BA Real Estate market to take a dive before the end of the year.

[perry]

'Living off the land' .... I just realized that some of our most consistently active members havent been heard from for awhile. If anyone is near Bhia Blanca can you check on Steve. Maybe he's locked himself in his bunker.

To be frank I have been worried about him as I wrote him many emails of late and no answer . Steve please reply ?

 

[mc kenna]

I'M still around, no zombies yet, just your regular everyday cattle rustler......

 

[garryl]

Today one real estate company came out and said on average, the price went down 20% and they recommend seller not to lower the price until seller sees the dollar. And 30 KM outside the great BsAs, peso is fine with real estate purchase.

 

[Alpinista]

Some posters in this forum are suffering from an extreme amount of delusion, IMO. I think it is a bias of assuming an asset they hold will never go down. The reality is real estate prices are going down and will go down anymore. Here are the reasons:

• There are actually a decent amount of houses mortgaged. Macri worked very hard to increase access to mortgages
• The capital class in Argentina is especially harmed by this event. The very people who tend to buy lots of real estate. Many of them may be selling this real estate to cover other debts even if the real estate itself has no mortgage
• The argentine's most likely to hold a large real estate portfolio is the same class of argentines that likely have a 2nd,3rd passport. They are just like american expats. They may abandon a sinking ship especially because AR real estate produces such low yields. They can sell here and buy in europe and get better yields, better jurisdiction.
• Tourism is 12% of buenos aires economy. Kiss that goodbye for the foreseeable future. It will not bounce back instantly. Let alone every other aspect of Argentine's economy that has been destroyed.
• Unlike some countries Argentina cannot help save it's business class. It does not have the financial power and access to debt markets to do it. Thus, any stimulus will be underwhelming. Many industries will face severe contraction simply due to liquidity issues. This will affect the real estate market as real estate is only valuable if it is connected to something. Real estate connected to a dead economy, no jobs, no commercial activity is not valuable.

The analysis on this forum seems as simple as "they don't have a mortgage and thus can hold out forever". That is not how it works. When an economy dies people need to move on. Some will migrate to Europe. Some will need capital to start a business. Some will have their parents die and they don't want their parents old house. There are many reasons to sell and sells will still happen. The issue is there are very few buyers who are willing and able and that situation is unlikely to change.

This is my first post here in the community.... with great interest i read the posts regarding the RE market. Especially thanks to Fallen Angel for his well put arguments. I for one certainly am more on the pessimistic side and do not believe that the market will only drop by 5 or 10%.

I came here to BsAs in August 2018, and I was looking for something to buy in the San Telmo / Monserrat neighborhood, in the usd 300 to 500 market. What I noticed, most apartments and houses were already for some time on the market and also in the last one and a half years there was almost no movement (i.e. no sales, just new objects on the market). Based on my experience, the real estate prices were somewhere between 20 and 30% above market value (value for which you would actually find a buyer). Some sellers showed some flexibilit, others insisted on the listed prices, with absolutely zero chance of selling. In the end we bought a house with a discount of 20% on the listed price. And this was before Covid.

i believe that the average 500k house before Covid had an actual market value of around 400k, and this value will now be impacted dramatically (probably not now, but within 6 to 12 months), probably even to 300k, certainly to 350. So in total there will be in many cases a discount in the 40% on the listed pre Covid prices (or at least a gap in valuation).

I hear the argument that the houses are not mortgaged. And thats true. But, if you have one big apartment and no income (and no hope to get a job anytime soon), you will have to sell. If you two apartments you will might have to sell one in order to survive. A lot of people having debts elsewhere and they need to cover that somehow. I saw a lot of houses / apartments held by foreigners which are empty for years. At one point also these guys will accept the loss and sell.

I hear the arguments that Argentines are smart and dont sell below value. I believe that if you have a normal Argentine cycle with a crisis every four years and then a rebound this may be true. You can hold out a crisis and then sell. Now We have a lot of owners who value their property at overinflated pre crisis prices, and the crisis started years ago and now with Covid no end in sight. So the gap is ever growing and at one point they will have to take the loss (unless you just put your real estate for opportunistic reasons on the market). What many people here call panick selling, in my view it is nothing but to face a reality check.

To get back to the 500k house example: even if you bought the house now for 300k, how could you make this from an investor’s point of view viable? You would certainly struggle to get anywhere near 2-3% per annum. Probably in Airbnb more, but also nowhere near the 7-10% that you should actually make in order to get compensated for the country risk.

Apart from that: in my experience if you offer to pay them to a foreign bank account, in many cases thats a benefit for you as a buyer as a part wants to have money abroad anyway (obviously depends on the sellers situation).

On the more optimistic side I do believe that tourism will recover, that in 2022 (or 2023 at the latest) that we are here at pre Covid level. And i must also admit that if you can buy an old style house in the middle of one my favourite cities for 300 to 400k (which i cerainly couldnt in Europe or in the US), its not all bad, even though not really as an investor.

 

[Ceviche]

Alpinista.

i salute you. One of the most reasonable posts on this subject. I completely agree with you basis my personal observations living here for 12 years.

—

Question to you - where will you look to buy or rent a house in Buenos aires? I would love to have a house here - but i fear i will get robbed or broken in. Your comments? Costs? Views?

 

[Alpinista]

Alpinista.

i salute you. One of the most reasonable posts on this subject. I completely agree with you basis my personal observations living here for 12 years.

—

Question to you - where will you look to buy or rent a house in Buenos aires? I would love to have a house here - but i fear i will get robbed or broken in. Your comments? Costs? Views?

We bought a house in 2018 in San Telmo.

I can't comment on the market and neighbourhoods in general here. I have a total BsAs of ca 4 years in total, and I do know a bit Palermo, Belgrano and now San Telmo. What brought me here: I really do like the neighbourhood, more than any other barrio. It is also where I have my local friends network (Westerners, but mainly locals). It is also close to my wife's family. What I can also say (not only based on my personal experience) is that the neighbourhood is relatively safe (pickpockets thefts are not uncommon, but capital crimes, armed robberies and break ins are rare). To a certain extent that also depends on which street you live, mostly on which side of the Independencia. One explanation might be that it is more policed here due to the tourists. Of course the overall security situation can worsen if we should now go into a long depression.

I even see quite some upside in the future here as it would be an ideal part of the city to make at least partially car free. Also now better access to Puerto Madero (because of the Paseo del Bajo) should make the barrio more attractive. And who knows: at one point they might even construct proper sidewalks without potholes here The only big disadvantage is (at least for me) the lack of good international schools / colegios nearby (almost all of them are in the north).

I bought the house primarily for personal use, so not really as an investment (at least not short term). However, in the back of my mind there is also of course also this side, even more as it is not sure that we will stay here in the long run. So if we would leave Argentina, I would convert the house into two (Airbnb?) units. As I mentioned in my earlier post, in the long run I am quite optimistic about the tourism here in Argentina. I would then also have a stay for vacations and then for retirement at one point.

Probably the following you should consider: if you compare apartments, PH's and houses, I found it quite interesting that the up price for a house is relatively modest compared to a department (or at least far less than I would have expected). And to me it is a big plus to have my own lot in the city, no potential conflicts with other parties in the building. I also found that in many cases terraces and patios are not really priced in the way I would have expected (in many cases you find undeveloped terraces and outdoor space which certainly could be developed). So personally I see more value appreciation in the long run for houses than for apartments. (although I find the real estate market in general overvalued, even before the Covid crisis).

I do not regret that we bought the house. But given the current situation we are in: I would certainly wait buying property right now. Prices are certain to fall, the only question is whether it will be only 5-10% as some posters here suggest (very optimistic), 10-20% (still optimistic in my view), 20-40% (that would be my guess) or the doom and gloom scenario with over 40% (not the most probable outcome, but in my view certainly a possibility).

 

[middlepath]

I was thinking of buying some property in Rafael Calzada (I'm familiar with the zone and understand the dangers involved) and turning it into private rooms. I have the requisite security requirements. Besides the obvious dangers, any feedback on profitability?

 

[Alpinista]

I was thinking of buying some property in Rafael Calzada (I'm familiar with the zone and understand the dangers involved) and turning it into private rooms. I have the requisite security requirements. Besides the obvious dangers, any feedback on profitability?

Obviously I don't know about your business case, nor have I seriously considered buying real estate as an investment. I did some back of the envelop calculations, and the yield that you get here in Argentina are very low. This view is also shared by other posters here (Fallen Angel), and this is also what I hear from other Expats and financially savy people here. Also have a look at the following overview: https://www.globalpropertyguide.com/Latin-America/Argentina/Rental-Yields.

What also needs to be considered: given the chronic instability and restrictions on money transfers, my personal expectation (as an investor) would be to get approximately 7-10% per year. And of course this not realistic, neither before Covid, nor after.

I also found the charts quite interesting while googling a bit:

The first one (https://www.globalpropertyguide.com/Latin-America/Argentina/Price-History) shows a massive increase in the prices since 2005. Part of it can be explained as a recovery from the 2001 crisis and probably also due to the soaring commodity prices in the second half of the 2000s (soy beans etc).


The second chart shows the GDP per capita adjusted for purchasing power parity (PPP) (https://tradingeconomics.com/argentina/gdp-per-capita-ppp):



So the real estate prices are completely decoupled from the economic reality over the last 12 years or so.

As I mentioned in the previous posts I do expect a significant drop in the market. However, this is not to say then that the yields will automatically improve by much as the local incomes will certainly be impacted (in USD terms).

 

[garryl]

This is my first post here in the community.... with great interest i read the posts regarding the RE market. Especially thanks to Fallen Angel for his well put arguments. I for one certainly am more on the pessimistic side and do not believe that the market will only drop by 5 or 10%.

I came here to BsAs in August 2018, and I was looking for something to buy in the San Telmo / Monserrat neighborhood, in the usd 300 to 500 market. What I noticed, most apartments and houses were already for some time on the market and also in the last one and a half years there was almost no movement (i.e. no sales, just new objects on the market). Based on my experience, the real estate prices were somewhere between 20 and 30% above market value (value for which you would actually find a buyer). Some sellers showed some flexibilit, others insisted on the listed prices, with absolutely zero chance of selling. In the end we bought a house with a discount of 20% on the listed price. And this was before Covid.

i believe that the average 500k house before Covid had an actual market value of around 400k, and this value will now be impacted dramatically (probably not now, but within 6 to 12 months), probably even to 300k, certainly to 350. So in total there will be in many cases a discount in the 40% on the listed pre Covid prices (or at least a gap in valuation).

I hear the argument that the houses are not mortgaged. And thats true. But, if you have one big apartment and no income (and no hope to get a job anytime soon), you will have to sell. If you two apartments you will might have to sell one in order to survive. A lot of people having debts elsewhere and they need to cover that somehow. I saw a lot of houses / apartments held by foreigners which are empty for years. At one point also these guys will accept the loss and sell.

I hear the arguments that Argentines are smart and dont sell below value. I believe that if you have a normal Argentine cycle with a crisis every four years and then a rebound this may be true. You can hold out a crisis and then sell. Now We have a lot of owners who value their property at overinflated pre crisis prices, and the crisis started years ago and now with Covid no end in sight. So the gap is ever growing and at one point they will have to take the loss (unless you just put your real estate for opportunistic reasons on the market). What many people here call panick selling, in my view it is nothing but to face a reality check.

To get back to the 500k house example: even if you bought the house now for 300k, how could you make this from an investor’s point of view viable? You would certainly struggle to get anywhere near 2-3% per annum. Probably in Airbnb more, but also nowhere near the 7-10% that you should actually make in order to get compensated for the country risk.

Apart from that: in my experience if you offer to pay them to a foreign bank account, in many cases thats a benefit for you as a buyer as a part wants to have money abroad anyway (obviously depends on the sellers situation).

On the more optimistic side I do believe that tourism will recover, that in 2022 (or 2023 at the latest) that we are here at pre Covid level. And i must also admit that if you can buy an old style house in the middle of one my favourite cities for 300 to 400k (which i cerainly couldnt in Europe or in the US), its not all bad, even though not really as an investor.

Nice, what are your favorite cities in Europe ? I am looking at European cities, and the price has not come down a lot, but I like to watch it closely.

 

[D.B. Cooper]

A recent USAToday article states that the RE market in the USA will “plunge“ by up to 60% the rest of the year and won't recover 'till 2021. So this is a world wide problem. It’s a real tragedy, it going to get ugly.