The under-construction luxury condos market in Miami is turning into an enormous bubble. As we have been anticipating for several years in INMSA´s reports on real estate situation, data have shown a very complicated situation which will get worse in the next years.
See transcript below| See the original article
Real Estate in trouble: Real estate bubble in Miami
There are 11,000 units of condos under construction in 37 towers which will be finished in the next 30 months. If only 30% is offered for sale, in addition to the 646 units that still remain unsold, the stock would reach the number of 3946 units.
Real estate fairs and exhibitions were visited by a large number of developers promoting condos projects in Miami, in Brickel zone or areas facing the beach. “The under-construction luxury condos market in Miami is turning into an enormous bubble: data show a very complex situation which will get worse in the next years”, warns Mariano Capellino, CEO of INMSA.
Between 2012 and 2015, a number of 3200 units were built, distributed in 15 towers already finished: 680 units have been offered for sale and, during the first six month, only 34 were sold. “If we make a projection considering that this volume of sales will be maintained, this year, a total number of 68 units will be sold. If so, and if no new units start being offered for sale, it would take 10 years to sell all the units currently available”, warns Capellino.
The problem is that there are 11,000 units under construction process in similar condos distributed in 37 towers which will be finished in the next 30 months. If only 30% of such units are offered for sale, plus the 646 units being offered but still unsold, the stock would reach the number of 3946.
If the current number of sales is maintained, 58 years will be necessary to absorb the entire offer. In view of this situation, there are already buyers of under-construction units willing to bear any loss necessary in order to exit their units at a lower price. Yet, there is very little interest in acquiring these condos in the market and the demand is slowing down due to the additional units that are coming.
As it is impossible to think that it will take 58 years to sell the oversupply of real estate, in the short term, prices will continue falling. Capellino estimates that the strong decline will take place by the end of 2018, when inventory reaches the maximum level due to the availability of large number of units which are currently under construction.
After a strong decline of prices, the stock of property will begin to be absorbed and sales will be accelerated. But the sale price will be much lower than the money originally invested, as it happened in the period between 2009 and 2012. Thus, buyers who paid more than u$s5000 during 2013-2016 in Brickell – Downtown area and are willing to sell their units upon their completion in 2018 or 2019, will bear losses which might exceed 50%.
But, it should be taken into account that during 2004 and 2005 many investors were led to believe that the best business was to acquire property in the best location, Brickell, and they paid near u$s5000 per square meter under pre-construction conditions. In 2008, when they received their finished units and saw the collapse of prices, 50% by then, many of them did not know how to act and decided not to hurry. But, in 2014, after 10 years of the acquisition and when the market was booming, as no new inventory had been made available, with an upward pressure on prices, the average values had only reached u$s 4500 per square meter, i.e. lower than the amount originally invested.
This generated a dilemma. If they had sold at that moment, they would have lost a lot of money. For that reason, an important number of investors preferred to keep their assets, as by then, units were being sold at u$s6000 per square meter under construction conditions. Now, they will have to wait until 2024 to see peak values again. And, if we consider the average annual 3% inflation in USA, even selling their units at the same price originally paid, they would have lost near 50% of their capital due to inflation impact. “A large number of people who have always invested in real estate have learnt, after many mistakes, that these types of investments only generate money by taking advantage of the market cycles and by making a difference between the acquisition and sale in the shortest time possible”, says Mariano Sardás, CEO of FDI.