The US economy continues to show positive signs of growth following the global financial crisis. Over the last few years I have been watching this closely and focused on locations where I expect the real estate market to bounce back, due to strong economic data as well as the geography.
In 2009, I started to invest into New York. At this time, the property market as a whole was 27 per cent down (residential property) from the highs of late 2007. Just as the prices started to increase I jumped on the bandwagon and started investing into New York myself.
The main drivers were plenty. New York is a fantastic city with low unemployment levels and the people living and working there are the highest earners in the whole of America – surely the prices had to bounce back?
Sure enough, as we now draw closer to the end of Q2-2014, prices for property in New York have now reached record-breaking heights. Property has never been so expensive and with very limited supply coming into the market, this will only continue.
I have used New York as an example of a city where property prices had to rebound, and another city I believe is now in the same position as New York was five years ago is Miami.
Miami is a fascinating place to visit — so much vibrancy, glitz and glamour but, more importantly, it has extremely strong fundamentals to make this a property market worth paying serious attention to. Miami has one of the lowest unemployment levels in the whole of the US — lower than New York, Los Angeles and San Francisco to name just a few — and has a high median household income.
When investing into property in a certain location, you should always consider two things — who is your tenant and who is your buyer should you wish to sell? In Miami, you have a buoyant and affordable rental market as well as a healthy domestic homeowner sales market, highlighting your exit should you wish to sell.
Due to the location of Miami, it has been renowned for years as the gateway to Latin America and, due to its low taxation and business-friendly regulatory environment, Miami attracts many multinational companies setting up their headquarters and accounts for no less than 33 per cent of the whole of the US-Latin America trade.
What I really like about Miami most of all is the fact that the residential property market has only just started its rebound and prices today are still 35 per cent lower than the late-2007 peaks. This reminds me a lot of 2009 when entering the New York market and, whilst the fundamentals are similar, the entry level into property in Miami is now almost 75 per cent lower than in New York.
With prices 35 per cent below their peak and their strong economic fundamentals, I really do see Miami as fantastic value and believe that in the next four years we will see new highs in the residential property market.
Miami’s population is also increasing at a rate that’s more than double the US national average – around 4 per cent per annum – another fantastic statistic to give people confidence that there will also be a direct requirement for properties, both on the rental and homeowner markets.
The rental yield on properties are also some of the highest in the whole of the US, with real gross yields running close to 7 per cent and, with an ever decreasing vacancy rate, now is a good time to enter. Interest rates are also very favourable in the US, and this extremely low cost of borrowing makes Miami all the more attractive.
Banks are willing to lend foreign investors up to 60 per cent of the property prices with mortgage rates around 3.5 per cent. Like in any market place, you need to play close attention to certain areas. Some areas will always appreciate more than others due to varying factors such as future government or private spending or improved transport links, etc.
My advice is make sure you look at all aspects and associated costs of your investment both in the short and long term. These should include the cost of ownership and taxation charges as all these extra costs can take the upside away from any gain you may make on your property investment.
— The writer is the head of IP Global.
