Tough Times Ahead?

[Fettucini]

Does anyone know of any good links on worldwide inflation? It would be useful to see a chart displaying the breakdown of inflation worldwide. I'm sure that certain countries are experiencing inflation at the higher rate, compared to Argentina.

This site http://indexmundi.com/ measures inflation rates in all countries, good to compare Argentina to others, although AR inflation rates shown here are Christina's imaginary ones

 

[Stanexpat]

Nice to hear that people are bullish on Argentina and that market forces that apply in other parts of the world aren't applicable here.
[Optimism is] the obstinacy of maintaining that everything is best when it is worst. Voltaire (1694 - 1778)

 

[steveinbsas]

Yes but you can't have a sustainable city if there are only one or two enclaves of very wealthy neighborhoods and the rest slide backwards. You need a middle class that LIVES THERE in order to drive civil improvements, security, etc. If the middle class leaves the city to live in more affordable areas (suburbs, etc) - then who will fill these neighborhoods? And if most of the city becomes unsafe, how long do you think those ultra-rich will live in the high priced areas?

I'm not sure how the middle class in the city drives civil improvements, but I don't think they will soon be leaving for the suburbs in great numbers. The vast majority of the population of the city will stay put, hoping indeed not to slide backward into the villas de miseria. Unless I am mistaken, civil improvements here are based on a "those in power granting favors to business cronies" at a level that is only dreamed of by those who do the same in the US. Give me extra homework if I am in error.

There are many who don't think the city is such safe place already, but that depends on the definition of safe, doesn't it? When and if dozens of small retail shops and real estate offices close in areas like Palermo and Recoleta and are not quickly replaced by new businesses, it will certainly be cause for alarm, but that has yet to happen.

 

[bigbadwolf]

Unless I am mistaken, civil improvements here are based on a "those in power granting favors to business cronies" at a level that is only dreamed of by those who do the same in the US. Give me extra homework if I am in error.

Agree with the rest of your post so have snipped it out to save bandwidth. With regard to the close relationship between politics and real estate and construction interests, take a look at this article by Steve Sailer:

It's important to understand that practically every politician who comes up through the ranks from state and local government owes favors to real estate interests. (Consider how now-convicted slumlord Tony Rezko sponsored Barack Obama's career.)
Why? Because developers are more interested in local and state politics than anybody else is. (C'mon, admit it, local politics seem kind of boring.) They're interested because they have financial interests in land use decisions.
Politicians control developers, so developers control politicians.

Mike Davis covers more on the complicity between US politicians on the one hand and real estate and construction interests on the other in his books on Los Angeles, NYC, and San Diego.
It's naive to think there's less corruption in the US (or the UK) than in Argentina.

 

[steveinbsas]

Nice to hear that people are bullish on Argentina and that market forces that apply in other parts of the world aren't applicable here.
[Optimism is] the obstinacy of maintaining that everything is best when it is worst. Voltaire (1694 - 1778)

Stan, I remember that you recently referred to the "historical norm" regarding the prices of real estate in BA and how it would eventually affect the "bubble" here. Doesn't the concept of the historical norm entail the fact that real estate prices will adjust in the long term to a level where mortgage payments are roughly equal to rents? Aren't the absence of readily available mortgages, the lack of belief in the security of banks, inflation in general, and even less faith in the future the value of the peso market forces that actually serve to drive up and sustain real estate prices here?

 

[CABJ]

It's naive to think there's less corruption in the US (or the UK) than in Argentina.

You must be right and everybody else must be wrong

 

[Stanexpat]

Steveinbaas, you actually asked several questions and I am reluctant to
turn this into yet another discussion on real estate values here. Yes I
would agree that prices and rents are related over time. Both of these
factors are directly to local incomes. If prices get to high and people
can't afford property or rents then values and rents will over time
fall back into line with incomes. This is the process thats going on in
the states now. I
don't see that the lack of mortgages, bad banks, lack of confidence in
other local investments necessarily means Argentines will rush to real
estate or prop up prices here. All the factors you mentioned would make
me believe many Argentines would want to invest their money outside of
the country, which is exactly what a lot of them do.I read here
one time that locals consider a 1/2 of a percent per month of the value
of a property is a rule of thumb for renting property. I rented a house
here for $1,400 a month and later tried to buy but the owner wanted
$280,000 which I didn't think it was worth. It works out that this guy was getting his 1/2 percent. So
over a year he grossed $16.8 (12x 1400), out of that he has to pay
taxes and pay for upkeep on the house so he is actually going to net
quite a bit less than this. Is this a good deal for him, no. $280k
invested at 7%(what I was getting on my own money at the time) would
gross him closer to $20k without doing anything. I've been a landlord
and there is a lot of work in keeping up the property, hassles with
tenants, and periods in between tenants where nothing comes in.

My guess is that there are a lot of people here getting 1/2 a
percent. If that's the case then the rents are too low or the prices
are too high. My guess is that the prices are too high. Will
there be crash here? I don't know. If prices have doubled and tripled
in a few short years then you would have to believe they have become
overvalued. Property can be overvalued for years before there's a
correction. If I'm right and current rents don't support current prices
the most likely time for a correction would be during an economic
downturn here which was the topic of this thread.

 

[steveinbsas]

Thanks, Stan. I appreciate your comments and analysis. It would be interesting to know what percentage of BA apartments are owner occupied versus rented, and what percentage of apartments in Recoleta, Palermo, and Puerto Madera were purchased by foreigners in the past few years. Do you happen to know where these statistics might be found?

 

[palermo_couple]

What makes you think "everything will become cheap

again" if (when) there is another crash of the Argentine economy?

Things only became cheap in Argentina for foreigners with dollars and

euros after the peso was massively devalued in 2002

This is correct and it surely would depend on how the gobierno
would and could handle a new crisis.

Obviously, you have recently arrived. It will be interesting to
see what you think
after you have lived here for a year or two. Were you aware of the political and
economic history of Argentina for the past 35 years when you made the decision
to come here...or the past ten...or even the past two?

Obviously you are right. I will let you know in a year or two.

Yes, I were aware very well.
I lived in Chile before moving here. Chile has a more stable economy
(at least in the past years) and is relatively secure but is quiet boring.

Being a new forum member and being new to BsAs doesn't always mean
that "newbies" don't know nothing ...

Saludos

 

[CABJ]

Steveinbaas, you actually asked several questions and I am reluctant to
turn this into yet another discussion on real estate values here. Yes I
would agree that prices and rents are related over time. Both of these
factors are directly to local incomes. If prices get to high and people
can't afford property or rents then values and rents will over time
fall back into line with incomes. This is the process thats going on in
the states now.
I
don't see that the lack of mortgages, bad banks, lack of confidence in
other local investments necessarily means Argentines will rush to real
estate or prop up prices here. All the factors you mentioned would make
me believe many Argentines would want to invest their money outside of
the country, which is exactly what a lot of them do.
I read here
one time that locals consider a 1/2 of a percent per month of the value
of a property is a rule of thumb for renting property. I rented a house
here for $1,400 a month and later tried to buy but the owner wanted
$280,000 which I didn't think it was worth. It works out that this guy was getting his 1/2 percent.
So
over a year he grossed $16.8 (12x 1400), out of that he has to pay
taxes and pay for upkeep on the house so he is actually going to net
quite a bit less than this. Is this a good deal for him, no. $280k
invested at 7%(what I was getting on my own money at the time) would
gross him closer to $20k without doing anything. I've been a landlord
and there is a lot of work in keeping up the property, hassles with
tenants, and periods in between tenants where nothing comes in.

My guess is that there are a lot of people here getting 1/2 a
percent. If that's the case then the rents are too low or the prices
are too high. My guess is that the prices are too high.
Will
there be crash here? I don't know. If prices have doubled and tripled
in a few short years then you would have to believe they have become
overvalued. Property can be overvalued for years before there's a
correction. If I'm right and current rents don't support current prices
the most likely time for a correction would be during an economic
downturn here which was the topic of this thread.

To maintain the appartment he will NOW need 300 to 400 dollar a month (and without management fee/salary), his nett profit will be around 4% and he will have a tough time renting the appartment for 1400 dollar a month once you leave
I would prefer to deposit the money(around 3600 peso a month of nett-income in Europe and a bit more in higher risk EU countries)
I know what I would do