Following five years of strong growth the construction industry in the Argentine capital Buenos Aires has begun a new cycle. In 2008 the total number of construction permits authorized by local authorities reached 2.5 million square metres which represents a contraction of 20.3% compared to 2007, and anticipates a decline in activity for this year, according to a report from the local consultants Real Estate Report.
The evolution of construction permits is considered a crucial indicator for the industry to anticipate market activity, since requesting them is not cheap, paper work is abundant and gives a clear idea of the investors’ interest to turn the project into something tangible.
According to the report in spite of the contraction, not all was bad news for the sector since during the first half of 2008 construction permits had dropped 27% compared to the same period the year before, and in some areas of Buenos Aires City the number of projects actually doubled and in some cases trebled.
The report also indicates that there’s not an only reason to explain the current evolution but rather a collection of causes among which the Argentine government’s dispute with farmers; the unexpected nationalization of pension funds and the global financial crisis, which has had an impact on real estate investment all over the world.
On the positive side, there has been a considerable deceleration of the construction industry costs with prospects of further advances on that same path, which after five booming years (rising costs) had become the main concern for the industry.
“Deceleration of the increase in construction costs which begun last year does not seem to act yet as the necessary incentive which could leave aside other doubts regarding demand”, admitted Jose Rozados from the Real Estate report.
However in spite of the weaker activity, the Buenos Aires construction industry remains optimistic about mid and long term prospects. “Contrary to what has happened in the majority of housing markets in the developed world, with a saturated supply, Buenos Aires still is suffering from a strong deficit of homes and office space, so we are convinced that demand will return once expectations change” said Alberto Fernandez-Prieto, president of the Real Estate Construction.
Raúl Sáenz Valiente from Creaurban and Vice-president of the Argentine Chamber of Urban Developers said that in the specific case of Buenos Aires “the real estate market is reaching its roof”.
“Since 2003 we’ve seen how real estate boomed at unparalleled rates and most of the idle plots of the city were taken over to build, so it’s only normal that at some point a peak of activity had to be reached followed by a decline”, he added.
Furthermore since the financial crisis of 2001/02 Argentine savers have preferred to invest their money in land and housing and the current situation with so much monetary volatility and uncertainty seems to confirm that real estate has become a safe haven, particularly for small investors.