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Canary Meet Coal Mine: Miami Condo Sales Are "Cooling Down"
This time is always, always different.
One month ago exactly, the WSJ highlighted the booming Miami luxury condo market, noting that a preponderance of wealthy Brazilians fleeing an undesirable political environment has played an outsized role in fueling demand for high-end real estate in the city.
Similarly, NPR ran a piece in November of last year which cited a laundry list of factors to account for the robust foreign demand Miami has seen for luxury properties. Those factors, according to several people quoted in the article, include: nightclubs, jets, diversity, beautiful weather, great taxes, great restaurants, beaches, and the perception among Russian oligarchs that Miami is “the next Singapore.” Peter Zalewski, who runs cranespotters.com and is an authority on these matters, told NPR the following: “...if we were to sit down in a year from now, we will be well over and above what we did during our last boom and ultimate bust and then ultimate recovery.”
Average resale prices for Miami condos jumped by 20%+ in 2012 and 2013, a torrid pace that we recently called unsustainable and in fact, we predicted the boom in high priced Miami condos might well suffer the same fate as ultra luxury Manhattan apartments should foreign interest suddenly dry up for whatever reason. As it happens, Miami’s Downtown Development Authority is out with its Annual Residential Market Study Update and wouldn’t you know it, average retail value per square foot not only fell below 20%, but in fact fell to under 16%, the slowest pace in three years.
Also, note the caption under the graph which says, “IRR-Miami predicts further slowdown in appreciation and resale transaction volume as new projects deliver to market in 2015.”
One of the main culprits for slowing growth is the simple fact that foreign buyers (especially Brazilians) are seeing their buying power crushed by the rapidly appreciating dollar.
From the Miami DDR report:
The primary driver for the Downtown Miami Condominium market is foreign investment. At the early stages of this cycle, South American capital was extremely strong versus the dollar and represented significant purchasing power for South American buyers using foreign currency to purchase pre-sale units that were being sold in U.S. Dollars. In addition to the favorable currency exchange rates, South American buyers are typically hedging against their own economies, which experience significant fluctuations due to political turbulence.
Due to the recent advance of the U.S. Dollar vs. most South American and European currencies, the advantageous buying power of foreign investors has been diminished significantly since 2011 (with the exception of China). While the Euro has not diminished as much as the South American currencies, its slide vs. the U.S. Dollar has only recently started and is expected to continue to decrease over the next 6-12 months.
The significant slide in currency exchange from 2011-2015 for Brazil (-38%), Argentina (-52%) and Venezuela (-32%) could have an impact on projects that were heavily weighted to buyers from these markets as buyers will need to produce proportionally greater funds for the remaining 50% of contracted sale price to close on the units that were contracted in 2012-2013 and will be delivered in 2015-2017.
Visualizing the pain...
And as for demand from anyone other than the wealthy, well..
The slowest pre-sale absorption is occurring in secondary locations in projects at lower price points. While some of these projects appear to be more affordable, they have not gained traction with the foreign investment community. While these projects report very strong interest from the local buyer due to the 50% deposit structure, local buyers are unable or unwilling to contract on a unit under the 50% deposit structure.
Lenders need to exercise caution as projects “reach” for sales hurdles, but do so by abandoning the 50% down model.
It’s not difficult to extrapolate what happens from here. If condo prices stop rising but land and construction costs continue to climb, developers will stop building as their profits get squeezed. Have a look at the following “report card,” which tells us everything we need to know about where this is heading:
We have “early signs of new demand slowing” while “construction pricing is busting budgets beyond feasibility” in a market where “speculation abounds” in land pricing. When framed against a very unfavorable foreign exchange dynamic for the market’s most important buyers, the situation really couldn’t get much more precarious.
* * *
Don’t say we didn’t warn you.
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BTFD
This site keeps booting me to the App Store. Tyler, please correct this shit. I'm about to be forced to read Drudge or WND
Fuck I know, I thought it was just me, or my phone, or the NSA... Glad am not the only one... Tyler plz fix
Fix your browser settings you mooks!
And get something like Ghostery for Firefox to block shit.
I live in Florida. Will someone with a nuclear arsenal rid us of this foolishness?
Unless you're burning off your early twenty something single (or married/committed but no children) years still get the fuck out with whatever you can grab.
FL is where youth and inconsequential retirees go to die.
.
I get that alot. Believe it or not, I moved to Florida from NY. North Florida is actually a very nice place to live.
South Florida should be given back to the bugs. I can't think of a single redeeming quality. Come to think of it, it's still ruled by cockroaches, just the two legged variety.
Wait
a NY transplant in FL?
;
central FLA is a lot better, millions of gallons of clean fresh cool water just boils from the earth...shhh don't tell the oligarchs, they might try to restrict our access using agenda 21...oh wait
Who'd want to live in today's Miami?
every latin american criminal or government official (same thing)
soeone runnig away from a third world dictator who wants to seize all their cash
and they run to the Stasi States of Amurikastan? great choice...
Do what Ugo Columbo did: buy it when it looks good and dead.
running out of money launderers"
Nope not yet closer to 2016 when its election time unfortunatly I am ready now!!!
and the perception among Russian oligarchs that Miami is “the next Singapore.”
Absurd.
They must be on crack or are looking for it in the vicinity.Lol!
if by next Singapore they mean urban third world shit-hole, then yeah. I can see that too.
are these the same oligarchs that zero hedgers say are 100 percent correct on Ukraine? and therefore the US is 100 percent wrong?
I wonder who downvoted me? Miami is gone and is a 3rd world hellhole.
You got one stinkin' downvote! That doesn't even count...you have to get into the double-digits here before you have to be concerned...
I got downvoted the other day when I said Tsipras and Vanoufakis are going to have some sick prison s**t done to them before this period of history is complete. I was proud of those downvotes.
Every now and then I visit the wrong article...I'll make my little contribution, and BAM! I get hit with a half-dozen downvotes...
Sometimes there'll be a new article days later that basically says what I said, and commenters are high-five-ing it...I think, where the hell were YOU guys a few days ago when the mob was closing in on me yelling "Stone her!"
I am more concerned when I get no downvotes at all. Seriously, what is this childish facebook "likes" thing with votes on ZH? just an expression of sentiment, but you never know from whom
A google fact-bot.
beautiful weather?
sure, i guess..
heat
humidity
hurricanes and hot-headed Cubans ~ no offense you passionate ones you.
Humidity=No way
Hurricanes, Litttle Haiti and hot headed Cubans they can keep. Beautiful weather is not worth it for this gal.
...
whores
hookers
heroin
$431 sq ft pricing?? F'n A that is overpriced!
Add to that continuing carrying costs (HOA, electricity, government "fees," etc.) and you have a "real bargain" going on!
I like this quote:
"Those factors, according to several people quoted in the article, include: nightclubs, jets, diversity, beautiful weather, great taxes, great restaurants, beaches, and the perception among Russian oligarchs that Miami is “the next Singapore."
We have all of that here (plus wonderful culture and beautiful women) on Phuket, Thailand, at a fraction of the cost.
Plenty of condos over here for you rich Brazilians to buy!
"...great taxes..." WTF, is there such a thing as a great tax?
Probably due to the jewish retirees opting for a condo in what was once Palestinian land, as opposed to Florida.
Uber rich are buying NZ/AUS, average joe is priced out of the market here.
On the up-side it means we are the SHTFP.
I want to say Phucket and move to Thailand too.
oh so real estate may only appreciate another 10% or so this year in Miami? Man that sucks, does that mean the S&P will only be up 10% this year too?
It's not only the USD strength that's hitting sales to rich Brazilians and Chinese etc. It's also the fact that their economies are getting pressured at the moment.
Cough.. cough.... arrrggghh.....................................
I remember how nice some of these areas were only a few years ago before the condos went up.
Maui is a micro version of this. Timeshare condos being stacked on pristine beachfronts without the water, sewage, road infrastructure. Dudes selling them make a killing, dupes buying them are aloof, and the locals have more people to irk at.
at least 50% of the buying down here is from " straw men" ether backed by hedgies or builderse themselves making the market look hot as hell, i track sales and watch homes come off market , no one moves in and then back on months later for at least 10% higher , it's one big shell game, to attract the suckers.. it may take 5/7 years but i bet you 5/7 the $PSF WILL BE CUT BACK TO REALITY "AT LEAST 1/2 OF WERE THAY ARE NOW.