Will the Economic Crisis in the USA Effect Argentina?

[gouchobob]

Actually, this thread was started in late 2008, not 2006, and not long enough ago to forget stanexpat and his posts (which sound a lot like yours, gouchobob). He also suggested that those involved in the sale of real estate were pursuing their own gain when posting anything positive about the market here. He "predicted" that BA apartment prices could significantly decline by the end of this year, but it certainly hasn't happened yet and I doubt it will, at least not in the better areas (though significant declines in the prices of "second" homes in the provinces is already a reality). There have been a number of other threads that have also dealt with this topic.

There has been some information published recently about real estate sales: volume was reported down by 38% in Capital Federal from last year (I believe for the month of July). Though the volume of sales was certainly down, prices are generally still higher than they were in 2006. I agree with Pericles. In fact, it was Pericles who sold my apartment in Recloeta this past June and I immediately bought another apartment in Belgrano. I accepted an offer with a discount of 2% off my asking price and I was only able to get a 3% discount on the PH I bought (both were reasonably priced in the first place and I did sell for more than I paid in 2006).

I cannot predict the future, but I do know one thing. If I were to rent an apartment for $1,000US a month for the next five years I will spend $62,000 dollars and have nothing to show for it except rent receipts and a depleted bank account. Anyone who buys an apartment today for $100,000 will still have an apartment five years from now. Is it likely that the price of the same apartment will drop to $38,000? I doubt it.

I am even more concerned about the "underlying economics" of the United States than I am about Argentina, given the "fundamental change" in the "kind of government" that is taking place there now. As the money supply in the US has doubled in the past year and the national debt has quadrupled, inflation will probably follow. That certainly doesn't entail a decline in real estate prices in Buenos Aires. Prices of BA properties (in dollars) could actually rise, perhaps significantly, as dollars become worth less and less and less.

You are right the thread dates from 2008 not 2006, I must get new glasses or have the font enlarged on my computer. Your point is that you have to pay a $1000 a month to rent an apartment that's worth a $100,000. That's actually a very good way of looking at it. You are saying you can get rent equal to 1% of the purchase value a month which seems almost to good to be true. The last numbers I saw for B.A. are at about half that or .5% a month. That says on a $100k apt the rent should really be about $500 a month. If that's true I could rent for $6k a year. I know where I can get more than that on a $100k per year, i.e. it's cheaper to rent than own. This of course doesn't factor in any potential decreases or increases in the value for the real estate. However, RE in B.A. is certainly declining as it is elsewhere, that plus a very bad political/economic situation in Argentina is the basis for my statement that any investments here are high risk. This is just my opinion, and time will tell if I am right.

 

[perry]

I understand many would like prices to drop significantly as buying a property is the largest investment that one makes in most cases. The truth of the matter is that prices in premium areas of Palermo Nuevo, Recoleta, Belgrano and finer parts of Barrio Norte are stable and selling well.

In Buenos Aires 80 percent of purchases are done for family purposes and not as investment properties meaning that most purchases are still being transacted. Foreign investment has decreased between 70 to 80 percent but in the last months there is a slight improvement from European investors due to the strong Euro. If you look at the price of properties in Capital federal in Euros terms the prices have dropped 15 percent in the last months.

The reality for many is do you rent a apartment for 5 years or do you buy and for me renting is not an option as rental for a good two bedroom apartment is around US $ 1200 month meaning a minimum investment of US $ 75000 over 5 years. If you buy the same apartment and furnish it you should achieve parity or lose very little on your investment.

Too many people are comparing Apples with Oranges Buenos Aires is not Miami, Detroit , Salt Lke City or Boise Idaho. Sure there are cheaper cities to buy in but the truth for most there is only one Buenos Aires and there is a special energy that keeps people returning even when they profess to dislike it.

As stated very eloquently by Steve buying an apartment for personal reasons ie living full time is a no brainer as the chances of losing monies are very low at the current prices of purchase in dollars. I suggest to all that they take their time looking for properties as there are good deals and bad deals and with patience a excellent purchase can be made.

 

[Ries]

The last numbers I saw for B.A. are at about half that or .5% a month. That says on a $100k apt the rent should really be about $500 a month.

First- where did you see these figures?
A link would be great.

But second, you are committing the common "consumer" mistake- you are confusing net with gross, or retail with wholesale.

The "return" on an apartment in B.A. may indeed be .5%- I dont know.
But the "return" is AFTER expenses- this means the actual rental price includes the "return", and then, on top of that, in includes the building fees, the city taxes, the utilities that the landlord pays, the repair fees, and so on.

So nobody actually rents apartments that cheaply in desirable neighborhoods- they hope to net that much, after expenses, but even then, there are always unexpected expenses.

Steve is right though- at the ratio between rents and sales prices, Buenos Aires is a much better place to buy then, say, Seattle- In Seattle, on Capitol Hill or Queen Anne, a 3 bedroom house will sell for between $500,000 and a couple million- and the rent could be as low be $2500 to $5000- meaning the return is much lower- half or less than in BA. And ALL expenses in the USA are more, especially property taxes. Half your rental income could go to property taxes alone.

However, buying an apartment to rent out is a business, and not one that amateurs usually make money on- especially in BA. You would need to be really lucky, or working at it full time, to make decent income on multiple properties- I know a lot of part timers who own in BA and rent their apartments out part time- and none makes back much money. Certainly, they mostly do worse than CD's, and CD's dont pay much of anything these days.

I think the idea that you could buy ONE apartment, and make income from it, absentee, is foolish. You could reduce your own expenses on it, but profit? I havent seen it, especially if you are paying local property managers and rental agents, paying for cleaning, utilities, and so on.

If you live here full time, manage your own units, and have several, that would work.

 

[gouchobob]

First- where did you see these figures?
A link would be great.

But second, you are committing the common "consumer" mistake- you are confusing net with gross, or retail with wholesale.

The "return" on an apartment in B.A. may indeed be .5%- I dont know.
But the "return" is AFTER expenses- this means the actual rental price includes the "return", and then, on top of that, in includes the building fees, the city taxes, the utilities that the landlord pays, the repair fees, and so on.

So nobody actually rents apartments that cheaply in desirable neighborhoods- they hope to net that much, after expenses, but even then, there are always unexpected expenses.

Steve is right though- at the ratio between rents and sales prices, Buenos Aires is a much better place to buy then, say, Seattle- In Seattle, on Capitol Hill or Queen Anne, a 3 bedroom house will sell for between $500,000 and a couple million- and the rent could be as low be $2500 to $5000- meaning the return is much lower- half or less than in BA. And ALL expenses in the USA are more, especially property taxes. Half your rental income could go to property taxes alone.

However, buying an apartment to rent out is a business, and not one that amateurs usually make money on- especially in BA. You would need to be really lucky, or working at it full time, to make decent income on multiple properties- I know a lot of part timers who own in BA and rent their apartments out part time- and none makes back much money. Certainly, they mostly do worse than CD's, and CD's dont pay much of anything these days.

I think the idea that you could buy ONE apartment, and make income from it, absentee, is foolish. You could reduce your own expenses on it, but profit? I havent seen it, especially if you are paying local property managers and rental agents, paying for cleaning, utilities, and so on.

If you live here full time, manage your own units, and have several, that would work.

Actually, I your thinking and mine are fairly close together on this. The .5% return on apartments I read in La Nacion there a year or two ago.

I think my comments have been misunderstood. If you are looking at real estate the underlying value of the property is what it will generate in rent. You simply take the rent divide what rate of return you want to arrive at a price. If you are paying more than this it's probably cheaper to rent. Your example of a house renting for $2500 illustrates my point exactly. If you can only rent it for $2500 why would you want to buy it at 500k as an investment? Your rent will produce only $30k a year gross income, before taxes, maintenance etc. and that assumes it rented out 100% of the time. Buying and renting at these prices would result in very low returns in my opinion, either the rent is too low or the price is to high, my guess it's the later. In this case it would be clearly cheaper to rent.

If you are looking at RE as an investment then it really doesn't matter whether it's in B.A. or anywhere else. If somebody wants to buy an apartment or other property in Argentina the same rules apply. The only difference I would apply to Argentina is that I would want a significantly higher rate of return than I might in another country with less political and economic risks. What I see of prices versus rents I doubt there are very few properties I would be willing to invest in today.

RC, brought up the point that there are better deals elsewhere, I would agree. Right now in the states for example in some of the areas hardest hit by the bubble bursting, properties can be had at
50%-70% off the peak prices of 2 or 3 years ago. As investment the numbers work as well.

Just look at Detriot, not a place where I would want to live, but maybe a good place to buy real estate as investment. People are paying $10k for houses and renting them out for $700-$800 a month. An investor would have his money back in under two years!

 

[Ries]

Detroit?
You cant be serious.
I can say, without being facetious in the least, that Baghdad would be a better investment than Detroit.
Baghdad is going to come back some day.
Detroit is unlikely to.

Detroit is down to under 1/3 of its peak population, entire neighborhoods are going back to wilderness. The City is bulldozing between 10,000 and 30,000 houses every year, abandoned by the owners.
There is no work, no tax base, and no interest in investment by anyone with any sense.

Great article in this week in the Wall Street Journal about the history of one such house- now for sale for $7100, but it is in a "good" neighborhood.
http://online.wsj.com/article/SB125390841258341665.html
At the end, a non-profit says they think they could restore this house for $35,000- but they are local, have access to all kinds of tax breaks, low interest loans, and government programs you or I dont, and are figuring on sweat equity from the future owners.
For a normal "investor", I think a more reasonable amount would be $50,000 to $75,000.
Thats because all those $10,000 houses in Detroit are STRIPPED- no plumbing fixtures, broken windows, no radiators, water damage, and so on.
So the real price of a $10,000 home is more like $100,000, by the time you get it rentable.
And thats assuming you live in Detroit, are able to be your own general contractor, and are able to do much work yourself. Even then, certain neighborhoods are never going to be rentable again, no matter how nice you fix up the house.
I would not want to be a landlord in Detroit at any price- its a grim place.

Great blog about it here- with incredible pictures of devastated neighbohoods going back to nature. Frankly, Hiroshima looked much better in the early 50's.
http://www.sweet-juniper.com/search/label/abandoned places/

Check out the aerial photos on this page- see the utter devastation of this average Detroit neighborhood-
http://www.sweet-juniper.com/2008/11/follow-up-jane-cooper-school.html

And then, try to tell me with a straight face that it would be a better financial decision to buy houses in Detroit, than a nice 2 bedroom in Barrio Norte....

 

[gouchobob]

Yes I am saying it with a straight face. See the link on people doing this now.

http://www.mlive.com/news/detroit/index.ssf/2009/08/cnn_realestate_investor_michae.html

I know there are a lot of people doing this, Canadians, people from the U.K. are also involved.

They wouldn't be doing it on this scale if they weren't making very good money. My guess is that on annualized basis they are making 40% on their investment when they buy and flip, and probably 30% on the rental properties. If you know where you can do better than this investment in Argentina let us all know.

Of course I'm making distinction between buying a place for live in versus one as an investment.

 

[perry]

Yes I am saying it with a straight face. See the link on people doing this now.

http://www.mlive.com/news/detroit/index.ssf/2009/08/cnn_realestate_investor_michae.html

I know there are a lot of people doing this, Canadians, people from the U.K. are also involved.

They wouldn't be doing it on this scale if they weren't making very good money. My guess is that on annualized basis they are making 40% on their investment when they buy and flip, and probably 30% on the rental properties. If you know where you can do better than this investment in Argentina let us all know.

Of course I'm making distinction between buying a place for live in versus one as an investment.

To me when I hear the word flip I run . if you are buying a property for the purpose of a quick profit do not do it here or anywhere . For anyone to purchase here it is because they enjoy the city of Buenos Aires through all of its faults.

Gouchobob to compare Buenos Aires with Detroit is a most unlikely one . Do you know that the yearly taxes on properties in the USA are more than the cost of buying a property in Detroit . People are giving away properties in that city for the simple reason its cheaper than keeping the liability.

Buenos Aires is comparable to San Francisco , Vancouver, Toronto, Sydney, Seoul, and most European cities . What you have here in dirt and grime is more than compensated in excellent cultural and night life which puts most European cities to shame.
Now tell me if the prices per square metre compare?

 

[gouchobob]

To me when I hear the word flip I run . if you are buying a property for the purpose of a quick profit do not do it here or anywhere . For anyone to purchase here it is because they enjoy the city of Buenos Aires through all of its faults.

Gouchobob to compare Buenos Aires with Detroit is a most unlikely one . Do you know that the yearly taxes on properties in the USA are more than the cost of buying a property in Detroit . People are giving away properties in that city for the simple reason its cheaper than keeping the liability.

Buenos Aires is comparable to San Francisco , Vancouver, Toronto, Sydney, Seoul, and most European cities . What you have here in dirt and grime is more than compensated in excellent cultural and night life which puts most European cities to shame.
Now tell me if the prices per square metre compare?

I don't think you read my posts.

 

[jedard]

All well and said. I wonder why when the dollar is falling the rate here goes up. Is this because the peso continues to be devalued. Of course!
Every 10 years this country is hit hard and 2010 is the next year for this to happen. So watch out Argentina, and look for the IOUSA green back to fall at least 20% or more by March.
The IOUSA continues to print money to no avail. The BRIC is gaining momentum and Argentina seems to have joined this elite group. China is going to trounce the IOUSA in the next financial turnaround. Can Argentina succeed? Not with the present government! Argentina is and shall continue to be a boon for the foreign investors, so " all aboard."

 

[mini]

Argentina is and shall continue to be a boon for the foreign investors, so " all aboard."

You are saying Argentina is a GOOD place to invest? If it's getting ready for a crisis I would think that it's a bad place to invest.