Mar
01
2013

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Buenos Aires Real Estate 2013/14

Buenos Aires Real Estate 2013/14

real estate buenos aires 2013-2014

Fans of Buenos Aires Stay’s blog requested my annual Buenos Aires real estate report for 2013, which surprised me, because it has been very quiet.

I advise international investors in three different sectors, including investors buying real estate and land in Buenos Aires. .

Maybe I was quieter because of my advice during February 2012.  I advised international property investors ‘’to keep their powder dry’’. I received some flak for my report. Although, I think my critics were later silenced by the market.

Buenos Aires Real Estate Market 2012 

There’s a lesson in this for all of us. Trust your ‘’gut’’. Particularly, after spending time researching a particular market; so-called experts make mistakes all the time. Just look at the uncertain world we live in today, where armies of financial markets experts on different continents just keep getting it wrong.

More importantly, remember brokers who sell real estate in Buenos Aires and even publishers who sell advertising space to them have vested interest in ‘’good news’.

My advice to investors who know Buenos Aires is to consult your escribano (public notary), collect official data on the number of operations and any other important factual indicators to ensure you have an informed ‘’gut’’.

Many factors (some I will explain) make it too early to call what’s going to happen in the real estate market during 2013/14.  If it was not an election year, it would most likely be much the same as 2012.

Few mortgages – NO bubble – NO negative equity – the Buenos Aires real estate market does not play by our rules

The real estate market in Buenos Aires is both orderly and robust.  Buyers pay cash for property, which until just recently traded mainly in dollars. With few mortgages, no bubble to burst or negative equity, investors can forget the market behaving anything like it does at home. When you read that property operations in Buenos Aires have contracted by nearly 30% that does not mean prices will follow suit.

For years, brokers told me, ‘’forget it, they (politicos) will not mess with the property market. Owning real estate and land is the only way Argentines including them and their families obtain any form of financial security’’.

There is little doubt that dollar restrictions, particularly whilst the peso is overvalued, has and will continue to have a negative impact on the Buenos Aires real estate market. Although, ‘’pesification’’ of the property sector and curtailing a culture of both thinking and doing business in dollars would be good for Argentina in the medium to long terms (I will come back to that).

Even with dollar restrictions, real estate in Buenos Aires is still dollar dominated in the minds of both agents and vendors, and will be for some time. Owners may not get dollars when they sell property today, but they want dollar value for their properties and most will not accept pesos at the ‘’official’’ rate of exchange. Why should they? The peso is overvalued. Property owners want and estate agents hope for peso prices at the ‘’blue rate’’ of exchange.

This link explains dollar restrictions and the difference between ‘’official’’ and ‘’blue’’ rates of exchange, which probably undervalues the peso.

There are local and international property owners prepared to wait and see what happens in the market, in particular, they await the results of the legislative elections in October 2013. Real estate professional in Argentina are not fans of President Cristina Kirchner and her Victory Front coalition and feel they have a lot riding on election results.

If you are an international investor trying to sell property in Buenos Aires, remember that real estate tends to hold its value in the main city barrios; property (if you took my advice to buy small) is easily and profitably monetized; real estate prices at the lower end of the market tend to appreciate quickly, particularly after the market has slowed.

If you decided not to sell investment real estate in Buenos Aires before the last election and wait  to see what happens in the market, hold your nerve and get your property professionally monetized to cover your expenses. If you want to rent property for dollars, probably a good idea at the moment, I suggest you speak to Buenos Aires Stay.

I still have established clients asking me if there is bargain real estate in Buenos Aires.  I get calls at least twice a week from investors who sold before the last election and wrongly assume property prices will fall significantly because of the decline in real estate operations.

If you decide to sell real estate in Buenos Aires at a reduced price, preferring a dollar transaction offshore– contact me – help [at] sos-prop.com.

It is not always possible, but I am happiest when I can immediately connect private investors and property owners direct. I will not act for a property owners in that scenario. I do not charge a commission for an introduction – I am not an agent.

If I am instructed to market property to my partners, agents and investors both locally and internationally, I do charge a fee for instructing and managing agents, and for local and international internet property marketing and public relations.

Non-resident investors considering selling real estate in Argentina should read my advice on taxation and dealing with the AFIP.

Whilst it seems most unlikely Argentina will experience hyperinflation and devaluations of the 70s, 80s, and 90s; or the calamity of 2001/2 when Argentina ”unpegged” the peso from the dollar to regain some competitiveness and the peso devalued 75% overnight; you cannot ignore Argentina’s tumultuous economic history and a cultural propensity to vote for populist political leaders who promise too much and then keep the ‘’Kool-Aid’’ flowing with good news until disaster strikes.

Negatives for international real estate investors

  • A technical default on old debt payable to hold-out or Vulture Funds as Cristina Kirchner’s government calls them
  • The President’s Victory Front retains control of both upper and lower houses in Congress in the October interim elections
  • The Victory Front wins enough votes in October’s legislative elections to make constitutional change allowing a third term for President Cristina Kirchner
  • Economic problems, inflation, restrictions and government interventions

The above factors may affect the economic outlook in Argentina and thus adversely affect the real estate market in Buenos Aires. Each of the above factors has numerous implications too many to highlight in a short article.

Note: I am not saying the property market in Buenos Aires will implode and there are signs that transactions may increase due to Argentines protecting their savings in bricks and mortar; although, I doubt very much that will buoy the market significantly in the short term.

2012

Dollar restrictions from 2011 were still causing flux in the real estate sector in 2012.

Repsol’s expropriation (correct for Argentina, but scandalous, inept and counterproductive in its execution) no doubt increased investor concerns.  I read that international investors pulled over 2 billion dollars out of the Argentine economy between April and June last year.

2012 was an abysmal year for the real estate estate market in Buenos Aires

Most telling, square meters approved for construction fell 37% January to June 2012.  More recently, it is reported that construction, including refurbishment of property, recovered somewhat contracting 29% when compared to 2011.

There were obvious signs of decline when real estate agents windows I browsed daily suddenly became hair salons and kiosks. Some smaller agents I know gave up their offices to cut costs and now work from home.

Another indicator that showed the market was in a ‘’wait and see mode’’, was the number of properties being advertised in classified sections of newspaper, which fell 50% in September last year when compared to the same period 2011. The lowest it had been for twelve years.

Total real estate operations for 2012 were down approximately 27% compared to 2011, but it is worth noting that the overall dollar value of real estate operations fell 28.4% during the same period.

I generally found poorer quality real estate on the market at ‘’selling price’’. Quality real estate seemed overpriced because property owners were waiting it out.

The bottom of the market was still moving throughout the year and there were signs of improvement right at the top of the real estate sector at the end of 2012.

Looking generally at the economy, the Argentine governments increasingly aggressive interventionist policies dampened the economic outlook during 2012, but Argentina seemed able to struggle through without the ‘’crash’’ predicted by the anti-Kirchner press.

Argentina’s economy 2013  

I read forecasts that state GDP growth will increase and others that state it will fall from around 2% (2012). Estimates range from 0.8-3.4 % (2013).

It’s worth highlighting that GDP troughs and peaks are numerous in Argentina, although people often wrongly assume they happen in approximately 10 year cycles. The two interesting peaks and troughs are the period of dollar parity in the in early nineties to the crash 2001/2. The Graph below demonstrates Argentina’s many ups and downs but it seems unlikely Argentina will experience negative GDP growth during 2013:

It is also widely reported that Central Bank will manage peso devaluation to 6-6.2 pesos for each dollar by the end of 2013. I doubt this will close the gap between the official and blue rate dollar exchange that causes so many headaches for the real estate market in Buenos Aires.

The government is committed to a path of monetization. Independent inflation data is contested by government statisticians, but private estimates put inflation at around 25%, but price restrictions (anyone the trade secretary feels able to bully) and a slowing economy may bring some short term relief.  Slowing money expansion and cutting government spending seems most unlikely with legislative elections in October.

inflation argentina buenos aires real estate

Argentina’s fiscal deficit is widening and without access to international credit government will resort to Central Bank financing.

What now for the real estate market in Buenos Aires?

Patience is the name of the game for Buenos Aires real estate investors unless you are homeless with 10 kids and want to permanently live in Argentina.

I have noticed many agents still advertise property above market value, their owners in no rush to sell without mortgages or fear of negative equity.  No mortgage or fears of negative equity are key factors that help preserve the Buenos Aires real estate market’s robustness.

Most real estate transactions in Buenos Aires requires money down (20-30% of asking price) and then a cash balance paid over the table at completion, although developers are getting a little more creative to kick-start the market by underwriting credit.

Most investors I advise sold their real estate before the last election. Many are waiting (their money at least) on the sidelines and will invest again in Argentina when the time is right. That’s what I find so positive – those investors who sold real estate and made money in Buenos Aires are still prepared to reinvest. Knowing there is money to be made during the next cycle.  Some of my old clients went home for a while, but they miss Buenos Aires and feel almost ready to come back. Buenos Aires has that effect.

Dollar restrictions, although painful, seem like a necessary evil for Argentina, particularly now times are tough. If everyone sells their pesos for dollars each time there’s an ‘’economic hiccup’’ and if capital flight sends those dollars abroad, Argentina’s problems are exacerbated.  The late 90s to 2001 clearly demonstrate how dumping the peso, capital flight and a run on the banks turn crisis into catastrophe.

Some people thought/think dollar restrictions will not last. Who knows, but they may last at least until a new president is elected and that might be 2015. The peso needs market devaluation. When the peso stabilizes dollar restrictions might be repealed for real estate operations and the horrible disparity between official and blue rates of exchange that complicate and frustrate negotiations will be a thing of the past.  Albeit, pesification much coveted by both government and intellectuals may also be here to stay.

So what do I see happening in Buenos Aires real estate sector during 2013?

If Cristina Kirchner’s Victory Front preserves their control over the upper and lower houses in Congress in the upcoming legislative elections the market may contract again fearing that their government, feeling vindicated by the popular vote, may continue markets interventionism with even greater zeal.

If Cristina Kirchner’s Victory Front wins enough votes to start a program of constitutional reform, expect the market to ‘’shock’’ fearing ‘’Argenzuela’’.

The economic outlook in Argentina would not seem so bleak if government wasn’t so knee-jerk, unpredictable and prone to market intervention.

Moreover, if the economic data supplied by government statisticians offered even a glimmer of sanity, international investors might be persuaded that Argentina does not present an unreasonable risk to capital.

Just keep one thing in mind. Real estate transactions contracted by 27% last year when compared to 2011, but the total dollar value fell only 28.4%. 

It is still my opinion that real estate in Buenos Aires is a good buy although dollar restrictions, possible pesification of the market by law and more importantly, uncertainty over the true value of the peso are matters that require detailed discussion and advice based on individual  investment goals   – I am happy to advise investors and invite them to contact me – help [at] sos-prop.com

Buenos Aires Real Estate 2013

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5 Comments »

  • Carlos Paz says:

    Interesting article. What are your views on the peso? Is the blue rate a true reflection of how the market would value the peso?

    • Andrew McCance says:

      I am not a currency trader or an expert in this field. I can only give you my common sense approach to this dilemma.
      There is no doubt that faith in the peso is at an all-time low if you use the ‘’blue rate’’ as an indication of what the market thinks about peso value.
      Inflation, restrictions, market interventions, Central Bank seemingly under government control, 2.2 billion of reserves spent over the last year, more reserves earmarked to pay creditors, the government blocking off every possible way reserves might leave Argentina, even levying crazy tariffs on overseas credit card use to stop ‘’arbitrage purchases’’ shows desperation.
      The government seems able to retain some respectability in the eyes of their supporters by suggesting their restrictions are response to attacks on their economic policies by the bourgeoisies. At least that’s what I read on the internet from their ”supporters”.
      BUT reserves are still falling. Devaluation is happening albeit slow, but all the above tells me that a significant devaluation may be close. Like most bad news it will probably have to wait until after the legislative elections in October.
      Everyone knows how devaluation affects the Argentine Psyche after 2001/2. Even the government’s own supporters will feel the pinch when devaluation brings even higher inflation.
      Another indicator that things will get even tougher is the cost to insure debt in the bond market. I read recently it costs over $700,000 to insure 10M!
      But remember, restrictions and fear are pushing Argentines into the black market to buy dollars and the devaluation of the peso against the dollar in that market may be distortion, playing to fear, restrictions and uncertainty rather than the true reflection of the peso’s true market value against the dollar.
      I have written to experts who were unable to give me a straight answer, most of them more cagey than politicians. So your guess is as good as mine.
      A BIT OF COMMON SENSE:
      WE ARE TALKING ABOUT THE BLACK MARKET HERE. At least try to balance what you might think CFK’s management of the economy with that fact.
      For me, that’s what makes it so hard to negotiate with property owners who want ‘’top peso’’ for their properties. And, who can blame them?
      Let’s turn this problem on its head – if you wanted to buy a property for USD 100,000, would you be prepared to pay nearly ARS $900,000 for that property?
      NOR WOULD I.

      • Carlos Paz says:

        I am one those reviled brokers! jeje. We are able to get more flexibility from property owners. I cannot argue with anything you say to foreigners. You exagerate the cost of peso purchase to make a point?

        • Jock says:

          How much would you be prepared to pay for a usd100K apartment in pesos Carlos? I think that’s an interesting guide to our clients, especially since ”it comes from the horses mouth” so to speak!

  • Gerald Myers says:

    I think this sound advice and you are spot on reading Argentina without scaring everyone off. There’s no doubt a big difference between owning a property here and the difficulties presented by other investments and employing people that’s a minefield. Most other sites regurgitate information from the media, but you are prepared you let your experience do the talking without all the BS. I own property and indeed bought two using your services. Your insight saved me from buying on a sub-divide and your anecdotes and experience dealing with consorcios on various estates was invaluable and probably saved me thousands of dollars based on the silly land values developers ”ramped up” due to greed and then got stuck with horrible land fiscal values when the market went down in 2009. I remember an agents face when you told him he was talking a load of old bull and you thought the land was worth half the price and then showed him what land when for in a private deal – he was mortified! Good for you, it must be hard to tell people to wait when they are your bread and butter.

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