If someone has to drop the asking price of their house from $85 million to $72 million, should we feel sorry for them? That’s what has happened to poor Mohamed Hadid, who is best known for building Ritz-Carlton hotels in the 1980s. If you’re in the market for a 48,000-square-foot mansion, here’s the listing.
While much of the press attention regarding the U.S. property bubble has been about subprime loads and foreclosures in the rust belt, the most breathtaking declines have been in California and Florida—the two states that got the most inflated to start with. Many buyers who got in on their ideal gated community around a golf course are finding that it’s not so lovely when the developer goes bankrupt and the weeds start growing in the bunkers.
So what does this have to do with Latin America? Well for one thing, I’d argue as always that you have to know when things are getting frothy and when there’s still plenty of appreciation left. Parts of Costa Rica and the Los Cabos area of Mexico were looking like nosebleed territory three years ago. Now that the flipping up north has stopped, there are fewer buyers willing to pay California prices for a strip of sand or a penthouse. In most of the rest of Latin America, however, there’s not much downside.
But (and there’s always a but), some developers will always get into trouble by overextending. The Wall Street Journal reported this week that Marriott is halting all development of its luxury building projects for owners. “The pullback affects all three formats that Marriott sells under its Marriott and Ritz-Carlton brands…Marriott is permanently exiting development of luxury-residential projects…” The article says that the company basically made no money whatsoever on its own projects after subtracting write-downs.
Sometimes bigger isn’t better.