by miamirealestateinvest April 8, 2015

Miami Real Estate Market Analysis Report — 2013 Q4

Miami Real Estate Market Overview

As a result of the subprime mortgage meltdown that started in the first quarter of 2008, the average selling price of Miami real estate dropped dramatically. The average price decrease was more than 50% until the housing market reached the bottom in 2010.However, the Miami real estate market has been improving since 2011. According to the S&P/Case-Shiller index, the average price increase for the Miami real estate market is10.08% higher than the national average.
The housing market is continuing to produce heavy sales volume. The number of real estate transactions is increasing while the inventory level of properties available for sale has declined. All price indicators continued to show double-digit year-over-year increases. Cash buyers continued to dominate the market making up 63.5% of the overall sales activity. The significant amount of cash buyers suggests that another real estate bubble is not foreseen thus providing a healthier market environment for investors.
Based on research by a leading independent U.S. real estate research company, in the second quarter of 2013 the total number sales transactions reached 6,416, an increase of 15.4% compared to the second quarter of 2012. It is the highest quarterly increase for the past eight years. For the same period, the average contract price increased significantly reaching US$ 453,556, an increase of 13.5% compared to the same quarter last year, which is the largest increase since the third quarter of 2008. Miami is no longer a slowly recovering city but now an international destination for investors as it successfully transforms into a first-tier Global City.

Figure 1: Miami real estate average contract price and total volume of transactions from 2006-2013

International Investment Projects in Miami
Miami currently has more than 60 pre-construction condo projects in the pipeline of which 90% are luxury condominiums with ocean views. In the financial center and downtown of Miami alone approximately U.S. $10 billion will be invested in residential and commercial projects in the near term. The amount of development projects in Miami far exceeds the level of new development of any other city in the United States. Some of the world class projects currently under construction having a significant impact for Miami are the Panama Canal expansion project, the Brickell, CitiCentre project by Hongkong company Swire Properties and the Resorts World Miami project by the Malaysian company Genting Group.

Panama Canal Expansion Project
Miami is a major transport hub connecting North and South American cities. Also, because of Miami’s unique location, the Port of Miami connects with more than 250 ports around the world in more than one hundred countries providing transportation services placing the Port of Miami one of the top ports in the world. With a planned completion date of early 2015, the Panama Canal expansion project will make an already thriving Port of Miami even busier and more important.
In order to prepare for the Panama Canal expansion project, Miami is constructing a new tunnel beneath the port and also deepening the port. Around 33,000 jobs will be created. Once the expansion project is completed in 2015, the Port of Miami will become one of the only ports on the east coast of the U.S. able to receive the largest world-class super freighters resulting in almost doubling the amount of shipments coming into the port.
This project will have a direct and significant impact on International trade in Miami generating growth in the transport and logistics, financial services, banking and insurance sectors creating an estimated U.S. $34 billion economic benefit for Miami. More importantly, because Miami is one the closest international ports to the Panama Canal, the Port of Miami will celebrate a new chapter in international trade with the Asian countries, especially China. With the new trade routes and increased trade traffic between the U.S. and Asia, more international companies, business people and investors will choose Miami as their preferred business and investment destination.

Figure 2: International Liner Services through the Panama Canal

Brickell CitiCentre
Brickell, Miami’s financial center also known as the “Manhattan in the South”, is home to the headquarters of many multinational companies, international and domestic banks, upscale hotels and luxury condos with magnificent ocean views. The real estate property in Brickell, which is adjacent to Biscayne Bay, is one of Miami’s best property markets for appreciation.
Brickell CitiCentre, a Swire Group project, is strategically located in the center of the Brickell financial district. This massive four-block development is one of the Swire Group’s biggest development projects. Brickell CityCentre is mixed-use development, including retail space of 48,308 square meters, Class A office space of 11,148 square meters, 800 condominium units and a hotel with 243 rooms. Expected to complete in mid 2015, Miami will gain 6,200 jobs and benefit from U.S. $ 1 billion in economic gains.
For more than 40 years, Swire Properties has built projects that have transformed neighborhoods and city centers throughout the world into vibrant places where people live, work and play. As one of Asia’s leading conglomerates, Swire Group recognizes Miami’s potential growth evidenced by this Brickell CitiCentre project. A number of other large investment and development projects are either started or planned by developers with the same long-term vision as the Swire Group. The pipeline of these new development projects is creating an environment in which real estate values will increase beyond previous levels providing for superior investment opportunities.

Figure 3: Brickell CitiCentre Exterior Rendering

Resorts World Miami
In Malaysia, Singapore, New York and London, Genting’s resorts have establishes the leading landmarks in the area. Headquartered in Malaysia, Genting Group is the world’s leading leisure, entertainment, gaming, tourism and hospitality giant. In September 2013 the Group’s market capitalization reached U.S. $38 billion.
In 2011, Genting Group acquired 120,000 square meters land of prime Downtown Miami properties with $450 million, which including the Hilton hotel and the landmark Miami Herald building on Biscayne Bay. Genting plans to invest U.S. $3 billion for its world-class resort in Miami including four hotels with 5,200 rooms, two infinite ocean view condominium with 1,000 units, 50 restaurants and bars, 60 high-end retail shops and cinemas, interactive museum, casino and a 3.6 acre artificial beach pool. This leisure and entertainment resort project is expected to create 45,000 jobs directly and indirectly. Thousands of tourists will come annually to enjoy this world-class leisure and entertainment resort. The impact to Downtown Miami commercial and residential real estate property values should not be underestimated.

Figure 4: Resorts World Miami Exterior Rendering

Miami’s Price Advantage
According to the Knight Frank Wealth Report 2013 in a study of 15,000 high net worth individuals (HNWIs) it showed that Miami will be ranked in the same category with Singapore, New York, Hong Kong and other elite cities and for the next 10 years, Miami will be one of the most important international real estate investment destinations. Also, In 2013 the International Index of Foreign Direct Investment (FDI Intelligence) named Miami and New York as North America’s most popular destinations for inward investment.
It is clear that Miami is experiencing a major shift from a second-tier desirable winter home destination to its new role as a first-tier Global City. Because of this new status as a first-tier Global City, investors are betting on Miami’s continuous long-term future growth making it one of the best investment location choices.
Most importantly, there is a significant property price gap between Miami and the other first-tier Global Cities. When comparing the average price per square foot of condos in the first-tier cities Miami’s average property price is only 63% of the price in Beijing, 46% of the price in London and only around 25% of the price in Hong Kong. Miami is transforming into a true international global city but the real estate property price is much lower than property prices on a comparable basis than the other Global Cities giving investors a significant opportunity to obtain continuous accelerating appreciation over the long-term. Because of Miami’s rapid transformation into a first-tier Global City, Miami should experience a higher level of price appreciation over the long-term as this “price gap” is filled.

Figure 5: Comparison of Condo Average Price among Global Cities

Also, Miami’s real estate prices should continue to increase as long as the other first-tier Global Cities’property prices increase which is dependent on the overall global economic condition and the expectations of international investors. Both of these reasons create an environment for superior property price appreciation.
Combining Miami’s new role as a transforming first-tier Global City along with the direct real estate property benefits from massive world-class projects such as the Panama Canal expansion, property prices in Miami should surpass it’s historical high prices. As Miami continues its transformation into one of the true global elite cities, more and more real estate investors will and continue to consider Miami as one of their top investment destination choices.
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