Property Futures

Real Estate News, Reviews and Investment

Real-Estate Markets in Argentina Under Pressure

Article: Impending currency depreciation and inept economic management weigh down Argentinean property markets.

The aggressive intervention by the government in the economy has caused many experts to revise GDP growth forecasts downwards and to expect a significant devaluation of the peso sometime in 2013.  A sharp deceleration in the construction sector is expected, with growth dropping from 9% in 2011 to 2.8% in 2012.

In Argentina, it appears that political opinion is turning against President Cristina Fernandez de Kirchner, her government and policies, and it is more than likely that seats would be lost in the next election.

The possibility of a large loss – if the opposition exploits the economic situation effectively – could shackle the government and play a decisive role in the 2015 presidential election.

Real estate activity in 2012 in Argentina

2012 has been the worst year in the real-estate market since 2002.

  • Buyers are unable to buy dollars with which to pay sellers.  This combined with the uncertain outlook about the devaluation of the peso means sales volumes dropped more than 40% in November 2012 year on year.
  • Prices did not drop much and the decline was only 15% in dollar terms year on year.
  • Prices in 2013 will depend on how much the currency depreciates.  If there is a soft depreciation, prices should be flat and could even drop if the quantum of depreciation exceeds the inflation rate.
  • It would therefore be better to build than to pay for property at its original US dollar asking price.

Argentinians have become accustomed to crisis and responding swiftly. The obvious solution to the lack of supply of dollars has been to denominate real-estate transactions in Argentine pesos – and this has happened in a big way with listings before construction.

However, the high rate of inflation would require adjustment with the help of an acceptable index.

  • A clear indicator of the demand for real estate as an investment is the increased demand for residential rental property.
  • The vacancy rate for low-end property is virtually zero and investors can expect a 6% return on investment.

Affordable property in Argentina

Some new numbers have become available that provide information on affordable real estate outside Buenos Aires. The nationwide survey concentrated on the average price per square foot for existing 2 and 3 room houses in cities in the interior.

  • The 3 most expensive markets are Bariloche (USD $185), Mar del Plata (USD $150) and Comodoro Rivadavia (USD $138),
  • The 3 least expensive cities are San Miguel de Tucuman (USD $110), Rio Gallegos (USD $107) and Catamarca (USD $104).
  • 3 Argentinean cities popular with foreign investors rank somewhere in between Cordoba (USD $124), Mendoza (USD $122) and Salta (USD $113).
  • Last year, average prices in these markets grew by between 7% and 19% with Posadas and Rio Gallegos recording the biggest jump in average prices and  Corrientes and Mendoza recording the smallest jump.

The bottom line

The Argentine government is compelling insurance companies to invest in infrastructure and this raises further doubt about the business environment in the country.  The move will however inject liquidity into a sector that is badly strapped for cash.

The government has made a number of policy adjustments to boost investment in infrastructure, which should be positive for the real-estate market.  I believe that Argentina is best avoided for the moment as an investment destination until there is clarity about the political and economic situation.

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