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MIAMI MARKET UPDATE

28 May 2014

With growth being fuelled by the city's Latin American connections, the time is right for property investment in the sunshine state's leading market

Miami is one of North America’s major centres for finance, media and international trade, and as markets across the US continue to improve in the wake of the recession, the city has a lot to offer property investors looking for a new market into which to diversify their investment portfolio.


A BOOMING REGIONAL ECONOMIC HUB

With a Gross Metropolitan Product of USD257 billion, Miami boasts the twentieth-largest city economy in the world, a status supported by its low-tax and business-friendly regulatory environment.

The city is Florida’s largest freight hub, with its prominent position on the state peninsula making it a key gateway to Latin America – a third of US/Latin American trade runs through Miami, much of which comes through what is now the eighth busiest cargo port in the nation. 

MORE THAN 1,400 MULTINATIONAL CORPORATIONS HAVE CHOSEN MIAMI FOR THEIR HEADQUARTERS OF LATIN AMERICAN OPERATIONS

With strong cultural ties to South and Central America and the Caribbean, the city’s influence in the region extends beyond trade, with more than 1,400 multinational corporations having chosen Miami for their headquarters of Latin American operations, including global brands such as AIG, American Airlines, Microsoft and Visa.

With South and Central American business prominent, the local economy is now rebounding strongly and is expected to maintain the momentum it has gained in the wake of the steady recovery seen throughout much of the US. Jobs are a typically good measure of the scale of an upturn, and Miami’s unemployment rate hit a five-year low of 6.5% in March, notably lower than the rates currently seen in New York, Los Angeles, San Francisco and Chicago.


AN INTERNATIONAL DESTINATION

Looking beyond business, Miami has become a haven for the world’s wealthy, who consider it a top destination for both vacation and permanent homes. The Knight Frank Wealth Report ranked the city seventh in its list of most important global cities, making it one of only two North American cities to make the list alongside New York.

This status extends throughout holiday-going demographics. Florida is famous worldwide for its range of vacation destinations, and Miami’s position as the closest large metropolitan area means it benefits greatly from the high levels of tourist traffic coming into the state.

Miami International Airport now accommodates more international arrivals than any US airport other than Washington Dulles International and handled 40 million passengers in 2013 alone, while the city’s cruise ship port has grown into the largest in the nation from its position on the cusp of the ever-popular Caribbean.


MIAMI PROPERTY RIGHT NOW

The collapse of 2008 was felt particularly keenly in Miami, with the market rapidly falling by 51% in a return to its levels of six-years previous. Its turnaround began in 2012, since when prices have surged, rising 16% in the year to February on the back of strong investment from overseas.

The Miami housing market has now seen 27 consecutive months of house price rises, but investors can be confident that the market retains further room for growth, with the market still 35% below its prerecession peak.

IN THE LAST YEAR THE MEDIAN GREATER DOWNTOWN CONDO PRICE HAS RISEN 22%, ALTHOUGH IT REMAINS 30% BENEATH THE CITYWIDE MEDIAN

Such a high ceiling for growth combines with the city’s still low prices to make Miami one of the most attractively priced major cities in the US and beyond – Savills recently ranked Miami residential prices 13% below those in top-tier US cities and 54% below those in the world's top ten cities.

Growth has been particularly pronounced in the greater downtown Miami condo market, where prices are rising faster than in any other part of the city. In the last year the median greater downtown condo price has risen 22%, although it remains 30% beneath the citywide median, strengthening the growing sense that this is Miami’s highest-potential investment area.

Miami is looking strong in terms of rentals too, with the vacancy rate at the end of 2013 down to just 3% – a huge improvement on the 8% rate seen back in 2011. This has coincided with some excellent growth in rental levels, with the median list price rising 22% in the three years to December, representing an annualised rate of 7.4%.

RENTAL YIELDS AT A MEDIAN OF 7.3% SIGNIFICANTLY OUTPERFORM THOSE SEEN IN LOS ANGELES AND NEW YORK

It’s not surprising that rental performance has kept pace with the good showing in the sales market; much like New York and Chicago, Miami is a city of renters, with a homeownership rate of just 34%. All this means the city's median gross rental yields are excellent, reaching a rate of around 7.3% that significantly outperforms the levels being seen in Los Angeles (4.4%) and New York (3.2%).

Beyond the positive situation in the market, Miami property investment has another significant advantage over other popular US markets such as New York in the form of its low tax rates. Although property tax of up to 2.25 % can be slightly higher than New York’s fixed 1.5% rate, this is more than outweighed by significantly lower rates for other taxes through entry, carry and exit, including transfer, capital gains, income and mortgage taxes.


MIAMI PROPERTY GOING FORWARD

Current confidence in Miami can be seen in the vast amount of overseas capital pouring into the city's property market, with foreign buyer demand looking particularly robust. Latin Americans are making 70% of all overseas purchases in Miami, while UK buyers have also become increasingly common at the upper end of the residential market.

The real estate industry itself has also been putting up a strong showing in terms of incoming investment. Developers have been convinced by the stability inherent in a rebound built on equity rather than credit – as of February, 62.5% of all Miami condo purchases were being completed in cash, while most new-build developments are requiring 30-50% deposits during the pre-construction phase.

A REBOUND BUILT ON EQUITY RATHER THAN CREDIT – 62.5% OF ALL MIAMI CONDO PURCHASES ARE BEING COMPLETED IN CASH

This means Miami is currently looking at a swathe of new developments that will increase the city’s housing supply across the next decade. However, this work is very much in response to residential inventory reaching its lowest level in over 14 years, which when taken together with the city's rising demand levels dampens fears of oversupply in the future.

In residential terms, Miami is one of the most significant markets in the US, boasting the nation’s fourth-largest urban area. It’s also the country’s eighth-largest metropolitan area by population, at 5.5 million residents, and is still growing – the city’s population is now increasing at a rate of 3.8% per year, more than double the national average rate of 1.7%.

This growing populace of increasingly economically stable and “ready-to-buy” residents is fuelling rising demand across the city. Wage growth in Miami is at an impressively high 4.2%, far surpassing the national average of 1.9%, and the significant supply/demand imbalance the rapidly improving economic conditions are producing is expected to continue driving market price growth.


RIPE WITH POTENTIAL

As you may have seen in our Global Real Estate Outlook earlier this year, we've been monitoring the situation in Miami closely, and newly released data shows very clearly that the city has continued its upward trajectory over the past six months.

We now consider Miami to have reached a definitive tipping point, with the risk profile in this market now looking very favourable for property investment.

IP Global

Written by IP Global

IP Global’s full-service approach is built on extensive market research and analysis combined with a significant financial commitment to every investment we offer. We are able to manage the entire investment process end-to-end, from sourcing, financing, and management to those all important exit strategies, making investment in real estate as straightforward as investing in more traditional asset classes. Our expertise, experience and strong record have produced over USD2.8 billion in international real estate investments in over 30 markets worldwide.

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