We share an article published in Apertura.com, where Mariano Capellino, CEO of Inmsa talks about the new huge real estate bubble in Miami.
Read transcription below | See original article
New huge real estate bubble in Miami
Since 2015, our reports on real estate markets have been indicating that a new big bubble was being generated in Brickell /Downtown Miami zones.
Already in 2014, the prices of luxury condos whose construction had been completed in 2009 had reached an average value of US$4500/square meter, bringing them closer to their historic maximum value because of the lack of supply of new units which were by then under construction process.
But those peak values did not last very long. From 2012 to 2016 new real estate projects were developed which entered the market since 2015 and whose delivery will be completed by 2019. Most of these new developments were sold under construction process (on an off-plan basis) at prices higher than historic values considering that the irrational demand by foreign investors who were paying extra charges would continue to increase values. But that was not the case. The demand stalled thus generating a strong decline again due to the excess of supply.
Today we can see these expected impacts. The market of used luxury condos fell by 35% on average. From US$4500/square meter paid in 2014 to current operations conducted at an average price of US$2900/square meter.
These are not assumptions: public records prove this. For instance, the unit 1510 in 500 Brickell building, an apartment with two bedrooms, was sold on August 18 this year at US$ 345,000, i.e. about US$3099/square meter. Or, in the Wind building, the unit 4104 with two bedrooms was sold at US$290,000 for a total of 100 square meters, which means a value of US$2900/square meter.
In Axis Brickell building, the unit 1111 with 3 bedrooms and 216 m2 was sold on August 28 at US$460,000 at about US$2123/square meter. In Viscayne building, the unit 1206 of 75 m2 was sold on June 19 at US$220,000, i.e. US$2933/square meter. Or in Icon Brickell, one of the most emblematic buildings of the area which had reached values of US$5500/square meter in 2014, the unit 2306 was sold at US$3525/square meter. All of them with values quite far from the average amount of US$4500 obtained in 2014.
On the other hand, and possibly the most worrying thing, is that out of 2400 units available for sale, only 670 have been sold. And 70 brand new units were sold from a total of 600 units available for sale in the last year. It is clearly understood that this is happening because the values at which they were acquired were higher than the current prices at the market. This makes it difficult to sell units without admitting an important loss of money.
And this is just the beginning. According to the Annual Residential Report in Miami (DDA), Miami Downtown Development Authority, there are still 8262 new residential condo units being constructed and which will be ready for delivery. During this year, 3456 units will be delivered; in 2018, a number of 2846 units will be delivered and in 2019, the remaining 1960 units. All these units were acquired at values much higher than the current market prices.
So, when all units under construction enter the market in 2019, the excess of inventory will cause more pressure to generate price correction processes. We, INMSA, estimate that the loss involved will be more than 50% of the originally paid value, if the investor intends to sell.
But many investors will decide to keep the unit, supported by the belief transmitted by brokers and developers that you never lose in real estate business when you have premium assets in good locations. This shows, once again, that the commercial and marketing ability of international brokers and developers entails a high cost and generate strong losses for foreign investors. They acquire premium real estate in excellent locations, thinking that a market such as the USA is very good business.
Once again, the current situation allows us to prove that this business is about Timing, Timing, Timing rather than Location, Location, Location. Again, the myth that premium assets in the best locations never fail and that the pre-construction system in this type of assets is always good business is dispelled.
A proven truth rather than a myth is that a solid real estate investment can only be achieved by choosing the right time to enter and exit, regardless of the type of asset involved, as they all experience up and down cycles. If you intend to have an apartment with the best view but without taking into account whether you will be earning or losing a lot of money, go ahead!, any moment would be fine to buy. Otherwise, if you intend to invest, you must analyze the market carefully as some projects may be great business for developers but not so good for you.