According to a new report from Condo Vultures, only 13 percent of the more than 43,200 South Florida coastal condo units created and sold since the real estate boom began in 2003 are owned by primary users who have filed for tax savings and added property protection under the state's Homestead Exemption legislation.
The percentage of primary users could move even lower as investors and second-home buyers - who do not typically qualify for Homestead Exemption benefits - are the suitors most likely to acquire a majority of South Florida's 5,400 unsold developer units near the coast as of the second quarter of 2011, according to an analysis based on the Sept. 29, 2011 report from the Condo Ratings Agency.
"Analysts have long suspected that investors and second-home buyers are driving the current trends in the South Florida condo market," said Peter Zalewski, a principal with the Bal Harbour, Fla.-based Condo Vultures, LLC. "This report finds that primary users account for only about one out of every 10 condo transactions in a new project in South Florida's seven largest coastal markets. Foreign investors with strong currencies and domestic second-home buyers are clearly the lifeblood of the South Florida coastal condo market right now from Greater Downtown Miami north to Downtown Fort Lauderdale up to Downtown West Palm Beach.
"Given the report's findings, it is quite possible that a majority of the coastal condos built during the South Florida real estate boom are now being occupied by renters."
Determining the ratio of renters versus primary users - a key criterion for conventional financing - in a condo project is a challenging task as no formal paperwork is required to be filed with an independent third party or the government.
As a result, lenders typically request - for a fee of upwards of $150 each - a condo questionnaire with material information such as leasing activity to be completed by the property management company that oversees the respective project.
For this study, the Condo Ratings Agency collected the Homestead Exemption filings for every folio property identification number located within the 937 projects with nearly 125,000 units in the coastal condo markets of Greater Downtown Miami, South Beach, Sunny Isles Beach, Hollywood / Hallandale Beach, Downtown Fort Lauderdale and the Beach, Boca Raton / Deerfield Beach, and Downtown West Palm Beach and Palm Beach Island.
In Florida, residents are entitled to declare one Homestead Exemption on their primary property. The Homestead Exemption provides a tax savings of hundreds of dollars and heightened property right protections for full-time residents.
Investors and second-home buyers - who are generally more inclined to rent out their units - typically do not qualify for Homestead Exemption advantages in Florida.
Using this approach, the study found that fewer than 5,500 condos created since 2003 are currently owned by individuals who have filed Homestead Exemptions to realize property tax savings and added property right protections.
This means nearly 37,800 units are owned by investors and second-home buyers who are not primary residents, according to the report.
Compared this to condos built before 2003 when the real estate boom first began in South Florida's seven largest coastal markets.
Of the 76,100 units created through the year 2002, nearly 27,100 units - some 36 percent - have obtained Homestead Exemptions from their respective counties, according to the report.
Overall, South Florida's seven largest coastal condo markets have a Homestead Exemption rate of 27 percent, according to the report.
For an owner who obtains a Homestead Exemption, the property is entitled to a $25,000 exemption from all taxing authorities and a second $25,000 exemption - if the property has an assessed value of at least $50,000 - from all taxing authorities except for the respective school board, according to the property appraiser offices of Miami-Dade, Broward, and Palm Beach counties.
In dollars terms, a property owner with a homestead exemption in the Greater Fort Lauderdale area realized "anywhere from $688 to $1,029...in annual tax savings for all homes with a value of $75,000 or higher" in 2010, according to the Broward County Property Appraiser's Office.
To file for a homestead exemption, an owner must have taken title and "permanently" moved in to a property on or before Jan. 1, according to the Palm Beach County Property Appraiser's Office.
To demonstrate an owner qualifies for a homestead exemption, an applicant must provide a copy of the property deed along with a third-party document - such as a driver's license, voter registration card, utility bill, bank statements, or IRS returns - that proves residency, according to the Miami-Dade County Property Appraiser's Office.
It is important to note that a primary user that has claimed a "permanent residency based tax exemption or credit on any other property anywhere else in the world" or decides to rent out a property is "likely to forfeit [their] right to claim a Homestead Exemption," according to the Broward County Property Appraiser's Office.
In an appreciating market, the assessed value of a Homestead-Exempt property "is capped at 3% or the Consumer Price Index (CPI), whichever is less," according to the Miami-Dade County Property Appraiser's Office.
As of June 30, 2011, buyers had purchased more about 89 percent of South Florida's 49,000 new unit inventory on the coast, putting the region on pace to be sold out by the end of 2012, according to Condo Vultures.
It is important to note there are various stages to a residential real estate transaction in South Florida.
A transaction begins when a property is made available for sale and ends when a title is conveyed from one party to another party as a result of the recording of a deed with the local government.
As part of the process, a property typically goes under contract and into a due diligence phase by which a deal can be canceled.
The report is based on completed transactions where a deed is recorded and taxes paid as a result of the sale.