What Happened to the Latin American Cash in South Florida Real Estate?

Published: Feb 12, 2015

Once, not long ago, Latin American investors were the saviors of South Florida real estate.

 

Saddled with capital they feared would lose value in their own countries, these buyers poured millions of dollars into a U.S. safe haven—distressed commercial and residential property ready to be scooped up in foreclosures, short sales or at historically low prices as the real estate market collapse leveled Florida’s economy.

 

But now the tables are turning as economic volatility sweeps across Latin America, stemming the flow of cash-rich investors ready to pay cash for 90 percent of their U.S. transactions.

“New money is coming in but at a slower rate,” said Tony Villamil, principal and economic adviser at the Washington Economics Group Inc. in Coral Gables. “It’s already impacted real estate, but we’re not going to see the full impact for the next couple of years.”

 

Four years ago, Venezuelan buyers ranked top among foreign nationals investing in Miami real estate, accounting for 28 percent of international buyers, according to the Miami Association of Realtors. By 2014, their buying power slipped, maintaining the top spot but representing only 16 percent of international sales.

 

The decline in Latin American transactions, coupled with rising South Florida real estate prices, had a domino effect, contributing to a double-digit drop in total cash sales.

 

In Broward County, for instance, cash deals plunged 22 percent last November to 368 sales of single-family homes compared with 473 a year earlier.

 

While the Miami metropolitan area benefited most from the influx of motivated buyers who funded its real estate resurgence, analysts say crippling slowdowns in Latin America might soon take their toll.

Buyers paid cash in 2013 to purchase about 60 percent of all property sold in the city’s busiest markets, fueling more than 42 percent of single-family home sales and nearly 74 percent of condominium closings.

 

But among Latin American buyers, mounting economic problems have since quelled investor appetite. Foreign currency controls, rising inflation, challenges with airlift as American Airlines and other major carriers restrict service, recessionary conditions in Argentina and growing external debt have stemmed the flow of capital from the region and shrunk its annual economic growth projections to 3 percent from 5 percent in 2013.

 

Among the hardest hit is Brazil, a key market for South Florida real estate. Last year, its buyers ranked third among international investors in Miami and fifth in Broward County. But falling oil prices, high-level political corruption scandals, drought, a growing fiscal deficit, lavish spending to host the 2014 World Cup and new taxes have crippled private sector growth.

 

“The outlook for Latin America overall is mixed, but it’s not as good as the 2012-2014 period,” Villamil said. “That has an impact on the ability of Brazilians, Argentinians or Venezuelans to come here, buy real estate or just visit Florida.”

 

Wealth Buffer

But not all investors will feel the squeeze.

 

“We still have a lot of affluent buyers who buy here out of affluence,” said Lynda Fernandez, spokeswoman for the Miami Association of Realtors. “That doesn’t necessarily change if the situation in their country changes.”

 

Wealthy Argentinians helped increase their country’s share of the foreign investment pool in Miami real estate. In 2014, Argentinian buyers accounted for 12 percent of the market, up from 8 percent in 2010.

 

Drawn by proximity and cultural affinity to Miami-Dade County, these buyers still account for thousands of real estate transactions each year, contributing to a nearly 9 percent spike in the median sales price of single-family homes, which rose from $225,000 in 2013 to $245,000 last year.

 

“We’re not seeing less interest from Latin America investors,” Fernandez said. “We’re still less expensive than a lot of major cities in Latin America. If anything, the interest in our city from Latin American and other international buyers just seems to grow.”

 

But Villamil said the data point to a new economic driver for South Florida real estate—and one closer to home.

 

“The South American market is not there like it used to be. That’s really the bottom line,” he said. “Most of the activity will be internal in terms of what we do here in the U.S. economy. A lot will depend on U.S. equity funds and domestic buyers, but the business climate for real estate is positive. Interest rates are low, energy prices are low and payroll is growing in South Florida. That’s a good mix.”