No doubt Miami Brickell is one of the most attractive places in Florida. High quality buildings, a cosmopolitan lifestyle and, possibly, one of the best views of the world. These are the characteristics of the zone where real estate investors have been able to do very good business but, at the same time, it is not exempted from market cycles. Inversión Inmobiliaria magazine published INMSA´s view on this exceptional zone.

Read the article below:

 

Is it good business to invest in Miami Brickell?

By Mariano Capellino, founder and CEO of INMSA

Whether you intend to acquire a luxury condo unit to enjoy it as your home or for investment purposes, it is time to understand where you are putting your money in.

Recently, real estate exhibitions from many countries of the region were attended by an important number of developers and brokers promoting under-construction condo projects in Miami, Brickell, or locations by the beach. Some of them have participated in panels and as speakers as well.

Whether you intend to acquire a luxury condo to enjoy it as your home or for investment purposes, it is time to understand where you are putting your money in. Especially in Miami, Brickell zone, and places opposite the beach which are usually known as pre-construction luxury condo market by foreign investors.

There is some controversy in the sector as to whether such areas are a bubble or not. And this is understandable because even when there is no interest in that market, real estate business operations in Miami are affected. But it should also be understood, in support of investors, that as we have been anticipating for several years in INMSA’s real estate reports, data reflect a very complex situation which will significantly get worse in the coming years.

In the United States, it is possible to access reliable data enabling to analyze the situation of the real estate market. These data show that we are reaching a turning point and the end of the expansion phase as well as the beginning of the price correction stage can be perceived:

  • Between 2012 and 2016 more than 3000 units were built, distributed in more than a dozen towers already delivered. Out of the units made available for sale, only a small part was sold according to the MLS system. When projecting this situation, we can assume that it would take 10 years to sell the current stock, at the same pace and price.
  • The problem is that there are more than 10,000 units under construction process in similar condos distributed in approximately 40 towers that will be finished in the next two years. If only 30% of these units are made available for sale – as estimated by the analysts of the sector – added to the current ones which remain unsold, it would take many many years to absorb the supply.
  • The inconvenient is that many buyers acquired units under pre-construction process at prices much higher than the current market prices for condos of similar characteristics and already finished.

In view of this situation, there are buyers of pre-construction units who are ready to exit at a loss. But still, there is little interest to acquire these condos in the market and the demand is slowing down due to the additional units that will enter the market.

Considering a delay of 50 years to sell the oversupply of property is unthinkable, so it is logical to assume that the prices of this type of property will continue to go down. Based on our analysis, the strong decline will take place by the end of 2018 when the stock levels reach their maximum figure due to the arrival of a large number of units which are today under construction process.

 After a strong decline in prices, as usual, the absorption of property stock will begin and sales will be accelerated. But the sale price must be much lower than the one paid by investors during the last 3 years, as it happened between 2009 and 2012.

Thus, buyers who paid more than US$ 5000 per square meter in the period between 2013 and 2016 in Brickell – Downtown area and want to sell their units upon delivery in 2018 or 2019, will unfortunately suffer a loss which can exceed 50% of the amount paid.

Many investors will think that waiting until a better value can be obtained is the best option. But, is this possible? Let´s take a look at history. During 2004 and 2005 many investors bought the idea that the best business deal was to buy property in the best location, Brickell, and they paid about U$S 5000 per square meter for housing units under construction process.

In 2008, when they were delivered their finished units and in view of the collapse in prices at that moment, U$2500 per square meter, many investors decided to keep the asset thinking that a good location would soon recover the value and would allow them to obtain good profitability.

But in 2014, 10 years after acquisition and when the market was at its peak as no new stock was available, and with an upward tendency of prices, the average values had only reached U$S4500 per square meter, i.e. less than the amount originally paid.

This posed a dilemma. If they had sold at that moment, a lot of money would have been lost.

For that reason, an important number of investors preferred to maintain their assets because at that moment units under construction process were being sold at about U$S 6000 per square meter. But this decision was wrong. Now, they will have to wait until 2024 to see peak figures again, therefore, if God helps, 20 years after they would be able to end in a tie. And if we consider the average 3% inflation in the USA, even selling at the original price, they will have lost about 50% of their capital because of the impact of inflation.

This business has been successful for large developers, making them reach the list of billionaires in the USA and allowing them to multiply their assets in the last years, but this business also led thousands of Latin Americans and other foreign buyers to lose huge amounts of money.

For that reason, think twice before making an investment. If you are willing to pay any price, at the expense of losing money, you can do it and probably you will have one of the best assets in the world with a fantastic view. But, if you are an investor, be careful. Glamour, speeches, good stands, art, showrooms, brochures and videos are very tempting but the price to be paid can be too high.