Again, a new article written by Mariano Cappellino has become the most popular article on Apertura.com site. It is about the Miami Brickell situation and it revives the discussion on paradigm shift in real estate investments. The key element is not Location, Location, Location but Timing, Timing, Timing.
You can find the complete article on Apertura magazine http://bit.ly/2lVUm6o or you can read it below:
The new big real estate bubble has already burst in Miami
Since 2015 our reports on real estate markets have been indicating that a new big bubble was emerging in Brickell / Downtown Miami zones.
By 2014, the prices of luxury condos whose construction process had been completed in 2009 had reached an average value of US$4500/square meter, thus reaching out their maximum historic figure due to the lack of brand new property supply whose construction process had just begun.
But that peak value didn´t last long. From 2012 to 2016 new real estate developments were initiated and become part of the market since 2015, which will be fully delivered by 2019. Most of these new developments were sold on an off-plan basis at prices higher than historic values, assuming that the irrational demand of foreign investors willing to pay a premium would continue to increment values. But that was not the case.
The demand got stuck again generating a strong decline due to the excess of supply.
Today we can see such anticipated impacts. The market of second-hand units in luxury condos went down 35% on average. From US$4500/square meter paid in 2014 to an average US$2900/square meter in current operations.
These are not assumptions: this is reflected in public records. For instance, the unit 1510 at 500 Brickell, a 2-room apartment, was sold at US$ 345,000, approximately US$3099/square meter on August 18th this year. Or, the unit 4104 at Wind building, with two rooms, was sold at US$ 290,000 (100 square meter), which means a value of US$2900/square meter.
At Axis Brickell building, the unit 1111 with 3 rooms and 216 square meters was sold on August 28th at US$ 460.000, which means about US$2123/square meter. At Viscayne building, the unit 1206, 75 square meters, was sold on June 19th at US$220,000, i.e. US$ 2933/square meter. Or in Icon Brickell, one of the most emblematic buildings of the area which reached values of US$5500/square meter in 2014, the unit 2306 was sold at US$3525/square meter. All of them at prices quite far from the average US$ 4500 obtained in 2014.
On the other hand, and probably the most worrying thing is that out of 2400 units available for sale, only 670 have been sold. And out of the recently 600 finished brand new units, only 70 have been sold this last year. It is understood that the reason for this is that they were acquired at values higher than those at which they are being currently sold. Therefore, selling without incurring a big loss is quite difficult.
And this is just the beginning. According to the Annual Residential Property Report in Miami, the Downtown Development Authority (DDA) from Miami, a number of 8262 new residential condos is still under construction process. During this year, a number of 3456 units will be delivered and in 2018 2846 units will be available for delivery, and the remaining 1960 units in 2019. These units were acquired at values much higher than the current ones available for sale.
Therefore, when all units under construction enter the market in 2019, the excess of supply will generate more pressure leading to price correction processes. At INMSA, we estimate that the loss involved will exceed 50% of the originally paid value if the investor intends to sell.
But many investors will decide to maintain the unit supported by the arguments given by brokers and developers that in real estate business, premium assets in good locations never make a loss. This proves, once again, that the commercial and marketing skills of international brokers and developers has a huge cost and generate strong losses for foreign investors. They acquire premium assets in excellent locations thinking that it is a very convenient operation in a market such as the USA.
In turn, the current situation proves once again that this business is more about Timing, Timing, Timing than Location, Location, Location. Once again the myth of premium assets in the best locations never making a loss and that pre-preconstruction of this type of assets is always good business is dispelled.
What is not a myth but a proven truth is that a solid real estate investment can only be achieved by choosing the right moment to enter and exit, without paying so much attention to the type of asset involved, because all assets go through up and down cycles. If you want to have an apartment with the best view without taking into account whether you will earn or lose a lot of money, go ahead; any moment is good for purchasing. If you intend to invest, analyze the market carefully as something that is excellent for developers may not be so good for you.