Wednesday, June 2, 2010

South Florida Tax Base Absorbing 90% Drop in Condo Values

Condo Termination can remove the weakest sales from the condo market and restore value to our eroding tax base.  Failed condo conversions are seeing enormous drops in tax assessed values.  Today's Miami Herald article highlighting the property tax appraised value updates showed another mid-teens double digit percentage drop from the year prior for South Florida's market taxable assessments.  The new, larger homestead exemption passed when property values and taxes skyrocketed in the boom years is creating unintended consequences.   When combined with dirt cheap apartments in failed condos, these developments promise to create new problems and iniquities in the tax base if left unaddressed.

Downtown Miami Florida
The Miami Herald reports that the Broward County tax base shrunk by 12.1% last year and Miami-Dade by 13.4%.  Some neighborhoods saw mild price increases or declines, while others dropped by up to 30%!  This shrinkage means that while values drop, millage rates will have to be raised to provide the same services as the prior year, services get cut or create some tough choices for local politicians.  Even worse, this could force tax bills to rise when homeowners were expecting tax relief in line with their new, lower property values.

Last week, posted the Notice of Termination to the owners of a Margate, Fl. complex, which was tax assessed at $159,000 for 2009.  The owner of the majority of the units challenged the 2009 appraisal and had it dropped to $117,000 per unit, saving $298 per unit.  This week's released 2010 assessed values were for $15,500 per unit, an over 90% drop in valuation from one year to the next!  

Florida's Homestead Exemption provides strong protection for homeowners against their creditors, as well as a discount in the assessed value of the home for property tax determination.  In January 2008, it was sensible to extend tax exemptions to provide relief to new homebuyers whose value assessments were an order of magnitude higher than longtime owners who were capped at 3% annual increases with low purchase prices in the early 90s and prior.   

 The old inequalities where longtime homesteaders underpaid and new buyers overpaid will suddenly reverse, permanently if these failed condos are the basis for ongoing tax rates.  The $50,000 Homestead Tax exemption combined with the 3% cap on increases means that a $20,000 condo purchased today, and homesteaded will take approximately 36 years to return those units to the tax base! 

Non-Condo property owners are facing rising millage rates and tax bills.  Condo prices are depressed due to the complete lack of financing options.  Short of passing new legislation to force bankers to loan into condos, this will remain the norm for several years to come - and leave open a window of opportunity to permanently depress property tax bases.   Condo termination will remove these underpriced units from the market and return their taxable values to higher, commercial income values based on cash flows.

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