Why Argentinians who invested in Brickell, Miami, are losing money

16 Jun '16

miami-ch

Mariano Capellino published a new article in Apertura.com about “why Argentinians who invested in Brickell, Miami, are losing money”.

See transcription below | See original article

Why Argentinians who invested in Brickell, Miami, are losing money

Many people are shocked but this is a story foretold. The sale of luxurious condominiums under pre-construction process in Brickell area and Downtown are coming to a standstill.

This situation could already be projected 3 years ago. During the analysis conducted by INMSA in 2012, we established that from 2015 demand would be reduced drastically as brand new finished buildings were being incorporated to the market. The zone had experienced an excess in demand, thus generating an increase in prices to almost irrational levels in a short period of time and the launch of new projects were incremented.

As a consequence, departments which are not built yet are being offered at about US$ 6000 per square meter, while the same type of asset, already finished and brand-new, is hard to sell at US$4000 per square meter.

For that reason, the recommendation made at that moment was to disinvest in this type of assets which had been acquired during 2009 and 2010. We could foresee how hard it would be to disinvest since 2015.

At that moment, based on our projections, we announced that with the income obtained from the first projects finished in the area, an oversupply would be produced, as well as a decrease in sales and a strong pressure for price correction.

The most renowned zone in Miami has always been very attractive for foreign buyers and many Argentinians were tempted to invest. Brickell is the access door to Premium construction in Miami and, as such, it has been a very good business for many years. But today the situation is different, even when local developers and brokers find it hard to believe that this tendency is real and it is being more accentuated day by day.

This is just the beginning and there will be 3 or 4 years of price correction as approximately 10,000 brand new units will be incorporated into the market in the next 3 years and today the market can barely absorb little more than 1000 yearly, i.e. far less than the 2000 units available in stock.

In this context, it is possible that most investors who accessed since 2014 will have to suffer at least 30% loss of the purchase value if they want to sell the property upon deed registration, as customarily done by many investors. This is so because the current value is 20% lower than the purchase value and, in addition to this, there are sale costs representing another 10%.

Once more, it can be observed how the luxury residential market in Miami, mainly Brickell-Downtown, generates bubbles in less than 3 years, a situation that is not happening in other parts of the world.  This is the result of developers’ marketing and the strong incentive of sales during the pre-construction process with high commissions for brokers, currently reaching 12% in some cases, due to sales drop.

This situation shows once again that investing in Real Estate should not be based on the wrong belief that the most important factor is location. In the best location, it is possible to make a lot of money or, lose it if investment is made in the wrong moment. The formula is more about timing than location. Accessing the cycle where property has experienced a strong correction and exit at the moment their value has been recovered.

Even Class A – Premium assets – in the best locations of the world lose their value and are subject to bubbles like these ones.

Today, investing in Brickell is not good business; instead, it is a good deal for middle-class end users to invest in the rest of the domestic residential market in USA. This type of asset is in full recovery process and still has several years ahead because of restrictions to access mortgage loans which exist still today. Again, the key is to understand when to access and exit the market.
 
*The writer of this article is head of Inmsa LLC.

 

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