I once heard a tax accountant introduce himself as the second most boring person in the world next to a demographer. The discipline of compiling and understanding demographic change is of passing importance to most, but if you work in the South Florida real estate business, a big-picture view of foreign immigration and buying patterns is essential to understanding the transformative changes occurring in our economy.
If you’ve read a real estate article about the luxury residential market in South Florida recently, the dire predictions of fewer foreign buyers owing to currency devaluation will have been featured prominently. The larger issue at hand is: what drives foreign buyers to have an affinity to South Florida real estate vs. other areas; and whether this trend is likely to continue in the long term.
A prominent Miami Realtor remarked recently that “[he] loves Miami because of its close proximity to the United States.” Over 51 percent of Miami-Dade’s population is foreign-born, with Broward at nearly 32 percent and Palm Beach at 23 percent. It’s this mix of cultures that positions South Florida, and Miami in particular, as an economic engine inexorably linked to the world economy.
In a review of the Realtor’s 2015 survey of buyers, 36 percent of all 2015 South Florida residential sales, representing over $6.1 billion in residential sales, originated from foreign buyers, nearly 79 percent of which was concentrated in Miami-Dade.
A review of the REALTOR survey buyer composition shows a much stronger European correlation in Broward and Palm Beach counties, decidedly more influence from Asia in Palm Beach, and a higher percentage of Canadians in Broward and Palm Beach. Miami remains strongly tied to the Latin American buyers, and given the dominant proportion of overall investment from LatAm buyers in Miami-Dade and Broward, the diversification of foreign investment away from Latin America is not likely anytime soon.
While the market is currently experiencing fragile economic conditions worldwide outside of the United States, the demographic composition of South Florida will be its greatest long-term strength in terms of real estate value appreciation. Most cities in the United States are growing nominally, or shrinking, as U.S. birth rates continue to decline. The U.S. cities that will outperform in the coming decades will be those that can foster economic growth by attracting both monetary and human capital. Much of this growth in the U.S. must come from outside of the country unless birth rate trends reverse unexpectedly.
A review of commercial property investment in the past 12 months demonstrates a similar order of magnitude of commercial capital inflows to South Florida, with nearly $3.5 billion in direct investment from buyers outside the U.S., according to Real Capital Analytics cross-border capital tracker. The top five foreign commercial buyers year-to-date originated in Spain, China, Canada, Norway and the United Kingdom, with no Latin American buyers in the pool in the prior 12 months. Argentina and Brazil were among the top five commercial buyers in 2014, with an annual cross-border total into South Florida of $1.5 billion.
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The short-term ebb-and-flow of international investment will be affected by many factors, including currency fluctuations, commodity pricing and foreign political instability, but the key factor in our region’s success will be its sustainable cultural diversity. Contemplate on a 100-year timescale (back to 1916) what factors allowed New York City to prosper, and whether the wave of European immigration wasn’t a key determining factor in allowing New York’s economy and productivity to outpace all other U.S. cities in the past 100 years.
While it may be boring to some, South Floridians should be excited by the region’s rich and promising demography and our likely place in the future of U.S. economic growth. We represent a diversified base of cultures, ideas and capital that drives not only strong American in-migration to the region, but serves as an international magnet to drive long-term investment and growth.
Despite all the experts in 2009 who said Miami’s condominium inventory of 19,000 units would take two decades to absorb, in less than four years, cranes were emerging again downtown as supply had dwindled to less than 800 units. The current under construction pipeline downtown is roughly 7,300 units, so the slowdown of international buyers in mid to late 2015 has the development community alert, not only in Miami, but throughout the region. These impacts will be short-lived, certainly shorter than the prior cycle absorption, owing to the domestic and foreign recognition of South Florida as a fast-growing international investment destination.
Anthony M. Graziano, MAI, CRE, is senior managing director for Integra Realty Resources — Miami/Palm Beach, based in Coral Gables. He has been involved in the real estate field since 1986. He can be reached at email@example.com and www.irr.com.
Where South Floridian are from
A review of the tri-county region comprising South Florida provides a 2014 snapshot of the origin of the area’s residents:
South (not Fla.)
U.S. island areas
(not U.S. citizen)
Source: U.S. Census Bureau — 2010-2014 Community Survey