WHY FLORIDA?
THE MIAMI HERALD
Agost 2008
Terri Bersach and CRB, CRS
Martha Pomares and ABR, CIPS, CRS, E-PRO, GRI, TRC
FLORIDA: STILL NO. 1 FOR INTERNATIONAL BUYERS
Florida is by far the top state in the U.S. for international real estate buyers, according to the 2008 National Association of Realtors (NAR) Profile of International Home Buying Activity.
Nationally, this year’s survey indicates more than a quarter of Realtors in the U.S. had at least one international client between May 2007 and May 2008.
“Considering South Florida’s position as an international gateway, the percentage of international buyers in Miami and the surrounding areas would be much higher in the Greater Miami area”, said Terri Bersach, 2008 RAMB Residential President.
According to the survey, more than 50 percent of those who did have international clients had successful home sale transactions with those customers. While two-thirds of Realtors reported their international clientele accounted for about the same level of business during the past five years, 25 percent indicated their international business had increased. And even though the percentage of Realtors serving foreign clients has decreased nationally, international transactions accounted for a median 16 percent of total transactions. Again this percentage would be significantly higher in Southeast Florida.
For the purposes of this survey, a foreign (or international) home buyer is defined as one who principally resides outside the U.S. and is not classified as a foreign-born resident of the U.S. These buyers are not U.S. citizens, immigrants, foreign students or workers on temporary visas.
Region and Country of Origin
Similar to results from last year’s survey, most foreign home buyers were permanent residents in North America (Canada and Mexico) or Europe.
While the share of buyers increased nearly 10 percent during the same time period.
Six countries accounted for the majority of international purchasers: Canada, the United Kingdom, Mexico, China, India and Germany. The percentage of Canadian buyers doubled from 2007 to 2008.
Canada and the U.K. accounted for 36.1 percent of purchasers. Mexico dropped to third place in 2008 versus first place in 2007.
Slightly more than 60 percent of properties purchased by Canadians were in Florida and Arizona.
The majority of properties purchased by those from the United Kingdom and Germany were also in Florida. Chinese foreign purchases were primarily in California and Florida. More than half of Mexican foreign transactions were for properties in Texas and California. Although the study did not include specific information about buyers in South Florida, Miami and its surrounding areas are known as the most international area in the United States, attracting numerous visitors, tourists and real estate buyers worldwide.
“We are seeing a strong presence in our area form markets such as Russia, Brazil, France, Spain, Venezuela and other important markets”, said Martha Pomares, 2009 RAMB Residential President.
A great majority -- 25.4 percent – of international buyers chose Florida. California ranked second at 8.9 percent, while Arizona and Texas ranked third and fourth at 8.7 percent and 6.8 percent respectively. As major U.S. gateways with mild climates, Florida, California, and Texas are expected to draw large numbers of international buyers. In regards to U.S. regions, foreign buyers predominantly purchased property in the South (46.8 percent) and the West (30 percent). The study covered the period from May 2007 to May 2008.
The level of international business differed significantly in the top four states. More than two-thirds of Florida Realtors indicated they had some foreign customers. In Arizona, only half of the Realtors had some foreign clients, and in California and Texas the percentage was much lower.
Additionally, most of the foreign clientele in Florida and Arizona actually purchased property.
While the choice of state location and regional location differed by the buyers’ continent or country of origin, Florida was ranked first or second for most foreign regions or continents. Florida was first for buyers from North America, Europe and Latin America, and second for Asia.
THE MIAMI HERALD
Agost 2008
Kimberly A. Kirschner and CIPS
Maurice “Moe” J. Veissi
INTERNATIONAL BUYERS IN FLORIDA AND THE UNITED STATES
It’s no surprise that most foreign buyers choose Florida when buying real estate in the U.S.
Considering the global allure of Miami and South Florida, it is apparent that the majority of international buyers are concentrated in the local area.
“South Florida has something for everyone”, said Kim Kirschner, 2008 RAMB Chairman of the Board. “Miami has tremendous international appeal, warm weather, a strategic location between Europe and Latin America, an exciting lifestyle, and a great place to do business”.
According to the most recent study conducted by the National Association of Realtors, more international buyers again ranked Florida the number one destination in the nation for international buyers, cementing South Florida’s strategic position in the global marketplace. While international buying activity has decreased some, sales to foreign buyers represent a significant percentage of Realtor business, especially in South Florida.
International buyers in the U.S. prefer Florida, mostly originate from North America or Europe, and buy primarily single-family homes. The median price foreign buyers paid for a home between May 2007 and May 2008 is $294,500, an amount that is greater than the U.S. national average but lower than the median sales price in the Miami metropolitan statistical area.
Types of Properties Purchased
According to the study, foreign home buyers are buying the same type of properties as U.S. buyers. Nationally, detached single-family homes were the most popular choice among international buyers, accounting for three quarters of purchases. Slightly less than 20 percent of foreigners bought a condominium/apartment, and six percent purchased a town-home. Together, townhouses and condominiums accounted for 27 percent of international compared to 12.6 percent in 2007. The percentage of international buyers choosing condos would be much higher in Southeast Florida.
About half of foreign buyers paid $300,000 or less for their U.S. property. Similar to last year’s survey results, 14 percent of foreign home buyers paid more than $750,000 for their U.S. property.
Foreign Retirees
“Baby boomers are the largest and wealthiest generation in history. Approximately 80 million baby boomers are expected to retire over the next 20 years and many are expected to choose housing markets in warm areas like Miami and South Florida, which also offer great opportunities for additional real estate investment”, said Maurice “Moe” Veissi, 2008 RAMB President.
Wealthy foreign baby boomers are also looking for a piece of the American Dream. Owning property in the U.S. is considered a status symbol.
According to last year’s survey, 34 percent of Realtors felt that foreign retirees may represent a significant potential market for buyers of U.S. real estate.
For the most part, Realtors who actually had international clientele see opportunities to increase the share of foreign home buyers in their market. Florida Realtors who have foreign clients are most likely to see future potential in their market among foreign retirees.
Reasons Why International clients did not Purchase Property (percent of Realtors responding):
- Cost of property – 54%
- Property taxes –24.2%
- Insurance cost – 12.0%
- Exposure to U.S. tax laws – 17.4%
- Immigration laws which prevent foreigners from living in U.S. continuously year around – 27.4%
- Loss of home country benefits – 4.3%
Other issues impacting foreign purchases of U.S. property include affordability, family connections, local attraction, immigration policy, barriers to purchasing U.S. property and mortgage financing availability. Additionally, some international clients moved temporarily to the U.S: for jobs, business opportunities or for better education for their children and would be looking for primary residences as oppose to vacation and second homes.
HOW MUCH DO YOU KNOW?
Top 50 facts and figures about South Florida
Cultures, Entertainment and Performing Arts
1. Miami is home to dozens of entertainment venues, theaters, museums, and performing arts centers, hosting international arts events, film festivals and book fairs.
2. Miami is a major fashion center, home to some of the top modeling agencies in the world, and fashion shows such as the annual Miami Fashion Week and Mercedes-Benz Fashion Week Miami.
3. There are more than 2.400 motion picture and video businesses, along with photography, television, cable networks and a thriving music industry.
International City
4. Miami is known as the “Capital of the Americas” and “Gateway to the Americas.”
5. Miami hosts 11 million visitors annually – including over 5 million international visitors – generating nearly $14 billion in revenues and 100,000 leisure and hospitality jobs.
6. In Miami-Dade County, 50.9% of residents were born outside the United States, and 67.9 of the population speaks a language other than English at home.
7. Miami is home to 150 ethnicities and 60+ languages.
Global Business Center
8. There are more than 100 international consulates, trade offices and bi-national chambers of commerce in Miami-Dade County that support the worldwide flow of goods and services.
9. Miami-Dade has 5,553 companies specializing in leisure and hospitality, employing more than 101,500 people.
10. There is no state or local income tax.
Lifestyle & Weather
11. South Florida enjoys an average temperature of 75°F (23°C).
12. Miami-Dade has 84 miles of Atlantic Ocean coastline, 15+ miles of beaches and 67 square miles of inland waterways.
13. Miami-Dade County has six public golf courses, 504 tennis courts and 181 handball / racquetball.
14. Most overnight visitors (48%) say the thing they like most is the weather, followed by the beaches, the international ambiance, and the nightlife.
World Aviation Hub
15. Miami is a world aviation hub connecting North and South American, the Caribbean and Europe, handling 34.1 million passengers in 2008.
16. More than 80 airlines connect Miami International Airport to nearly 140 domestic and international destinations.
17. Private aircraft owners and travelers benefit from three general aviation facilities in Miami-Dade County.
18. MIA ranks #1 for international freight in the U.S., with 1.95 million tons in 2008.
19. MIA is the second busiest hub airport for American Airlines, one of the world’s largest passenger air carries.
Port of Miami
20. Miami is the cruise capital of the world, with over 4.1 million cruise passengers a year.
21. 250 seaports are served and 7.43 million tons of sea cargo transported.
22. China leads imports at the Port of Miami, followed by Honduras, Germany, Hong Kong, and Brazil.
23. The port boasts an economic impact of $18 billion and more than 150,000 jobs.
Sports and Recreation
24. South Florida has year-round recreational and sporting activities, including soccer, cricket, handball, football, hockey, baseball, snorkeling, diving, jet skiing, boating, sailing, fishing, golf and tennis championships, marathons charity walks, horse racing, greyhound racing and Jai-Alai.
25. Miami is the “Wreckreational” Diving Capital of the World, with over 50 diveable wreck sites.
26. The Homestead-Miami Speedway hosts Grand Prix, Indy and NASCAR races.
27. The area is home to three major professional sports franchises – Miami Dolphins, Florida Marlins, Miami Heat.
28. Miami-Dade County has more than 800 parks, recreational areas, and nature centers with great beaches, golf courses, bicycle and walking paths, bays and lagoons.
Schools, Universities & Hospitals
29. The Miami-Dade public school district is the fourth largest in the nation; there are five colleges and universities, and three law schools.
30. Florida International University enjoys the highest ranking classification by the Carnegie Foundation for the Advancement of Teaching as a Doctoral/Research University.
31. Recognized as a Carnegie I Research University, the University of Miami is the largest, most comprehensive private research university in the southeastern United States, and holds a well-earned academic and athletic reputation.
32. Miami Dade College is nationally recognized as one of the largest and best community colleges in the country.
33. The total approximate college-university student enrollment in the county in 2006 was about 245,000, one of the largest in the U.S.
34. There are 33 hospitals in Miami-Dade County.
35. Miami Children’s Hospital is rated the top pediatric hospital in the country.
Top Rankings
36. Miami has the largest concentration of international banks in the United States.
37. Miami’s skyline ranks third in the U.S. behind New York City and Chicago, and 18th in the world (Almanac of Architecture and Design).
38. In 2008, Miami ranked as “America’s Cleanest City” (Forbes Magazine).
39. In a 2008 UBS study, Miami was ranked the third-richest city in the United States and the world’s 22nd-richest city.
40. Miami is the only major city in the United States bordered by two national parks, Everglades National Park on the west, and Biscayne National Park on the east.
41. South Beach is continually ranked one of “Americas Best Beaches”.
42. Miami was named the “Top City for Hispanics to Live” (Hispanic Magazine).
43. Miami is one of the “Top 15 Cities Most People Would Like to Live” (Harris Poll Interactive, 2007).
44. Miami was named one of “America’s 50 Hottest Cities for Relocations and Expansion” (Expansion Management Magazine).
45. It was voted the “Best U.S. Metropolitan Area for Small Businesses” (Bizjournals.com).
Demographics
46. The median age in South Florida is 36
47. Miami is the most populous city in Florida, with an estimated population in 2007 of 409,719.
48. The Miami metropolitan area is the 7th-largest metro area in the United States, with more than 5.4 million residents.
49. The United Nations estimated in 2007 that Miami was the 4th largest urbanized area in the United States, behind New York City, Los Angeles, and Chicago.
50. There are 11,842 waterfront properties currently for sale in Miami-Dade County.
Sources: Beacon Council, City of Miami, Greater Miami Convention & Visitors Bureau, Miami-Dade County, Miami-Dade County Public Schools, Miami Fashion Week, Miami International Airport, Port of Miami, RAMB, U.S. Census.
HOW DO WE GET OUT OF THIS MESS? ENDING EXPOSURE TO ESTATE TAX FOR FOREIGN PURCHASERS WHO OWN UNITED STATES REAL ESTATE IN PERSONAL NAMES
Proper planning when a foreign considers the purchase United States real estate is essential because how title is taken determines whether the property will be subject to federal and state estate tax upon the death of foreign owner (hereinafter “FO”). This concern applies whether title is taken in an individual’s sole name or jointly with another person including a spouse. In our law firm we often see new foreign clients who have already purchased United States real estate which has appreciated substantially in value. We also see surviving spouses or family members of a deceased FO for whom we must handle (1) filing federal and state estate tax returns, (2) payment of estate tax, and (3) if the decedent owned the property in individual name, an ancillary or initial probate administration. When the FO is still alive, there may be a number of viable options available to minimize or avoid the exposure to estate tax and probate. When the FO is already deceased, there are very limited options depending upon the circumstances.
According to the Internal Revenue Code, the estates of nonresident aliens (referred herein as “foreigners”) are subject to estate tax on their United States situs assets. Such assets include, but are not limited to, United States real property, stock in corporations and other entities formed in the United States, and interests in assets previously transferred if the foreign transferor has retained a right to beneficial enjoyment or income. While the estates of residents and citizens of the United States enjoy a current unified credit of US$1,500,000, unless the estate of the foreign decedent qualifies for different treatment under an applicable estate tax treaty, the exempt amount will only be US$60,000. United States assets left to a non-United States citizen surviving spouse will not qualify for the unlimited marital deduction unless they instead transferred to a qualified domestic trust (“QDOT”). Indebtedness represented by a mortgage on the real property will not be deductible in determining its taxable amount unless (1) the mortgage in nonrecourse – not very common, or (2) a proration of values of United States and worldwide assets is taken to determine the applicable percentage of allowable deduction - - also not very common as most beneficiaries of many foreign decedents prefer to avoid disclosure of worldwide assets to the IRS.
While minimizing or avoiding exposure to estate tax is extremely important, current and future income tax consequences of alternatives must also be taken into account before deciding on the proper solution. With federal individual long term capital gains tax rates at only 15% compared to substantially higher federal corporate income tax rates (preferential capital gains tax rates do not apply to corporations), the knee-jerk reaction of placing title to all foreign-owned United States real property in the name of an offshore corporation in order to avoid potential estate tax may not always prove to be the best approach. State income taxes must also be considered.
Note the following points:
1. Obtain an appraisal of the property to determine its current fair market value. If the property has not substantially appreciated in value, then a sale (with consideration actually changing hands and conventional closing costs paid) to a foreign corporation controlled by the FO or his family may avoid estate tax without a large current income tax. Merely transferring title to the foreign corporation without consideration will not only be deemed a taxable disposition but will also fail to avoid inclusion of the property for estate tax.
2. Consider purchasing life insurance on the life of the FO. The proceeds of life insurance on the life of a foreigner are not subject to estate tax and can provide liquidity to pay the estate tax.
3. If there is a surviving spouse, consider drafting a QDOT – either during the lifetime of the FO or upon his demise (we customarily draft United States situs property wills) – so as to at least avoid estate tax upon the death of the first spouse.
4. Review the family situation to see if there are family members who are United States taxpayers–such as adult children – who may more properly be the owners of the property perhaps subject to a mortgage in favor of the foreign parents.
5. Consider use of a two-tiered (foreign and domestic) partnership arrangement. A full discussion of this technique is beyond the scope of this article.
There are several other sophisticated techniques which we employ, a full discussion of which is beyond the scope of this article.
In summary, the well informed real estate professional should be sensitive to the existence of serious and costly tax consequences of how his foreign purchaser takes title to United States real property.
CHECKLIST FOR MANAGING FOREIGN-OWNED UNITED STATES REAL PROPERTY
1. Is the foreign owner of the Florida property either a foreign corporation, foreign partnership, foreign trust, foreign estate or a nonresident alien individual for income tax purposes? If yes, continue to question No. 2. If no, then there is no problem.
2. Is the owner considering rental income as effectively connected with business income?
3. If the answer to question No. 2 is yes:
a. Do you have executed original of Internal Revenue Service Form W-8ECI on file for each year; and has Internal Revenue Service Form 1042S been filed?
b. Has the foreign property owner been advised that an income tax return (Internal Revenue Service Form 1040-NR, in the case of a nonresident alien individual or 1120F, in the case of a foreign corporation) must be filed in order to be able to take appropriate deductions?
4. If the answer to question No. 2 is no, has 30 percent of gross rentals been withheld and paid to the Internal Revenue Service?
