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Global investors drive Miami real estate market

Posted by Rosi Arriaga on 23 August, 2021

In every bullish real estate cycle there comes a point when prospective buyers face the same questions — Is it the right time to buy? If I buy — now, will I get a deal before prices get even higher or is the market going to reset? How should I time the market? How can I time the market to reap the greatest return? Will interest rates drop further or financing options improve? What can I even afford, and what’s the best way to structure a deal for my larger portfolio?

This dilemma is especially challenging for international buyers interested in purchasing a second home or rental property in the United States. For generations, wealthy Latin American buyers concerned about currency devaluation or political or social instability in their home countries have purchased investment-grade properties in the U.S. as a bulwark against uncertainty.

This current market is no different. Well before the pandemic and now that American society is emerging from it, the bull run of the U.S. residential and commercial real estate markets show little sign of slowing.

Should I time the market?

While economists and real estate professionals have no way of definitively forecasting the market, some suspect Miami and South Florida’s real estate prices are too high and a correction may be coming. However, few believe it will resemble the crash of 2008-2009 and the Great Recession, where homes lost significant value and sellers flooded the market. Renewed migration to Florida spurred by the pandemic is bringing upward of 1,000 individuals and countless corporate relocations to the state each day.* Economists believe that trend will evolve into a permanent reality; those who moved here for what they thought was a temporary escape from Covid will take residency. And more will follow.

Some also believe that any correction will see home values remain stable; only the escalation in values will flatten.

This leaves buyers to weigh their options. High-net-worth investors with the cash on hand to buy outright a home ranging from $1 million to $5 million must consider whether a cash buy would be more advantageous than securing a 50% to 70% loan. Only the investor and their financial advisors, when working with the latest figures and market realities, know what is best for their unique circumstances.

To be sure, low interest rates continue to drive the market, with the effective Federal Funds Rate at 0.06% (as of mid-June), well below the long-term average of 4.68% and an interest rate of 3.07% for a 30-year fixed-rate mortgage for domestic borrowers; the average rate for a 15-year, fixed mortgage is 2.35%.

With Covid subsiding, research from Banesco USA finds that even if the Fed raises rates, high-net-worth borrowers may weigh the investment value of U.S. properties and decide the value remains. The strain it put on the international buyer market is fading. While Covid fueled arguably what became “the region’s most prolific residential real estate markets,” layer atop the region’s role as a growing global hub for fintech, healthtech and multinational enterprise, and “South Florida’s global appeal has an extremely bright future,” notes Berkshire Hathaway Home Services.

South Florida’s current real estate market is an exercise in supply and demand. As demand rises in the residential sector, inventory of available luxury single-family and condominium properties continues to remain near historic lows. High-net-worth individuals, including business owners, financiers and hedge-fund heads and executive-level transplants are competing for these properties. This presents an additional challenge for international and especially Latin American buyers looking to find the right property as a primary residence, a second home or an investment-grade rental.

The Miami luxury market snapshot

From August 2019 to July 2020, foreign buyer purchases of existing single-family and condominiums/co-ops in Florida was $15.6 billion, a slight decline from the year prior but still accounting for 11% of total dollar volume of Florida existing home sales, notes the National Association of Realtors and Florida Realtors. Foreign buyer purchases were 8% of Florida’s existing home sales; nationally, foreign home buyer purchases comprised 3% of all existing home sales, according to the report.

According to statistics from the South Florida Sun-Sentinel, luxury single-family sales by regional brokerage The Keyes Co. hit 1,786 in first quarter 2021, from 826 the same period last year. More compelling, average closing prices went from $2.55 million to $3.06 million, or a 20.1% increase. Cash sales during that period went from 460 to 1,043. New contracts for million-dollar-plus houses in Miami-Dade County in November were up 54% over last year, according to brokerage Douglas Elliman and appraisal firm Miller Samuel.

Mortgage options for foreign buyers

This leaves domestic and international high-net-worth buyers and investors alike well positioned to capitalize on a strong real estate investment market. However, a prevailing misperception among some foreign-born, non-American citizens living in the U.S. is that they do not qualify for traditional mortgages. Not only is this incorrect in most circumstances, the National Association of Realtors’ and Florida Realtors’ 2020 Profile of International Activity in U.S. Residential Real Estate reported that 64% of resident foreign buyers acquired mortgage financing from U.S. sources.

International buyers fall into two categories. They are either non-resident foreigners, or non-U.S. citizens with permanent residences outside the U.S. who generally purchase property as an investment or a vacation property and tend to visit for less than six months a year, notes the NAR. The other category are resident foreigners or non-U.S. citizens. These recent immigrants typically have been stateside up to two years, or are professional, educational, or other valid visa holders.

These buyers turn to foreign national loans. With their passport or visa, an employer’s or accountant’s letter verifying the applicant’s income, as well as proof of funds bank statements or a reference letter indicating the proceeds are available. Like many such transactions, cash, personal checks, money orders or cashier’s checks are not accepted for the transaction. At the time of closing, foreign buyers must wire funds from their bank to the closing agent’s bank. Non-U.S. citizens without lawful residency here are not eligible for Fannie Mae, Freddie Mac or FHA home loans.

As restrictions on foreign travel loosen, rates remain at historic lows, and Miami’s place in the global spotlight glows, some forecast the second half of 2021 will see more Latin American buyers turn their sights to Miami with traditional financial models available to most U.S. buyers also available to them.

*According to Banesco USA.

By Luis Grau – SVP, Head of Residential Lending, Banesco USA
SO. FL Business Journal

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