In the top United States markets, spec homes, meaning the ones built by developers without a specific buyer in mind, have become increasingly popular in recent years, especially at the highest levels of the market.
"If you would have told me five years ago that there would be a Hamptons spec house listed at $40 million, I wouldn’t have believed you," said Susan Breitenbach, a Corcoran agent who works exclusively in tony communities on the East End of Long Island. "But now there’s one listed at $40 million, and quite a lot in the $16 to $35 million range."
Located in the Hamptons and also cities including Los Angeles, Miami and Aspen, these spec homes are nothing like the modern boxes or McMansions of days’ past. Instead, they boast over-the-top features, like outdoor movie theaters, indoor basketball courts, turntable garage floors and waterslides that drop from the master bedroom into a pool, plus high-end finishes, like imported stone floors and custom carpentry, that demonstrate the developer’s great attention to detail.
Because spec homes are no longer built to appeal to the largest swath of the market and instead are meant to attract the most discerning buyer, they’ve largely outgrown their previous reputation of being considered tacky or cheap compared to a custom new-build or an updated resale property with lots of character and history, experts say.
"We’re now seeing spec homes that are just as nice as any custom home—if not nicer," Ms. Breitenbach said.
In addition to being in demand, they can also be a good buy when you factor in their turnkey nature, the often-valuable land that they’re built on, and the new trend toward a high level of detail that keeps the end user in mind, experts say.
When it comes to time, spec builds are meant to be move-in ready, a factor that’s hugely appealing in luxury markets where most people own second (or third or fourth homes). In Aspen, Douglas Elliman broker Rob Bordan said that while there’s always been a healthy spec market, ultra-luxury projects, like one located a half-mile from the gondola and listed for $32 million, are new.
The main appeal of these spec projects, he said, is that a house fit for the highest net worth individual could take two to three years to build from the ground up. "If a buyer’s only going to use the house for a few weeks, or up to four months of the year, most want something they can begin to enjoy more quickly than that," he said.
In Miami, time and other lifestyle factors have also driven the popularity of high-end spec developments, said Jay Parker, the CEO of Douglas Elliman's Florida brokerage. "More and more people are looking for turnkey solutions," he said, adding that they’re also looking to avoid the headaches that come with new construction.
"In a city like Miami or Miami Beach, if you don’t know all the ins and outs and the right people, you could be delayed and compromised," he said. "A great home can be destroyed by the casualties of new development."
In the Hamptons, which is also primarily a second-home market, time is also important. But so is the quality of the land, and sometimes, the only way to get the best land is by purchasing a spec home, Ms. Breitenbach said. "Some of these builders bought the land a long time ago," she said. What’s left either isn’t that great, or has risen exponentially in value, she said.
Brokers in other markets agreed. In Los Angeles, for instance, developers who own prime land in neighborhoods like Holmby Hills, the Bird Streets or Bel Air—often bought during the recession—had the option a few years ago of selling it when things starting picking up or developing a house on the property and then selling it.
The developers that chose to build a spec house and then sell made some serious profits, said Adam Rosenfeld, the founding partner of L.A.-based brokerage, Mercer Vine. A developer who raised a spec house on North Hillcrest Road, for instance, bought the land for about $12 million and likely paid $20 to $25 million to build the house, which was more than 20,000 square feet and like no spec house L.A. had ever seen, Mr. Rosenfeld said. He went on to sell it for $70 million. "People saw that and thought, ‘Wow, what a return,’" he said. "That’s what got this whole crazy trend in Los Angeles going."
"Since then, we’ve seen a lot," he continued, "and a lot of them have been really successful." One spec house even sold for $100 million, Mr. Rosenfeld said.
More:Click to read about the L.A. spec house that listed for $150 million
But even with a great piece of land, a spec house also has to be done right to be worth the money, experts say. "People are building specs now with the understanding that they need a team of people to do it right," Mr. Bordan said. "The designers matter. The interiors and finishes matter. It’s almost like you’re building a spec property with the mindset of someone who has significant wealth."
In the most expensive spec houses, Ms. Breitenbach noted, a buyer who gets in early enough also has the option to customize. "If you don’t want white marble in the kitchen and want something else, you can do that because you’re dealing with a high-end builder, a high-end architect," she said. "The whole team is there, so you can fine tune it and make it your plan and your vision."
Overall, whether a spec home is a good buy can come down to the equation of how much it would cost to buy the land, hire the top team, design and build the property, Ms. Breitenbach said. For a Bridgehampton spec house that her husband is building, which is listed at just under $20 million, Ms. Breitenbach said it would cost about $11 or $12 million to purchase similar land, close to $1 million in architectural fees and $1,000 per square foot to build a 10,000-square foot home. If you do the math, "you couldn’t buy the land and do it all yourself for that kind of money," she said.
But there are other times the math won’t work out in the buyer’s favor, yet the buy still makes sense. In L.A., for instance, Mr. Rosenfeld said spec house isn’t likely to save you money, because you’ll probably pay a premium for the most competitive properties.
In Aspen, this is also true, Mr. Bordan said. "From a business perspective, if you have the patience to buy the land, design the property and build it from the ground up, you are going to have more equity built into your project," he said. "More than nine times out of 10, the best deal is going to be to do the project yourself, because you’re going to truly get exactly what you want."
"But that requires a lot of patience," he added, "and that’s really part of the equation."
Here’s a look at other news from around the world compiled by Mansion Global:
A New Boom in Rooftop Apartments is a Sign of Spain’s Rebounding Housing Market
As rents and home prices reach near pre-2008 levels (and land in major cities is in increasingly short supply), one Spanish construction firm is finding success building rooftop apartments in in-demand areas like Madrid and Barcelona. The firm, La Casa por el Tejado, creates prefabricated apartments and lifts them onto rooftops by crane, its founder told Reuters, "In Spain, we have identified more than 4,000 buildings which have available rooftops to build on." In spite of concerns that a pending rate hike could slow growth, Spain’s comeback from a devastating crash has been dramatic, with an estimated 3% economic growth projected for 2017 and a construction industry that now accounts for 10% of gross domestic product. (Reuters)
More London-based Homebuyers are Opting to Purchase Outside the City
Londoners are increasingly taking their purchases outside of city limits, according to new data from Hamptons Estate Agents. The city’s soaring home prices are leading first-time buyers to search outside the city for affordability. At the same time, current homeowners are looking to sell while prices are high and reinvest in areas where they can get more bang for their buck. As such, 77,500 Londoners bought homes outside of the city in the last 12 months, a 22% increase from the same period in 2015. The majority of these buyers are heading for commutable areas in the south of England, such as Sevenoaks and Bath. "It is likely 2016 will be a peak for London leavers," said Hamptons head of research Johnny Morris. "While, overall, the year saw growth in Londoners buying outside of the capital, in recent months the pace has been slowing. A slower housing market in 2017 will likely mean that we see less Londoners buying outside of the capital than in 2016." (Business Insider)
More:Prices tumble, sales increase in prime London
U.K. Home Ownership Rates May Have Been Significantly Overestimated
A new report from think-tank, the Resolution Foundation, indicated that official estimates of home ownership have been overblown, thanks to a focus on households rather than individuals. Rather than the official estimated home ownership rate of 64%, the Resolution Foundation calculated the number as closer to 51%, factoring in data for people who share homes, take in lodgers, or live with their families. The foundation’s report said that Office for National Statistics data missed 5.8 million families or individuals who live in someone else’s home, and wrote that home ownership rates in Britain have been falling since their peak in 2002. (BBC)
Sydney and the Gold Coast are Expected to See Steep Price Increases in 2017
Thanks to low supply and brisk demand, housing prices in Sydney are expected to continue their years-long upward climb in the new year, while Australia’s Gold Coast will likely emerge as a new top performer, according to predictions from the nation’s real estate industry. Binvested co-founder Nathan Birch forecasted double-digit price growth for Sydney in 2017, explaining, "Sydney has had a lot of [new residential] building happen recently, but it is playing catch up." An ambitious government plan to expand Sydney is expected to bring hundreds of thousands of new jobs and housing units to the city over the coming years, which should feed into the boom. However, the Gold Coast is expected to be Australia’s fastest-growing market, with Birch predicting double-digit price gains following several steady years of rising values in the area. (news.com.au)
More:Click to read how in 2017, it'll be a race for dollar buyers amid oversupply
2017 Dubai Home Prices Expected To Gain Some Stability After a Volatile 2016
In a market that’s particularly affected by global affairs and markets, 2016 was a tough year for Dubai real estate, with prices continuing on a steady decline from their 2014 peak. Low oil prices, the strength of the U.S. dollar, and uncertainty surrounding Brexit were all contributing factors to the area’s troubled market. However, the forecast is somewhat sunnier for 2017, thanks to slightly improved oil prices and looser lending practices in the area. In the so-called "Blue Chip" areas of Dubai and Abu Dhabi, prices are expected to remain stable, and even begin to edge up by the end of the year. (Khaleej Times)
More:Click to go to Mansion Global's page on Dubai real estate news
In High-priced Beijing, Families Turn to Basement Apartments
Beijing's gangbusters market is literally driving buyers underground, and sub-basement apartments have become the city’s fastest-growing property category. They’re particularly popular among families in search of options near high-quality schools, which are primarily concentrated in a small, in-demand downtown area where prices have surpassed 100,000 yuan per square meter. In fact, 616 basement units were sold in Beijing in the first eight months of 2016, according to numbers from real estate consultancy Yunfang Data, the majority of them in the desirable downtown Xicheng and Dongcheng districts. With popularity growing, prices of sub-basements have risen an average 20% this year. (South China Morning Post)
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