Oct
09
2011

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Argentine Real Estate Market 2012

Argentine Real Estate Market 2012

Graph showing the increase in real estate prices in Buenos Aires 2000-2010

Average rate of increase over 10 years is 8.31% pa

Average growth in value over 10 years us$3000 pa

We recently reported that real estate prices in Buenos Aires increased an average of 10.2% from January 2010 to January 2011.

This article explores the ‘what ifs’ and expresses my view that even if we face another world recession, real estate prices in Buenos Aires in certain segments of the market will remain stable in 2012 and deliver robust growth in the medium and long terms.

Real estate prices in Buenos Aires will remain stable even if or when the local economy downturns – read on to find out why…

The world’s economy is looking decidedly gloomy and many pundits predict that major economies might face another recession during 2012.

Warnings that the United States of America and Europe may face recessions should be taken seriously.  The United States of America economy looks crippled by divisive politics, an inability to stimulate both the jobs market and the economy in general, and thus their economy may fall prey to the fall-out from Europe’s debt problems and a looming credit crunch in the banking sector, not dissimilar to 2008/9.

The big difference between today and 2009 is that people are sick and tired of bailing out big business and they blame government for their personal economic problems. Further bail-outs will no doubt further inflame public opinion, particularly if the greedy banks get more taxpayers money.

Riots in London and elsewhere demonstrates that even powerful and developed economies are not immune to civil disobedience. Someday soon, the Eurocrats will have to listen to the people who want their sovereignty restored and French Francs and Deutsch Marks in their pockets.

In Europe, the situation seems more serious than during the recession of 2008/9. Germany and France, Europe’s two largest economies, have already slowed to near zero growth, whilst Europe as a whole attempts to ward off a sovereign debt crisis in Greece. But will the European borrowers and lenders of today, have the political strength or will to bail out larger economies like Italy or Spain, especially if we experience another world recession?

Jean Claude Trichet, President of the European Bank, said yesterday, ‘The economic outlook (Europe) remains subject to particularly high uncertainties and intensified downside risks’.

Today, the Eurocrats have no choice but to support failing economies within the Euro-zone, but in my opinion, they gamble on the proverbial three-legged-donkey in a steeple chase. The Southern-Euro-economies adopting severe austerity measures to reduce their debt burdens may not inspire their people who are suffering horrible economic inequalities to ‘take their medicine’.  And, in the medium term, unhappy voters in France, Germany and elsewhere may not allow their governments to continue pumping their cash into a ‘Southern-European-economic-black-hole’.

I fear larger demonstrations and even more civil disobediences spreading, where millions of young jobless folk take to the streets, along with public servants and students, and let’s not forget the huge numbers of senior citizens whose savings are being eroded and now they face pension cuts.

Embattled and weak governments may have to think twice before ‘accepting their medicine’ as their price for future bail-outs and indeed the larger Euro-economies may be forced to re-think using their taxpayers’ money to provide bail-outs.

Already, Greece has missed its agreed austerity targets and the majority of German and French voters strongly believe that their money should not be spent supporting other ‘lazy’ European economies.

In addition, the banking sector looks decidedly shaky and a European credit crunch looms.

This week the IMF warned of an impending crisis in the European banking system and demanded that Europe find 200 billion Euros to support its banks. The European Central Bank is taking decisive action to support the banking sector with one year loans, but many economists privately believe that it’s too little and too late for the Euro – the Eurocrats may be throwing good money after bad. Can the Euro survive in its current form and makeup?

Coming to this region, Brazil’s government recently took action to deal with their own economic slowdown. Industrial production in Brazil is contracting and an over-priced currency is damaging exports in a weakening global economy.  Brazil gross domestic product growth is forecast to fall to 3.5 per cent this year and next year could prove even more troubling for the Brazilians if the world continues to cool and commodity prices fall as they did in 2008/9.  In addition, it’s been my opinion that Brazil is another economy that looks ripe for its very own credit crunch.

China too is experiencing a slowdown and 99% of the commentary I read on a day-to-day basis seems to indicate that the world’s economy is storing up trouble rather than solving its many problems – might 2012 be the catastrophe predicted in the Mayan Calendar – another financial catastrophe seems more likely than the end of the world.

What would another world recession mean for Argentine Real Estate Market 2012?

My concern is that I only have 27 cans of Heinz Baked Beans left!

I am no longer worried about how my investments will be affected by what’s going wrong in Europe or the United States of America – my very simple model of real estate investment in Buenos Aires City looks rock solid.

Argentina would not be immune to the fall-out from a world recession…

In 2009, at the height of the last recession that engulfed the global economy, Argentina experienced zero growth or a short recession – nobody is 100% sure because economic data from the Argentine government is misleading.

The Argentine draft budget for 2012 forecasts growth of 5.1%, but both falling global demand and commodity prices could mean a tougher year for Argentina.

If my ‘what-ifs’ become reality, Argentina might face a year not too dissimilar to 2009, but there’s a major ‘BUT’. Today, the Argentine economy, although still expanding, may not prove as recession proof.

An overly expansive monetary policy – spending to create wealth – is resulting in higher inflation and Argentina’s economic fundamentals appear much weaker than they were at the end of 2008.

The Argentine real estate market 2012 might cool somewhat from the dizzy height of 10.2% growth, but property will hold its value and expect a fast recovery…

To really understand the real estate market in Buenos Aires, it is important to look at how smaller real estate investments performed in 2001/2, during the catastrophic meltdown of the Argentine economy and the largest sovereign debt default in history, and during 2009 at the height of the last world recession.

During the last world recession, Buenos Aires’  real estate prices remained stable in my target investment market and thus reaffirm my view that property in some segments of the real estate market holds their value, even during a massive financial meltdown or a world recession.

Last year real estate prices rebounded in Buenos Aires appreciated with renewed vigour, in fact they grew an average of 10.2%.

You see, real estate  is the Argentine people’s bricks-and-mortar-piggy-bank, their method of saving and avoiding banks and the possibility of a needy government seizing their hard earned cash.

The graph above shows how property prices performed during 2001/2 and in 2009 in my target real estate market. I advise on buying smaller residential units for lots of good reasons that I am happy to explain to potential clients in greater detail.

My successful model targets properties to create quality behind-closed-door-bedsits that tourists’ rent for USD 200 per week or studios and one bed apartments (check out Buenos Aires Stay) in carefully selected barrios in Capital Federal. My successful model achieves over 75% occupancy and dollar rents from both the international travel market and a growing expatriate community.

If you intend to invest in the Argentine real estate market 2012, remember neither property types nor regions of Argentina are created equal – research and patience is the key to finding successful investments – either get down here and spend some time or instruct someone to act for you who knows what they are talking about.

Argentine Real Estate Market 2012

We recently reported that the real estate prices in Buenos Aires increased an average of 10.2% from January 2010 to January 2011.

Further reading:

Real Estate Guide Buenos Aires

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