on. Some look pretty nice at the end, the ones whose exterior styles aren't too typical of a particular time period. Those whose outter looks clearly date the place, turn out less well, and you wonder why someone would drop $500K for a 900 square foot condo that looks like nothing more than a nicely decorated apartment from the 70s.
Living in a neighborhood of San Diego that has more than its fair share of condos and apartments, along with the typical astronomical costs for coastal communities, the condo conversions are in full swing here. In about a half-mile radius of our home, there has been at least seven condo conversions in the past couple of years. The most recent two today that just started selling in the past couple of months have taken more vigorous efforts to attract buyers - sign flippers. Every weekend we now have two people on our street corner: one flipping a big, rectangular cardboard sign for a condo conversion down the block, and another flipping a sign for a condo conversion down the street the other way.
I know that during a down market condos typically decline in value before single family homes, and have a greater percentage of decline. Similarly, in an up market the lag behind the appreciation of single family homes. I wonder, though, if there is much of a difference in the ups and downs in valuation for condo conversions vs. regular, built-as-a-condo-the-first-time-around. With the large number of condo conversions in the past couple of years, timed nicely with the beginning of the bubble burst, I guess we'll discover the answer to that question sooner than later!
5 Comments:
Today I received in the mail an ad for a condo converstion down the street, one of the "sign flipping" condo projects. If you buy a condo from them, you will get with your purchase... a free Volkswagen New Beetle.
Personally, I'd rather have them knock off $20K, or whatever it is they're paying to get one of those cars, but they'd rather keep from showing deflating prices. Seriously, though, what buyer would want this deal? I mean, it basically costs you to have this car, with taxes, registration, insurance increases, and so on. If they knocked off $20K that would save $202 in property taxes each year for however long you owned the condo (not to mention $4K up front (assuming you are putting 20% down... an outdated assumption, I know), along with having paid just $20K less!
Here's an ad from another conversion just up the 5 Freeway in Carmel Valley:
HOLIDAY SALE
ACT NOW...AND SAVE $25,000
$25,000 IN REWARDS AND INCENTIVES
Buy a ------ ------ home now and choose your own holiday gift.
Among your choices are-
*No payments until April 2006
*Zero-down move in
*Interest rate buy-down to 5 3/4%
*2006 membership in the ------- Athletic Club
*Hawaiian vacation
*Cash discount
This was supposed to be for one weekend only. Right.
Another mega-conversion project near where I live is still offering $20Kish savings and money toward closing costs. Sales are slow. Luxurious Mediterranean style living with all the problems of a 20+year old hear-your-neighbors-sneeze apartment shoebox? Ciao!
The new higher rents that I have seen would-be landlords try to charge for these places are almost as amusing.
Anonymous, I wonder if they'd take $25,000 off the sticker price of the house. Is that what they mean by cash discount, or do they mean they sell it to you for $X and just hand you back some cash after you pay $X?
Here in San Diego, that would save you (at least) $275 per year for the life of the property ownership in just property taxes.
Hi Scott,
I just looked at another ad for the conversion I posted about earlier. It looks like you can chose from $25k "in rewards, incentives, OR cash price reduction." Whatever that is supposed to mean. My guess is that the cash is some form of a rebate for $X amount. They're also offering $5K in closing costs through their preferred lender.
That's a 180 degree switch from last year's market here in SD!
Lowering prices while trying to appear as though they're not really having to lower prices.
I agree that the VW Beetle is hardly free. I got a good laugh out of that bit of marketing too. The incentives should become even more entertaining as the market continues downward.
thanks for the updates guys. that's pretty embarrassing that condo developers have resorted to these tactics to move inventory.
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