With the country’s economy projected to experience slight growth in 2010, there are hopes that Argentina’s real estate market will continue to improve in 2010. After a tumultuous decade of economic and political distress, the housing market will be helped by the upcoming World Cup and Olympics. See the following article from Global Property Guide for more on this.
After a tumultuous 2009, Argentineans look forward to a better 2010 for the housing market and the economy.
Argentina saw stable house prices in 2009, but transactions in Buenos Aires, the capital, declined 26% from January to October 2009 compared to the same period in 2008, according to Reporte Inmobiliario.
The global economic slowdown combined with the effects of A(H1N1) flu virus on tourism led to the decline in real estate sales.
Almost all real estate transactions are done in cash, usually in US dollars (with some in euro), as the mortgage market collapsed in the 2002 crisis. The use of cash in property transactions insulates the housing market from interest rate changes. Hence, there are rarely huge house price increases, and there are also no dramatic price falls.
Real estate activity started to pick up with the global economic recovery in the latter part of 2009. The improvement is expected to continue in 2010. It is also hoped that tourism to Argentina will be boosted by Brazil hosting the 2014 World Cup and the 2016 Olympics.
Although 2010 is expected to be better than 2009, a rerun of the double-digit house price increases during 2005-2007 is unlikely.
Once Latin America’s richest country, Argentina experienced political and economic crises from the 1950s on, due to mismanagement, corruption and political violence.
Although it still has one of Latin America’s highest GDP per capita, lasting economic and political stability is elusive.
Argentina’s economy took a freefall during 1999 to 2002, with a 10.9% GDP contraction in 2002, because its 1:1 peg of the Argentine peso to the US dollar combined with government over-spending, proved unsustainable, triggering a debt crisis.
The 1:1 peg was abandoned, leading the peso to fall to US$1 = ARS$3.52 by the end of 2002. The country fell into chaos, there was mass unemployment, and an inflation rate of 26%.
President Nestor Kichner, elected in May 2003 in a snap election, implemented debt renegotiations combined with drastic economic reforms.
Kirchner’s combination of active measures for social justice, support for human rights, and budgetary restraint, helped the economy gradually stabilize and recover. The economy grew by an average of 8.8% annually from 2003 to 2007.
Following the economic recovery, the average price of used apartments in Buenos Aires rose by 13% in 2007, following price rises of 16.4% in 2006, and 13.5% in 2005, according to Reporte Inmobiliario, which maintains a database of Buenos Aires residential property prices.
The strong growth of house prices continued until mid-2008, then grounded to a halt. Contagion from the global financial meltdown pushed economic growth down to 6.76% in 2008, then 2.5% in 2009.
How expensive is Buenos Aires? Prices of apartments in Palermo, the city’s biggest neighbourhood and one of the most expensive, range from US$1,700 to US$ 3,000 per square meter.
In Recoleta, apartments sell from US$2,500 to US$5,000 per square meter, according to Guichon Propiedades, a Buenos Aires based real estate firm.
Rents and yields
Argentinian landlords enjoyed yields of 11% during the period between 1980 and 2000, but during the crisis of 2002, while house prices (quoted in US$) initially remained at their original levels, rents dropped dramatically because local wages were devalued against the US$.
Yields fell precipitously to 4.0% in 2002, 3.9% in 2003, and to 3.8% in 2004.
Rents began to rise strongly again during the economic recovery. Yields rose to 5.3% in 2005, 5.5% in 2006 and to 5.3% in 2007, according to data from Reporte Inmobiliario. This recovery in yields was followed by a strong upward movement in house prices.
The global financial crisis and the A(H1N1) flu pandemic hit tourism in 2009, pushing rents down in 2009. Gross rental yields in Buenos Aires prime areas fell to 7.7% in 2009, from an average of 9.4% in 2008, according to research by the Global Property Guide.
In October 2009, rental yields for apartments in Buenos Aires ranged from 6.4% to 7.4%. Rental yields for houses were higher, at 6.7% to 9%.
Construction activity down
Data from Reporte Inmobiliario confirms a continued decline in construction activity in 2009. The number of units supplied from January to October 2009 was 60,093, lower than the 64,336 units during the equivalent period in 2008. That in turn was 20% down on the 82,449 units in 2007.
2008 was a difficult year. From July, new housing projects were required to apply for a feasibility study. New developments also met resistance from residents in some up-market areas, amplifying the reasons to build in low-end neighborhoods.
2007 was a year of much new construction, but also of rapidly rising construction costs, as the cost of land had risen dramatically. Higher costs pushed developers to build smaller units, the fastest-growing category being below US$100,000.
The Kirchners’ fall from grace
Cristina Fernandez, the attractive and popular wife of former president Nestor Kirchner, swept to victory in the first round of Argentina’s presidential election in October 2007 – fighting the election largely on Mr. Kirchner’s record.
However, political support for the Kirchners has waned. President Kirchner’s price controls have been combined with an increase in government spending, leading to inflation which is generally believed to be at least twice the official figures. The Minister of Economy, Felisa Miceli, removed an officer of the National Institute of Statistics and Census of Argentina in charge of calculating the inflation indexes.
This is one of several examples of an increasingly authoritarian style of government. There were other mis-steps. A controversial export tax sparked months of farmer protests, before being canceled in July 2008. Then came the recession. Then a state of emergency was declared due to a drought, the worst in decades.
The Kirchners failed to face these problems satisfactorily, and lost their majority in both houses of the parliament. Kirchner also lost his bid to gain a seat in the lower house.
The IMF forecasts GDP growth of 1.5% in 2010 and 2.5% in 2011. Inflation is officially expected to be around 5%, slightly lower than the 5.5% in 2009, but then few people believe these figures.
This article has been republished from Global Property Guide. You can also view this article at Global Property Guide, an international real estate analysis site.