Bloomberg News

Brazilians Buy Miami Condos at a Discount as Real Climbs 45%

June 21, 2011

(Updates with Miami condo sales data in third paragraph, international purchases in fourth.)

June 21 (Bloomberg) -- Frederico Azevedo went to Florida looking for a second home. He left with three, paying $300,000 and $500,000 for condos in two Miami towers, and $1 million for a unit at the Trump International resort in nearby Sunny Isles.

“I bought one to use as a vacation home and the other two as investments,” Azevedo, 39, president of Construtora Altana Ltda, a housing-development company, said in a telephone interview from his office in Sao Paulo. “It’s actually very cheap in Miami compared to here.”

Surging real estate prices in Brazil and the currency’s 45 percent gain against the U.S. dollar since 2008 are sending Brazilians to South Florida in search of bargain vacation homes and property investments. That’s helping bolster Miami’s condo market, with total sales increasing 79 percent in the first five months of 2011 from a year earlier, according to data from the Florida Association of Realtors released today.

In the Miami area, Brazilians bought 9 percent of homes and apartments sold to international buyers in the 12 months through March 2010, behind only Canadians and Venezuelans, according to the Miami Association of Realtors. Since then, “anecdotal evidence certainly points to a significant increase,” said Lynda Fernandez, a spokeswoman for the group. In May, international clients bought about 60 percent of existing houses and condos and 90 percent of newly built homes, the association reported today.

Million-Dollar Sales

As many as half of the downtown Miami condos that have been sold to foreigners for more than $500,000 since January were purchased by Brazilians, said Craig Studnicky, president of International Sales Group LLC, an Aventura, Florida, property- marketing firm. Buyers from Brazil also accounted for about half of sales of more than $1 million in Miami Beach.

Demand from Brazilians is “growing geometrically,” he said. “Next year, it’s clearly going to be the dominating force.”

The Brazilian real’s 45 percent increase against the dollar from the end of 2008 through yesterday is the best performance among 25 emerging-market currencies tracked by Bloomberg. The nation’s economy, Latin America’s biggest, grew 4.2 percent in the year through March 31, compared with U.S. expansion of 2.3 percent.

Pricier Than U.S.

The fastest economic growth in two decades last year and accelerating inflation made Sao Paulo, Rio de Janeiro and Brasilia more expensive than any U.S. city, according to a survey by ECA International, a London-based human-resources company. Brazil’s home prices rose an estimated 25 percent during the 12 months through May, with prices up 44 percent in Rio, Adrian E. Huerta, a JPMorgan Chase & Co. analyst in New York, and Marcelo Motta and Marina Mansur in Sao Paulo, wrote in a June 15 report.

“Are these price increases sustainable?” the analysts wrote. “Well, we are not seeing any deceleration in home price increases yet.”

U.S. housing prices have fallen to 2003 levels as foreclosures depress values and unemployment hovers around 9 percent. Miami-area homes are selling for 51 percent less than their December 2006 peak, according to the S&P/Case-Shiller index. Only Las Vegas and Phoenix had bigger price declines.

In Rio’s exclusive Leblon enclave, near the city’s Ipanema district of bossa nova fame, apartments sell for an average $1,058 a square foot ($11,388 a square meter), according to Sindicato da Habitacao do Rio de Janeiro, or Secovi, the city’s real estate association. In Miami’s South Beach, the average condominium price was $354 a square foot during this year’s first quarter, said Condo Vultures LLC, a Bal Harbour, Florida, real estate brokerage and consulting firm.

‘Other Way Around’

“Five years ago, it was the other way around,” Studnicky said in a phone interview. “Miami was trading for $500 to $1,000 a foot. Rio was trading for $300 to $500. It has absolutely switched.”

Miami real estate agents are learning Portunol, a mix of Portuguese and Spanish that Brazilians can understand, said Peter Zalewski, principal of Condo Vultures. He lost three employees who spoke fluent Portuguese to competitors.

“Other agents stole them because they wanted to tap into the market,” Zalewski said.

Developers built from the ground up and converted apartments to create 49,000 new condominiums east of Interstate 95 in Florida’s Miami-Dade, Broward and Palm Beach counties from 2003 to 2008, riding a speculative bubble that popped when credit dried up.

Fewer for Sale

The number of condos and townhouses available for sale fell to 27,700 as of June 13 from 60,900 in November 2008, after the collapse of credit markets, according to Condo Vultures.

Developers are preparing to build again with their eyes on Latin American buyers. Studnicky’s company announced a joint venture, Related ISG LLC, on June 9 to market new condo developments with Miami-based Related Group of Florida, the state’s largest condo builder.

Related, which was founded by Jorge M. Perez and wrote off $1 billion in losses in 2008, plans to use pre-construction deposits from Latin American buyers, who are accustomed to 50 percent down payments, to finance six projects with 1,500 units, Studnicky said. Building is expected to cost $600 million to $800 million and begin by 2013, he said.

Integra Development

While it may take a few years for U.S. lenders to finance new construction in Miami, Brazilian buyers are taking advantage of today’s opportunities, said Paulo Tavares de Melo, director of real estate for Integra Solutions LLC, a fund for high-net- worth Brazilians to invest in Florida property. Integra paid $12 million in April to develop 3 acres (1.2 hectares) in downtown Miami with permits for as many as 920 apartments and 100,000 square feet (9,300 square meters) of office and retail space.

“The fact is there’s a lot of money in Brazil,” Melo, 37, whose family made its fortune in Brazil’s sugar cane and ethanol industries, said in a telephone interview from Miami, where he has lived since 2001. “There’s more interest here than New York, because of the prices, and the perception that prices have already fallen so much.”

Coelho da Fonseca Empreendimentos Imobiliarios Ltda, a Sao Paulo-based real estate brokerage, created an international division in May, mainly to assist Brazilians buying property in the U.S., especially Miami.

‘Drawn to Miami’

“Brazilians are drawn to Miami by the opportunity to buy property which they can rent the next day, generating income,” Gabriela Duva, director of Coelho da Fonseca’s new division, said in a telephone interview from New York. “Even those buying for leisure also plan to rent while not using their properties.”

Brazil’s government has changed tax rules three times since March 29 to slow the real’s appreciation, which has widened its current account deficit and made U.S. properties less expensive. Brazilians’ enthusiasm for real estate in the U.S. may cool if the currency or property values head in a different direction, said Jose Augusto Pereira Nunes, owner of Miami-based Algebra Realty.

“Brazilians today have the tide and the winds in their favor, the exchange rate being the tide and prices here being the winds,” Nunes, who moved to Florida from Brazil 25 years ago, said in a telephone interview. “If one of these falters, demand will also falter.”

Falling Property Values

U.S. real estate values also may have further to fall, said Robert Shiller, a Yale University economics professor and co- founder of the S&P/Case-Shiller indexes. That suggests that now isn’t the best time to buy.

“A 10 to 25 percent further decline in real home prices over the next, you know, five years, would not surprise me at all,” Shiller said at a June 9 conference in New York.

Miami’s decline in property values has contributed to a projected 2012 municipal deficit of at least $40 million, forcing the city to consider employee pay cuts, layoffs and furloughs, Mayor Tomas Regalado said yesterday.

Over the past nine to 12 months, Brazilians bought as many as a third of the condos sold by Fortune International, said Edgardo Defortuna, chief executive officer of the Miami-based real estate development and marketing company. About 75 percent of purchases at buildings he represents, including the Icon Brickell in Miami, the Jade Ocean in Sunny Isles and the Trump Hollywood in Hollywood, Florida, are all-cash deals to buyers from outside the U.S., he said.

Make a Profit

While many Latin Americans invest in Florida as a haven from social and economic uncertainty, Brazilians come to enjoy themselves and, perhaps, make a profit, said Defortuna, a native of Argentina.

“When I talk to Brazilian people, they are buying for the right reasons,” he said in a phone interview. “It’s not only because they have money now, but because they think they’re going to continue to make money next year and the year after.”

Fortune International is marketing about 1,000 condos and will add 350 more by September, Defortuna said. He is working with brokers in Sao Paulo, Brazil’s largest city, and Brasilia, the capital. To make those clients feel more at home, Defortuna offers a line of condos with furnishings from Artefacto, a Sao Paulo-based furniture maker with two Florida stores.

“Everybody who makes a little money buys in Florida,” Paulo Bacchi, co-owner of Artefacto, said in a telephone interview from Miami. “Some came to buy a vacation home. Some are buying 10 units for an investment. They’re buying because the only way prices can go is up. They’re betting on Florida.”

Close to Shopping

In addition to the beach proximity, Brazilians want condos near the shopping malls of Aventura and Bal Harbour, where they buy watches, designer clothing and perfumes at prices that are a relative bargain, Bacchi said. They also feel more free to flaunt their wealth in Florida because it has a lower crime rate than most Brazilian cities, he said.

“They come here and enjoy their wealth, enjoy life without the issue of being robbed,” Bacchi said. “The basic worry in Miami is, don’t forget to use your sunscreen.”

Brazilians overtook Canadians as the foreign group spending the most tourist dollars in Miami last year, according to the Greater Miami Convention & Visitors Bureau. They spent an estimated $1.14 billion in the Miami-Dade area on hotels, restaurants, entertainment and shopping, compared with $840.9 million by Canadians, according to the bureau. That equates to $2,053 per Brazilian visitor, compared with $1,432 per Canadian.

Auto-Racing Sideline

Cristiano Piquet, 33, started selling homes in Miami in 2005 as a sideline to an auto-racing career. He now works with 50 brokers, catering mostly to buyers from his native Brazil. He likes to take clients in his four-seat Cessna seaplane, offering bird’s-eye views of Miami’s high-rise condos and beaches while making his sales pitch.

“Brazilians are buying prime real estate, especially on the water,” Piquet, who races Porsche GT3 series cars, said in a telephone interview. “They pay $1 million for vacation homes, all cash.”

One of Piquet’s clients is Azevedo, who said he plans to stay at his $1 million unit at the Trump International Beach Resort in Sunny Isles, 20 miles (32 kilometers) north of Miami, about four times a year, and rent out the two condos in Miami, at the Vizcayne and Icon Brickell towers. Miami, an eight-hour flight north of the equator from Sao Paulo, offers warm weather during Brazil’s winter and an escape from its sweltering summers in Florida’s cooler months, he said.

“There’s the weather and the beach,” Azevedo said. “It’s one of the closest places you can fly from Sao Paulo outside of South America.”

More Direct Flights

Direct flights between Brazil and Miami International Airport have increased to 114 a week from 96 in 2009, said Greg Chin, spokesman for the Miami-Dade Aviation Department. AMR Corp.’s American Airlines flies from Miami to Rio, Sao Paolo, Recife, Brasilia and Belo Horizonte, Brazil. Tam SA, a Brazilian airline, links Miami with Rio, Sao Paulo, Brasilia, Belo Horizonte and Manaus.

Azevedo, whose company develops affordable housing in Brazil, bought his Florida condos with 50 percent cash down payments and financed the balance with 4.75 percent interest rate mortgages. Similar condos are selling today for 10 percent to 15 percent more than he paid in December, Azevedo said. He’s not worried about losing money.

“If you buy similar units in Brazil, you’d pay double the price and double the interest rates,” he said. “So that’s why it’s such a good deal.”

--With assistance from Simone Baribeau in Miami. Editors: Daniel Taub, Christine Maurus

To contact the reporters on this story: John Gittelsohn in New York at johngitt@bloomberg.net; Jose Sergio Osse in Sao Paulo at josse1@bloomberg.net

To contact the editors responsible for this story: Kara Wetzel at kwetzel@bloomberg.net; Francisco Marcelino at mdeoliveira@bloomberg.net


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