Concise report on the Argentine market ( from
http://www.realestateandeconomy.com/nuke/modules.php?name=News&file=article&sid=683)
What is actually happening nowadays in the Argentine real estate market? Present situation and prospects for a market that is always full of surprises.
Argentina, with a small real estate market if compared to other world economies, has always shown an important boost from the construction area, especially in the past decades of the 60s and 70s. However, already in the 80s and 90s this boost was stabilizing, contrastingwith the demographic growth that had naturally taken place.
The end of the 90s started to show a recession in the sector, given the small interest shown by local real estate investment to the detriment of “easy” financial options that, on the other hand, could be aimed at a broader consumer.
On top of that, the macroeconomic crisis was at its most, and eventually led to the financial crisis that came to be known as “corralito financiero” (1) and the strong currency devaluation. But suddenly, a great surprise: Argentina’s 2002 institutional collapse (that followed “corralito”) had led to believe that the local real estate business would be one of the most affected; however, the crisis seemed to be the "pacemaker" that the construction-real estate sector’s "heart" needed… a sector that had been showing signs of problems on the demand side and also at maintaining real- estate values stable ever since 1999.
After 2002, with a lack of investment options in sight and with money fleeing from the financial system due to the court-ordered injunctions (“amparos” (2)) “people” (3) of a middle- high and high socio- economical level started to buy real estate properties.
This new scenario allowed the sector entrepreneurs to think of new developments once again. The developers that had managed to remain in activity by the end of the 90s were already few, what permitted new players to enter the market field. Many of them had little experience, but also many others had a great deal of academic knowledge. In this way, a new reality was born: traditional developers next to a new generation and almost all of them constructing for the same type of buyer, one with high purchasing power and trying to safeguard his savings.
What was unexpected was that from the beginning of 2003, these buyers or savers were feeling more than satisfied with what this new market offered them: interesting profitability in dollars of an annual rate that was never below a 20% in addition to value appreciations of the property in which they were investing, of an annual rate over the 15%. To sum up, it could be said that very few investors have yielded annual profits below 30% in the last 3 years (in dollars). How do we put an end to the snowball- effect now? Does it need to be stopped? We really don’t know if the snowball size has reached its maximum or can still grow bigger.
The increment in construction levels during 2004, 2005 and 2006 that has almost come to double itself, shows a very motivated sector and with no signs of stopping its activity level at least in the short term. The truth is that demand has not fallen and let alone prices.
The alert has appeared so far in the sustained and very stable property demand level but with a strong increment in the supply of new properties. The Argentine market, at a local level, faces this new reality today, which is partly very similar, except for some differences, to what happens worldwide regarding targets at which projects are aimed without the help of credit.
On the other hand, it is a safer market, if compared to other latitudes´, since it is not leveraged by credit; but it is also a less predictable one, though: how long will dollars keep coming out from under the bed? Are we an emerging real estate market? Will all foreigners that local developers expect come to Buenos Aires to acquire real estate?
Reality shows that some investors will definitely keep coming to buy local assets, but most probably they will not be as many as to lever up on their own, the majority of developments aimed at the same type of buyer. The global liquidity availability and the cultural reassessment of real estate investing play a role partially in the contribution to the intention of “exporting real estate”, but this can reach its limit and it seems improbable that the market and construction sector can crow steadily in the long term by aiming only at the foreign buyer or local premium one.
© Real Estate & Economy Report, November 2006
