Real estate crisis: article in English

[sergio]

As I said, the problem is the depressed value of the peso. Properties are still denominated in dollars. If they are forced to be sold in pesos, the peso value will be adjusted accordingly. During Menem's time buying a home was a lot easier because of the lack of inflation, much lower prices and salaries that had dollar values. Not so now. The other factors you mention do not have the same meaning in Argentina as in the US. School? Everybody who possibly can sends their kids to private schools. It's not like the US where people choose homes according to school districts. Infrastructure? It's pretty bad everywhere and people are used to it. It doesn't have a direct impact on prices. Security? A lot of people have opted for gated communities. Otherwise people choose the best neighborhood they can afford. Even the best, though, is no longer safe. People know it and live with it. Logic here does not prevail in the way it does in the US. It's a different society, different culture, different mindset. Logically speaking all the things you mention should influence property values more than they do. The quality of construction should be a factor too but construction in BA is pretty shoddy but properties still sell. It's all what you're used to. The current crisis, though, is not related to these things but solely to insane government policies hostile to free markets, hell bent on a command economy and on keeping the government in power through manipulation.

 

[Ries]

During Menem, the degree of globalisation was less, both, well, globally, and in Argentina.
That cat is out of the bag, and cannot be stuffed back in.

Argentina was isolated, both geographically, and philosophically, much more in the 60's and 70's than it ever will be again, and, inevitably, that affected prices.

The real estate market is more responsive to the rest of the world now. Not completely, of course- probably only ten or twenty percent, but still, thats enough to make a difference.

Foreign buyers have discovered Buenos Aires, and if prices took a dive, they would be back. They would not be buying apartments in Flores, or hulks in Constitution, but the core of the "tourist crescent", from San Telmo to Belgrano, is going to be a target.

The other thing that makes Buenos Aires real estate unusual is the all cash sales- in the US, for example, market bubbles, and prices, are very tied to credit availability, and to interest rates. That doesnt happen here. If I have my cash invested in my apartment, which I do, there is no way I am going to sell if the prices go down- I will just wait it out. This is a very common attitude, both among expats and Portenos. No monthly mortgage hanging over your head, to MAKE you sell.
So if you cant get dollars, rather than accept pesos, you just sit. Its happened before, it will happen again, Argentines are used to it.

Especially the real world class housing- I know Porteno friends who have amazing places- an Art Noveau house, for example, that would be worth a million or 3 euros anywhere in Western Europe. There is no possible reason they would lower the price to sell it just because its not a "realistic" price to someone who earns a lower middle class salary in pesos. A house like that is an incredible bargain, relatively speaking, even at 3/4 of a million dollars. I have other friends who have similar Art Deco houses, or French Regency departmentos- and, no, they will never go for Paris or Barcelona prices, but if they got very cheap, the architecture hounds from Spain or the US or Belgium or Germany would be right there, cash in hand.
This keeps the bottom higher than it would be if Argentina was in vacuum.

And, try as Christina might, she cannot keep Argentina separate from the rest of the world- she doesnt have the cash to prop up the peso for too long- a year or two more, at the most.

Globalisation and Global capital can be a very corrosive thing, bringing, not only cheap I-pads, but low wages, foreign ownership, and land grabs. But its a genie that cannot be stuffed back into its bottle, and its presence outside the door, breathing heavily, DOES influence Argentine real estate prices.

Heck, I know a bunch of Argentine expats, who live and work in the US and europe, who would be back, cash in hand, if the real estate market crashed- non necessarily to live, but after seeing 1 bedroom new condos in NYC go for a million bucks, a 100 year old departmento in Recoleta can only go so low before the cash will start flowing south and west.

 

[allcraz]

The other thing that makes Buenos Aires real estate unusual is the all cash sales- in the US, for example, market bubbles, and prices, are very tied to credit availability, and to interest rates. That doesnt happen here. If I have my cash invested in my apartment, which I do, there is no way I am going to sell if the prices go down- I will just wait it out. This is a very common attitude, both among expats and Portenos. No monthly mortgage hanging over your head, to MAKE you sell.
So if you cant get dollars, rather than accept pesos, you just sit. Its happened before, it will happen again, Argentines are used to it.

Exactly. At least that's what we're doing right now. We've had agents tell us at what price we could sell it at if we had to sell, but we're not in a hurry, so we're just sitting like everyone else.

 

[chris]

Heck, I know a bunch of Argentine expats, who live and work in the US and europe, who would be back, cash in hand, if the real estate market crashed- non necessarily to live, but after seeing 1 bedroom new condos in NYC go for a million bucks, a 100 year old departmento in Recoleta can only go so low before the cash will start flowing south and west.[/quote]

There may be some apartments like that in Trump buildings but the prices you state are not typical. I've been following closely, via Zillow, Manhattan apartment prices on the East Side from around the UN to about 51st Street which is one of the very best residential areas of the city. There are many attractive apartments (1 bedroom, around 700 sq. ft) in the $400,000 USD range. Efficiencies for under $300,000. The real estate crisis has affected New York too. I was surprised to discover that Manhattan property is affordable now. If you don't believe me, consult Zillow. Yes, there are million dollar apartments or far more expensive but the average one BR or efficiency apartment in a good neighborhood is not nearly as expensive as you suggest. In fact I'd say that this is an outstanding time to invest. The only drawback might be co-op boards that often restrict rentals if that is what you have in mind.

 

[mariano-BCN]

I've been waiting for years now to see the crash of the real state and nothing happens. I live in Europe and have to be there in BsArs on a regular base and would like to buy a flat to stay every now and then but I won't pay these ridiculous prices of agencies and owners in BsArs.
As if the city is a first world city! Look at the state of roads, water and energy supply, security, environment, diversity and quality of shops, goods and services: for sure it's not a first world city!
anyway... I'm afraid all these people saying prices of flats would crash are not right, although I wish they were right

 

[Ries]

The Argentine expats I am thinking of are married with children. They do not live in $300,000 efficiencies. They live in other cities, mostly, which are much cheaper than NYC, but, nonetheless, if there were to be a crash, and there were $100,000 departmentos in Recoleta, they would find the money.

But my point is that I dont believe there will be a crash, because even though BsAs prices are higher than many people think they should be, they are still much lower than equivalent homes and apartments in other cities. And that, unlike during the Menem years, external prices DO have an affect on BsAs selling prices, particularly for the best, well maintained older apartments in good neighborhoods.

I could never afford my apartment, if it was in Paris or Brussels or Barcelona or Torino or Vienna, or, even if it was in New York or LA- it would be double or triple or even more than what its worth in virtually any of those places.

Sure, you can buy an "efficiency", a 300 sq foot one room unit in a new concrete and sheetrock building in NY for $300,000. But for that, in BsAs, you can find an apartment 3 times that big, with hardwood floors, tile baths, 4 meter high ceilings, in a 100 year old building with marble and bronze fitted lobby, in a neighborhood with incredible architecture. Those apartments anywhere else are for millionaires only.

During the Menem years, the amount of expats with second homes in BsAs was miniscule- now, while still small compared to the overall population, its much bigger, and enough to affect the high end of the real estate market. I know a bunch of people from all over the world who own places in Argentina, and none of them would even have considered it 20 years ago. But if prices started down again, many would buy additional units, and tell their friends. An average house in a good neighborhood in Vancouver is over a million- a hundred thousand dollar apartment in Palermo is not a big stretch for people who own those houses, and Canadians love to go south in the winter.

So I think that there is a mechanism of foreign buyers that would keep the really good housing from bottoming out too much, and I think that there is a trickle down affect on the rest of the market from that.
There will not be sub $100k apartments in good neighborhoods anytime in the foreseeable future, and probably few sub $200k ones. Too many German film makers and American movie stars and Spanish painters and British tango fans love BsAs.

 

[expatinowncountry]

The Argentine expats I am thinking of are married with children. They do not live in $300,000 efficiencies. They live in other cities, mostly, which are much cheaper than NYC, but, nonetheless, if there were to be a crash, and there were $100,000 departmentos in Recoleta, they would find the money.

But my point is that I dont believe there will be a crash, because even though BsAs prices are higher than many people think they should be, they are still much lower than equivalent homes and apartments in other cities. And that, unlike during the Menem years, external prices DO have an affect on BsAs selling prices, particularly for the best, well maintained older apartments in good neighborhoods.

I could never afford my apartment, if it was in Paris or Brussels or Barcelona or Torino or Vienna, or, even if it was in New York or LA- it would be double or triple or even more than what its worth in virtually any of those places.

Sure, you can buy an "efficiency", a 300 sq foot one room unit in a new concrete and sheetrock building in NY for $300,000. But for that, in BsAs, you can find an apartment 3 times that big, with hardwood floors, tile baths, 4 meter high ceilings, in a 100 year old building with marble and bronze fitted lobby, in a neighborhood with incredible architecture. Those apartments anywhere else are for millionaires only.

During the Menem years, the amount of expats with second homes in BsAs was miniscule- now, while still small compared to the overall population, its much bigger, and enough to affect the high end of the real estate market. I know a bunch of people from all over the world who own places in Argentina, and none of them would even have considered it 20 years ago. But if prices started down again, many would buy additional units, and tell their friends. An average house in a good neighborhood in Vancouver is over a million- a hundred thousand dollar apartment in Palermo is not a big stretch for people who own those houses, and Canadians love to go south in the winter.

So I think that there is a mechanism of foreign buyers that would keep the really good housing from bottoming out too much, and I think that there is a trickle down affect on the rest of the market from that.
There will not be sub $100k apartments in good neighborhoods anytime in the foreseeable future, and probably few sub $200k ones. Too many German film makers and American movie stars and Spanish painters and British tango fans love BsAs.

I totally agree with you... we bought last year in Buenos Aires a beautiful old PH for 1/8 of what we would have paid for something similar in Paris. We are not planning to sell it even when we move back home. I don't see prices of good apartment/houses in BA going south anytime soon... and if they do, let me know that I will buy another one.

 

[chris]

The Argentine expats I am thinking of are married with children. They do not live in $300,000 efficiencies. They live in other cities, mostly, which are much cheaper than NYC, but, nonetheless, if there were to be a crash, and there were $100,000 departmentos in Recoleta, they would find the money.

But my point is that I dont believe there will be a crash, because even though BsAs prices are higher than many people think they should be, they are still much lower than equivalent homes and apartments in other cities. And that, unlike during the Menem years, external prices DO have an affect on BsAs selling prices, particularly for the best, well maintained older apartments in good neighborhoods.

I could never afford my apartment, if it was in Paris or Brussels or Barcelona or Torino or Vienna, or, even if it was in New York or LA- it would be double or triple or even more than what its worth in virtually any of those places.

Sure, you can buy an "efficiency", a 300 sq foot one room unit in a new concrete and sheetrock building in NY for $300,000. But for that, in BsAs, you can find an apartment 3 times that big, with hardwood floors, tile baths, 4 meter high ceilings, in a 100 year old building with marble and bronze fitted lobby, in a neighborhood with incredible architecture. Those apartments anywhere else are for millionaires only.

During the Menem years, the amount of expats with second homes in BsAs was miniscule- now, while still small compared to the overall population, its much bigger, and enough to affect the high end of the real estate market. I know a bunch of people from all over the world who own places in Argentina, and none of them would even have considered it 20 years ago. But if prices started down again, many would buy additional units, and tell their friends. An average house in a good neighborhood in Vancouver is over a million- a hundred thousand dollar apartment in Palermo is not a big stretch for people who own those houses, and Canadians love to go south in the winter.

So I think that there is a mechanism of foreign buyers that would keep the really good housing from bottoming out too much, and I think that there is a trickle down affect on the rest of the market from that.
There will not be sub $100k apartments in good neighborhoods anytime in the foreseeable future, and probably few sub $200k ones. Too many German film makers and American movie stars and Spanish painters and British tango fans love BsAs.

Europe, especially Paris and London, are a lot more expensive than New York. I was comparing 1 BR apartments in BA with New York. How much is Recoleta per square meter - $2,700 - $3,000? Puerto Madero? $4,000-$5,000? If you calculate a good 1 BR or 2 BR apt in the best parts of BA at current prices you are talking at least $200,000 but probably much more. My point was that due to the real estate crisis, prices have dropped in Manhattan and the gap is not as great as it used to be. Not all NY apartments are concrete blocks, by the way. There are thousands of 19th century buildings. Tudor City, near the UN, is an amazing piece of 1930's architecture and you can find there anything from small efficiencies for $250,000 or 700 sq ft 1 bedroom units for under $400,000 to million dollar flats. Given the fact that New York is New York, you'd expect it to be a lot more and BA to be less. Europe is another matter. I wasn't discussing that. I was just pointing out that New York is more affordable than many think. The families you mention would most likely live in the suburbs where they can buy a big home for less. Same in BA where many have opted for gated communities.

 

[dennisr]

Gated communities, thing of the past? This should help move some real estate at rock bottom prices.

http://legales.iprofesional.com/not...s-barrios-cerrados-para-eliminar-las-barreras

 

[earlyretirement]

I agree with Chris that the USA offers some of the best values in the world right now. I'm not sure I'd use NYC as the best examples of value for the money or affordable but I do agree that there is some good value.

I dipped my toes back into the USA real estate market last year and quite happy. Even in desirable cities you can pick up good properties for 35% to 40% from prime prices. I'd stay clear of areas that will NEVER go back to prime prices like in Las Vegas. But plenty of good, desirable cities to pick up properties in the USA for the prices you'd pay in Buenos Aires or even cheaper.

I doubt prices will drastically fall in Buenos Aires in desirable areas like Recoleta, Puerto Madero and Palermo. The most important thing to remember is almost ALL real estate there is non-leverged in Buenos Aires. And in the USA, almost all real estate is leveraged.

Local or foreign owners in Buenos Aires don't have to sell and especially the Porteños will hold on to their properties forever and pass it on to their family remembers. They aren't leveraged and don't have mortgages on the properties and own them free and clear.

Here in the USA, I can get a 30 year mortgage for 3.75% or a 15 year mortgage for almost 3%! Extremely cheap loans. No such thing in Argentina. There are mortgages but almost no one qualifies and interest rates are sky high.

Also, there is nothing else safe to invest in Argentina besides real estate. So there will always be demand in good neighborhoods. (I don't count the gated communities as desirable and I think they are going to be increasingly difficult to unload).

Like others mentioned....real estate prices get cheap again and you will have people jumping to buy there again.