Developers Try to Limit Speculative 'Flipping'

On the positive side, investor buyers definitely help create a buzz around a project because they can add significantly to the number of people interested in purchasing, especially now when there are so many of them. When hundreds of people line up the morning that unbuilt condos go up for sale, creating a buying frenzy, it's likely that a significant portion of them are investors, developers said.

"Investors are absolutely a positive for developers," Montagne said. "I think I'd have bigger problems if people didn't want to invest in my buildings than I have when they do."

So developers need investor buyers, but are also wary of them.

"On the one hand, you don't want to discourage so many people from buying that you can't meet your bank requirements," said Tom Bozzuto, chief executive of Greenbelt-based Bozzuto Group, a builder of single-family houses, townhouses and condominiums. "But on the other hand, when you're doing new construction, I'd rather not have a lot of investor sales, because if I'm fooling the bank, I'm only fooling myself." Bozzuto, like other developers, said if he could have his way, he would sell all his homes to people who planned to live in them.

Bozzuto said the problem now is that with so many investors shopping, it has become harder and harder to distinguish between speculators and owner-occupants.

"It used to be that you could limit investor buyers simply by saying it, and generally people would be straight with you," Bozzuto said. "But now, a lot of people do lie to you. So we need to devote more energy to culling through our customers to make sure we have legitimate home buyers."

A buyer's personal situation can also change. That means someone who really intended to live in a unit could, for instance, face a job transfer that turns him into an investor.

A recent study by the Washington-based National Association of Home Builders found that in "hot metro markets" -- and the Washington area is considered one of those -- investment buyers now account for 11 percent of purchasers of new single-family homes. For multi-family condominium projects, investors made up 15 percent of all buyers.

It's not clear how many of those investors plan to sell quickly; there are also many real estate investors who believe in holding property for the long-term.

The survey found that many builders in these "hot metro markets" have taken concrete steps to reduce investor sales. Among them: selling only to owner-occupants (52 percent); prohibiting renting during the first year after settlement (33 percent); not selling more than one home to buyers with the same last name (29 percent); retaining the right to buy the unit back at the same price if the owner tries to sell within the first year (28 percent).

Local investor Arthur Dubin said that he, like many others, would love to buy pre-construction, if only he could. "I've let about a half-dozen of these pre-construction deals get past me over the past few years," he said. "Sometimes I questioned the high initial prices and then they went up $200 a square foot in two months. Or I sneezed and they were all gone. They go that fast. And now it's become really hard."

District-based condo developer PN Hoffman Inc. has taken steps to limit exposure to investors. The company tries to sell 25 percent of the units in a project before construction begins, according to Steve Earl, the company's chief operating officer. The aim is to "confirm their market and their price points." The company tries to sell the remaining 75 percent of a project during construction.