Business Monday

Foreign buyers face higher prices for Miami condos

Peter Zalewski
Peter Zalewski

Foreign investors — the lifeblood of South Florida’s condo market for the last five years — are finding it increasingly expensive to buy new and existing units east of Interstate 95 in the tricounty region of Miami-Dade, Broward or Palm Beach.

For international investors, the increased costs associated with buying resale condos or preconstruction units in South Florida is the result of a combination of factors, including the resurgent tricounty real estate market combined with the strengthening U.S. dollar.

Gone are the opportunities of recent years when units in South Florida could be acquired in cash transactions at prices below the costs to build — or replace — these same condos.

Adding to the growing sense of sticker shock in the South Florida condo market is the fact the currency exchange rates of several key countries from which many of the foreign investors originate from have plummeted in the last year.

A quick glance at the currency exchange website OandA.com shows the U.S. dollar has gained value against most currencies in the Americas and Western Europe.

It is against this backdrop that concerns are being raised privately about the ability of the South Florida condo market to continue experiencing annual gains in both the number of transactions and the average prices going forward.

Currently, the mean asking price of a condo resale unit located east of I-95 in South Florida is about $355 per square foot, representing an 88 percent increase over the mean transaction price of $189 per square foot at the bottom of the last real estate crash in 2009, according to data from the Southeast Florida MLXchange.

As a result, fewer resale units — less than 1,525 — have transacted in the first nine months of this year compared to the same January to September period of 2013 when nearly 1,650 units traded monthly, according to the data.

Despite the slowdown in transactions, sellers — many of which bought with cash — are generally refusing to reduce the asking prices of their condo currently for resale.

Not surprisingly, the supply of resale units on the market in South Florida has grown to nearly eight month of condo inventory.

A healthy market is thought to have about six months of condo inventory available for purchase. More months of condo inventory suggests a buyer’s market and less months indicates a seller’s market.

Efforts by the preconstruction condo industry to attract buyers — often times to the detriment of the resale market — is thought to be a key factor contributing to the growing supply of existing units on the market in South Florida.

Developers are currently preselling at least 120 planned condo towers with more than 16,000 units at a mean minimum price of about $772 per square foot in South Florida as of Oct. 3, according to the latest Developers Price Survey conducted by CraneSpotters.com. (For disclosure, my firm operates the website.)

This current South Florida real estate cycle began in 2011 when international investors — many of whom were already accustomed to putting down hefty deposits when buying preconstruction condos in their home countries — began to enter into presale purchase contracts in Miami that for the first time required 50 percent deposits.

During the last South Florida condo boom, buyers generally put down 20 percent deposits for preconstruction units.

The rich deposit structure of this boom is targeted primarily at foreign investors — not domestic purchasers who are typically reluctant to commit more than 30 percent — to minimize the need for developers to obtain construction financing from lenders.

Since adopting this deposit schedule, developers have announced more than 285 new condo towers with nearly 39,000 units in South Florida, according to CraneSpotters.

Given the dependence on foreigners, the growing concern is what happens to the South Florida preconstruction condo market if international investors pull back due to reduced buying power resulting from the rising U.S. dollar.

In South America, the Argentine peso has plummeted 31 percent against the dollar in the last year. The Brazilian real has fallen 10 percent, and the Colombian peso is down nine percent.

The official rate of the Venezuelan bolivar — reportedly due to government intervention — is down only about one percent from 2013, according to OandA.com.

In North America, the Canadian dollar is down nearly eight percent against the U.S. dollar, and the Mexican peso has fallen about 4 percent.

On the other side of the Atlantic Ocean, the value of the Euro has decreased by nearly7 percent and the Russian ruble has tumbled 19 percent in the past year.

The only major currencies not to fall against the U.S. dollar are the British pound, which is up nearly 1 percent, and the Chinese yuan, which is unchanged, according to the data.

The unanswered question going forward is whether domestic buyers — many of whom prefer to purchase with leverage, not cash — can fill any void in the South Florida condo market left by foreign investors who suddenly have less buying power.

Peter Zalewski is a principal with the Miami real estate consultancy Condo Vultures. Zalewski, a licensed Florida real estate professional since 1995 and founder of CVR Realty and Condo Vultures Realty LLC, advises developers, lenders and institutional investors. Zalewski also runs the preconstruction condo project website CraneSpotters.com in conjunction with the Miami Association Of Realtors.

Strong U.S. dollar pinches buyers from other countries

This chart shows the value of a foreign currency to the U.S. dollar on Oct. 13 of each respective year:

Currency

2014

2013

2012

2011

2010

2009

2014 vs. 2013

2014 vs. 2009

Argentine peso

$0.177

$0.170

$0.212

$0.236

$0.252

$0.261

-31.2%

-55.2%

Brazilian real

$0.412

$0.457

$0.489

$0.564

$0.597

$0.572

-9.8%

-28.0%

British pound

$1.607

$1.595

$1.606

$1.567

$1.583

$1.581

0.8%

1.6%

Canadian dollar

$0.893

$0.965

$1.022

$0.978

$0.986

$0.963

-7.5%

-7.3%

Chinese yuan

$0.163

$0.163

$0.159

$0.157

$0.150

$0.146

0.0%

11.6%

Colombian peso

$0.00048

$0.00053

$0.00056

$0.00051

$0.00056

$0.00053

-9.4%

-9.4%

Euro

$1.263

$1.353

$1.295

$1.372

$1.385

$1.474

-6.7%

-14.3%

Mexican peso

$0.074

$0.077

$0.078

$0.075

$0.080

$0.075

-3.9%

-1.3%

Russian ruble

$0.025

$0.031

$0.032

$0.032

$0.033

$0.034

-19.4%

-26.5%

Venezuelan Bolivar

$0.158

$0.159

$0.233

$0.232

$0.232

$0.465

-0.6%

-66.0%

SOURCE: OandA.com

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