November 29, 2005

Classic end of bubble scenario - tightening of credit - Banks tighten lending to build condominiums


But is it too late? I predict massive numbers of condos that were "purchased" by investors will never be bought - as investors walk away from deposits, leaving developers on the hook - and then in bankruptcy court - as the condo project gets mothballed...

Some of the nation's largest lenders are cutting back on financing and are tightening standards for condominium projects, a sign that banks, which helped to fuel the run-up in real-estate prices with cheap debt, may be growing more skeptical about the prospects for residential properties.

In recent months, lenders have been requiring developers to put more of their own money into projects, sell units faster, and prove that they have experience completing these condos. Many banks have cut back on loans in markets where there has been the most building and investors already have bought up a large number of new condominiums.

"Lenders are looking toward more worst-case scenarios," says Dwight Dunton, president of Bonaventure Realty Group LLC, a real-estate developer based in Arlington, Va.

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