Property prices in Buenos Aires

Finally some common sense – what’s really happening in the Buenos Aires property market

You may remember that we took issue on reports that seemed to indicate all was well in the property market in Buenos Aires.

A national newspaper with usually rather hawkish views reported rapid property price increases at the end of last year and at the start 2012 – we told you that we’d seen that ‘game’ before…

See our article on Property Prices Buenos Aires 2012

We get more than our fair share of complaints about our honest views regarding the property market in Buenos Aires – we write for investment clients – they want facts not fiction.

A recent and very interesting article written by Bloomberg’s Camilo Russo supports our view of what’s happening in the property market in Buenos Aires.

Property transactions in Buenos Aires have fallen to a three-year low. We believe that’s probably just the start unless the government reverses recent legislation that stops peso to dollar exchange.

Although it’s been reported that property prices increased by around 8% last year and the average price of a dwelling in Buenos Aires costs US$116,000, that’s probably spot on.

The most important points from the Bloomberg article are:

1. Property prices have increased nine out of the past 10 years in Buenos Aires.

2. During that same period, Argentine dollar bonds posted annual losses four times.

3. Fewer transactions do not equal a fall in property prices.

That’s what most interesting about the property market in Buenos Aires: Prices will not fall.

The silly property pricing by owners and Realtors, which we saw at the end of last year and the start of 2012, no doubt hit the reality barrier.

Having said all that, some foreign investors are running scared and screaming ‘Argenzuela!’ at the top of their voices – I have come across a couple of cash-strapped and more-than-a-little worried foreigners selling their properties at around 10% below the market value to get out quickly. Of course, I had waiting clients – we are always interested in the right deal.

Find out why property prices hold their value even when an economy crashes.

In 2009, during a mild recession (cold), the property market was dreadful. Better economic fundamentals enabled Argentina to emerge relatively unscathed from its ‘cold’ during the last worldwide economic slowdown.

Today, the poor state of the Argentine economy, which we believe will fall into recession some time soon, is causing Argentines, who do not believe everything is as rosy as President Cristina Fernández de Kirchener states, a great deal of concern.

Albeit, nobody’s 100% clear as to the true economic picture in Argentina – too much smoke and too many mirrors, and nobody trusts Argentina’s ‘official’ economic reporting courtesy of INDEC – it’s a joke.

Bloomberg states the main culprit for the fall in property transactions is foreign exchange controls.

Hopefully government will allow peso to dollar exchange for property purchases – it’s essential if property transactions are to increase.

I think the Bloomberg view correct, but there’s also the fear factor.

Never underestimate the fear factor in Argentina – everyone I speak to thinks that Argentina is about to catch a bad dose of the flu.

The foreign-exchange controls make Argentines fear another corralito – in 2001-02, bank withdrawals were limited to around AR$1,000 a month, saved US dollars were exchanged by law to pesos and then the peso lost 75% of its value against the dollar – ouch! Argentines called this measure the ‘small corral’.

In the real world, the peso has a value of 4.8 (ish) against the dollar. In the real world, inflation has been calculated at 22% over the past 12 months – it’s not the time to be saving in pesos but most Argentines, particularly the poor, have little choice.

In 2001-02 we saw a ‘corral’ and today – well it’s more like a paddock (portrero). You can walk around, but only eat Argentina’s rapidly yellowing grass; but you can’t escape the currency controls that seek to ‘pesify’ Argentina!

Argentines cannot buy dollars, even if their money is clean, meaning their earnings are taken white and taxes paid on income. Many Argentines watch in horror as inflation and devaluation erodes the value of their peso savings.

The AFIP (IRS or Inland Revenue) has a remit to help the government protect the value of the peso and stop capital flight. Its restrictions have been very successful – there’s simply a ‘say no to peso to dollar exchange’ policy.

In addition, peso-to-dollar exchange has been forced underground and a very healthy back dollar market (you have to pay between 4.8 and 5 pesos due to the lack of dollars today) probably means Argentines are mattress-banking. Many Argentines I know are certainly hoarding their dollar stash, waiting for what they see as an inevitable crash.

There are a number of reasons why property transactions could fall further, but our clients who own property in Buenos Aires will hold their nerve. Our experience tells us the property market will continue to function in an orderly manner and property will hold its value.