Pessification of real estate?

[el_expatriado]

I think you all just need to stop freaking out. I have a lot of cash invested in real estate here... residential, commercial, and even parking spaces. You are all underestimating the creativity of the Argentine people. The government can put whatever regulation they want, but people here will figure out a way to make it work. Argentines are very creative financially.

All new construction is being done in pesos now. And there's no problem at all. They adjust the value of the payments by what the Construction Chamber of Commerce publishes each month. These guys are doing millions of dollars of construction over 1-2 year periods and they are signing contracts in pesos with ways to adjust the price over a very long period of time.

You guys are all freaking about about having to sell your property and hold onto pesos for 1 day. Come on! Get serious. You can hold pesos for 1 day.

Let's look at what is realistically going to happen here once transactions in property is pesificado:

1. People will stop signing boletos with a long period of time. It will be more common to go straight to the escritura.
2. People will sign boletos and other longer term contracts for purchase in pesos that are indexed to what the peso trades for in Uruguay or New York.
3. If there is a lot of volitility in the market, like what happened last week, things will slow down in the property market. People will wait out the volatility and sell when things have stabilized.

And to the people who want to get dollars out of the country... there is no need to put the dollars in a suitcase. Stop freaking out. You can pay 4-6% right now and someone will wire the funds outta here. Or if you want to wait and do it slower, there are always people who need to get dollars INTO the country who will trade with you. Every other day there is some poor expat on this board asking how they can get dollars here. It might take a month or two and some legwork, but you can get dollars out of the country for free by trading with other people.

I am not selling my property. I didn't buy property here because I am trying to make a quick buck flipping (with all the taxes involved, flipping is pretty much impossible here). I bought my apartment because I needed a place to live. I bought my office because I needed a place to work. And I bought my parking spaces because I need a place to park my cars.

So if you look at real estate as a long-term investment and it serves a purpose for you, don't freak out. Trust that the Argentines will figure out a way to deal with whatever the government throws at them and that when you finally need to sell, you are going to be able to do so.

Please, let's all calm down! And if you don't want to calm down, let me know and I will buy your property tomorrow from you in dollars at a big discount. The best deals I got in my life were from sellers who were freaking out.

 

[sergio]

I agree the long haul real estate is a safe investment in Argentina. When the big crash comes, and it will, property values will drop however they will recover as they did after the last crash. The issue of selling in pesos, however, is something else. I spoke to an Argentine friend yesterday who told me that in the 1970's there were incidents of people selling and holding onto the money while they looked for another property. In the meantime there was a major devaluation than rendered the money they gained from the sale almost valueless. Some people apparently committed suicide. It is absurd in a country as unstable as Argentina to think that holding onto pesos for one day or less is not potentially risky. A friend who renewed his life savings CD days before the pessification of dollar accounts in Argentina can attest to such risks. In his case that decision resulted in anguish, lawyer's fees, a court case and a long wait until a sympathetic judge finally ruled that he and his wife, both elderly, could have a large portion of their savings back in dollars. The rest is tied up in bonds that they will never be able to cash in.

 

[earlyretirement]

I agree that real estate by nature is a long term investment. Like him, I also own quite a bit of real estate in Buenos Aires. I'm not freaking out either. You have to understand real estate and land is the only safe investment in Argentina and probably always will be. You have a country where you can't even feel safe putting your money in the banks! And Argentines don't invest in the stock market or businesses for the most part. It only leaves real estate and land. That's not going to change. It beats holding your cash under your mattress.

Sure, there can be fluctuations in real estate just like any other investment. Nothing goes up or down forever. You have to buy when there is blood in the street. Same thing happened in the USA. Last year when I was looking at getting back in the USA real estate market, some desirable properties were as much as 60% off peak levels.

Everything moves in cycles. And the most successful investors move with those cycles.

And you can ALWAYS move your funds out of Argentina. You will pay a price for it but never underestimate the ingenuity of the locals to get funds out of Argentina. He was also right the rates now are 4% to 6%. It's the highest that I've ever seen it in 10 years to move funds out. A money exchange firm last week quoted 6.2% which was the highest I've ever seen. Previously it was as low as 1.5% or 2%. But you can always get your funds out if you have connections.

Granted, I'm not saying real estate in Argentina is the best investment out there. I don't think the risk/reward play is worth it at these levels to add to your position, but if you can add properties at distressed prices it's worth considering. Contrary to the fear some people have, real estate has steadily increased over the years and it's not cheap there.

The biggest fear I have and the biggest risk of property prices plunging is AFIP. AFIP is now starting to ask buyers to justify their incomes for the money they are buying properties with. Most locals are serial tax evaders and so are their families. Most have NOT declared most of their income. So now when they want to buy a property, AFIP is asking them where they got that money. THAT is the biggest factor in what happens with the real estate market in Buenos Aires. Foreigners aren't buying many properties there now for good reason. So that only leaves the locals. And if AFIP won't allow them to buy properties then the market is totally screwed.

If you got an apartment really cheap after the last crash, probably no sense to panic sell it. Odds are you are still making cash flow renting it out either on a short-term rental or long-term rental. But if you need the cash, it might be good to sell if you can. But I do agree that real estate in Buenos Aires is not made for flipping. The round trip transactional costs are simply too high to make a lot of money. The best real estate investments I've made were the buy and hold type.

 

[citygirl]

There are always options.

I've been looking at some places and across the board, the request is for the legally required piece to be paid in pesos here and the rest of the en negro portion to be be paid to a US or Euro or whatever account outside of Argentina. I'm sure that option is available to expats if you need to sell today as well

 

[el_expatriado]

The issue of selling in pesos, however, is something else. I spoke to an Argentine friend yesterday who told me that in the 1970's there were incidents of people selling and holding onto the money while they looked for another property. In the meantime there was a major devaluation than rendered the money they gained from the sale almost valueless. Some people apparently committed suicide. It is absurd in a country as unstable as Argentina to think that holding onto pesos for one day or less is not potentially risky. A friend who renewed his life savings CD days before the pessification of dollar accounts in Argentina can attest to such risks. In his case that decision resulted in anguish, lawyer's fees, a court case and a long wait until a sympathetic judge finally ruled that he and his wife, both elderly, could have a large portion of their savings back in dollars. The rest is tied up in bonds that they will never be able to cash in.

You are talking about two different things here, one of which applies to real estate, the other does not.

First, let's talk about the pesification of dollar accounts. If you pesifiy a financial account, you can set an exchange rate and the government can say, for every dollar in this account, it is now worth 1.4 pesos. They do this even when the market rate says 3 pesos, and now the government has taken about 50% of what you own.

But if you pesify real estate, they can only obligate you to handle the transaction in pesos. They can't obligate you to sell at a certain price. If they do that, I can always refuse to sell my property and not play their game. So if you have a property that is worth $100,000 USD and suddenly you have to sell it, you can decide whether to sell it for $450,000 pesos (the official rate) or $600,000 pesos (the market rate). The government is not going to tell you what you have to sell your property for, nor would they have the power to do so.

Now let's get to your second point about hyperinflation or devaluation. First, if there is a period of hyperinflation (like in the 70s), don't sell your property and receive fiat currency in exchange. This person made the mistake of thinking he could receive fiat currency, take his time and shop for a new property, and then purchase a new property. The Argentines I spoke to who lived through the 70s told me that the day they got paid their salaries, they went out and purchased dollars or they spent their entire salary the same day they got paid. So if they were doing that to protect a single month's salary, it seems crazy to accept a payment for your biggest asset -- your house or apartment -- in inflationary fiat currency. Whoever this person is, he got royally shafted because he wasn't careful AT ALL.

In the event that you have to sell your property for pesos, and there is a scenario of hyperinflation or a devaluation looming, you need to go and buy dollars the same day. If I was a seller, I would organize the closing in the offices of my peso/dollar exchange broker. That way I could do everything at the same time and leave with dollars. I could even have my broker wire the funds to my US account if I was abandoning the country.

Today the peso isn't even close to being that unstable. In the formal market it moves less than 1% per day. In the informal market I have seen movements of up to 3% a day, but not more than that. And sometimes the peso strengthens against the dollar (like yesterday in the informal market) so you could actually end up with a gain as well.

Today I think it is 99% safe to sell your property for pesos and change those pesos to dollars within a few days. So, I am not worried and I am a property owner. I would sell today and receive pesos, no problem. And I wouldn't freak out about it.

 

[cricri58]

By the way, what happens (at Eizeiza customs) if you takes out of the country physical silver or gold which is worth more than 10000 USD?

 

[sergio]

Eapatriado, The peso could be devalued overnight or as you are sitting in a casa de cambio doing the transaction. Is it so easy to find someone to change pesos for dollars, and make sure that he shows up at the settlement? Once you have signed papers, you must make the sale or face a possible lawsuit. If your money exchange man does not appear you could have problem. And then what does it cost to send the dollars out? How much is lost in total? 30% More?

 

[el_expatriado]

Eapatriado, The peso could be devalued overnight or as you are sitting in a casa de cambio doing the transaction. Is it so easy to find someone to change pesos for dollars, and make sure that he shows up at the settlement? Once you have signed papers, you must make the sale or face a possible lawsuit. If your money exchange man does not appear you could have problem. And then what does it cost to send the dollars out? How much is lost in total? 30% More?

A devaluation does not come as a surprise to anyone. It follows a long period of economic turmoil. So, my point was that if transactions are all pesified, just don't sell your property during an unstable period. Wait it out.

If you get pesos, you can send them out to the USA right now (100% legally) for about $6.00 pesos per USD.

 

[BienTeVeo]

Yes, for those who can wait it out, all will be well as long as one plays the cycles correctly. But for anyone who needs to sell now, or whose deal is already in play (construction begun, a loan in dollars that needs to be paid back) the situation is not good. Their salary (in pesos) is not keeping pace with the value of the dollar against the peso (a disparity which is being exacerbated by the AFIP controls). This is eerily similar to what occurred in 2001.

Back then, if you took out a mortgage in pre-crisis in dollars (when one peso equaled one dollar), you did so assuming that a dollar would always equal a peso. So you would receive your paycheck in pesos, go to the bank, change them for dollars to pay your mortgage without losing anything. Then the peso floated - at first 2 to 1, then 3 to 1, etc. But your salary did not go up. In fact it probably went down.

All of sudden your mortgage was double or tripled. Everyone was going to go belly up. So the government decreed that anyone with a mortgage of up to U$S100K on a primary residence could henceforth pay that mortgage in pesos. In other words, if you owed U$S50,000 prior to the crisis, you owed A$R50,000 after the crisis. For mortgage-holding argentines earning in pesos, it meant that they could keep their houses (assuming the numbers fell within those parameters). The creditors were of course were on the losing end of this equation.

We bought our place prior to 2001. We took out a small short-term loan through an escribano (friend of the family). When I read about this decree, I called him up, incredulous (I was still pretty green when it came to what can happen in argentina). I asked him if I could pay back the loan in pesos - one to one. Being a law-abiding citizen, he said, "Yes, according to the new law, you may pay off your loan in pesos." Since I earn money in dollars, this meant that our mortgage had just been cut in half, or a third, or whatever the exchange rate was on any given day. Then he added, "But... we are asking our clients, amablemente, to split the difference with the creditor." And that is precisely what we did. The escribano was thrilled. The creditor (an individual, not a bank) was thrilled. And we still made out like bandits.

With a couple of variations, it seems to be happening again. It won't be as bad as 2001, but things are going to be dicey for a while.

 

[El chabon]

You forgot the fact that a mortage in pesos was (much) cheaper then a dollar one, so the ones who speculated with dollars were the ones losing out