Tuesday, August 28th 2012 - 04:29 UTC

Buenos Aires Aires real estate market faces the challenge of slowdown and ‘pesification’

The Argentine real estate market has witnessed stunning growth over the last decade but growth of the sector appears to have come to an abrupt and dramatic end in the seven months of this year.

Thousands of construction workers have lost their jobs

According to the “2001-2012 Relevamiento de Mercado Inmobiliario en la Ciudad de Buenos Aires” (Overview of the Buenos Aires Real Estate Market  2001-2012) prepared by the Urban Development Ministry of Buenos Aires, the price of land between March 2002 and December 2011 increased from 272 dollars 1.680.2 dollars per square meter.  Between 2001 and 2011, apartment prices increased from 891 dollars to 2.168 dollars per square meter.

Apart from Argentina's strong economic growth after 2003, the real estate market growth was powered by the increasing purchase by Argentines of real estate as a defensive hedge in the face of increasing inflation and concerns about banking system stability. These purchases became, in a sense, a second-resort fixed asset alternative to traditional capital market investment options. Regardless of the implications of substituting real estate purchases for banking sector transactions for the Argentine financial system as a whole, it was clearly the case that the real estate market heavily benefited from both the positive and negative elements of Argentina's economic situation. 

But is all seems to have come to an abrupt and dramatic end.  According to iprofesional.com, property purchases and sales in Argentina could drop 60% for two consecutive months, representing the worst fall in a decade.  Echoing this slowdown, it has been reported that in Buenos Aires in June square meters approved for construction dropped approximately 50% year on year.

Issues related to the market freeze go far beyond a mere decline in real estate sales volumes.  According to one source, more than 100 real estate companies have shut their doors in Buenos Aires and thousands of construction industry workers have lost their livelihood.  An estimate has put this number at an incredible 75.000 workers, a significant portion of the construction workforce. 

In addition to the general drop in real estate activity, a key factor forcing the market down is the unwillingness of sellers to accept Argentine pesos, for fear of their declining purchasing power given high rates of inflation that many believe are significantly higher than officially reported levels. The spread between official and unofficial currency markets has now reached approximately 40%.

As sellers have increasingly insisted on receiving payment for properties in US dollars, it has become increasingly difficult for buyers to find them. Most forms of foreign currency purchases are banned, and Argentines must apply to the national tax agency AFIP to purchase dollars. These requests, in the face of declining foreign reserves as a consequence of foreign currency denominated debt payments and general downward pressure on the national currency have been granted with less frequency.

Given the drop in market activity, it might be expected that prices would fall, but values have remained stubbornly high as sellers continue to bet against the future of the peso and buyers remain convinced that real estate investment remains the lesser of other market evils.

Help is also not coming from foreign investors looking for bargains.  Due to the weakening economic environment and concerns about government policy, according to the central bank investors have pulled approximately 2 billion US dollars out of the Argentine economy between April and June, an increase over the previous three month period.  This trend is not likely to turn around in the short term.

14 comments Feed

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1 British_Kirchnerist (#) Aug 28th, 2012 - 11:54 am Report abuse
Of course having a real eastate boom isn't all positive if it makes housing, like in the UK, artificially expensive, so there may be positives in a bit of a slowdown. Especially with Cristina building all those new affordable homes...
2 Captain Poppy (#) Aug 28th, 2012 - 11:55 am Report abuse
Sure like her dam she's building and railroads.
3 ChrisR (#) Aug 28th, 2012 - 12:35 pm Report abuse
@1 Blind_Scottie_Kirchnerist

So 75,000 construction worker with no work and 100 companies closing their doors is a 'bit of a slowdown' worth having?

And I thought at least you would support the workers and not the crooks like your queen, TMBOA, whose totally inept 'policies' have brought about the present economic disaster.

And I would not rely on her 'building' houses for the poor. Where is the Bullet Train and all the other things that have been announced two or three times and never built?

All this sounds like the cnut Brown and his grandiose 'announcements' that never were.
4 Captain Poppy (#) Aug 28th, 2012 - 12:49 pm Report abuse
BK check out villa 31 on this link. It's the most repulsive thing see when coming from the airport to Buenos AIres. A good wind and these building will collapse. This is how your beloved ass lips takes care of the poor in argentina. Electric wires illegals tied into the poles.....it's a mess. But you've never seen it because you've never been there.
5 yankeeboy (#) Aug 28th, 2012 - 02:56 pm Report abuse
Why would anyone invest in an asset when it is plain to see it will be worth less shortly? Answer...they don't. You can't short a condo!

Kidding aside, RE is a huge driver of an economy. This is only going to get worse, there is no way to turn it around until CFK is gone.
What may happen, like it did in 2001-2002 when I was buying BA property, is people will start to get desperate, can't afford the monthly maintenance, taxes, electricity etc and they are forced to sell. I made a lot of $ buying distressed property in BA.
The reason I wouldn't do it this time is because I think this next downturn could last a generation.
They are in much worse shape than in 2001, all the hard assets are gone, politically they can't get rid of all of the subsidies and they are already running a HUGE deficit! Next we will see a HUGE devaluation, then print print print. Unfortunately that will only make everything worse.
Panic will set in as the peso tumbles then...watch out below!
6 Conqueror (#) Aug 28th, 2012 - 03:44 pm Report abuse
@1 Ah, yes. “New, affordable homes.” And where is CFK going to get the money to build these wonderful constructs? Two sources have been mentioned. Treasury funds and pension funds. But wouldn't the treasury need to be saving its pennies to help pay off the remaining US$80 billion of debt? The pension funds then. So do people have to choose between a home and a pension? Never mind, they CAN borrow up to 40% of their income. Unlike the UK, where one can borrow between 200 and 300% of income. And did I not see that the interest on the loans will be around 17%. So what are these “affordable homes”? Dog kennels? Bird cages?
7 yankeeboy (#) Aug 28th, 2012 - 05:01 pm Report abuse
all those new affordable homes....it went from 400,000 to 4,000 IN THE WHOLE COUNTRY...and still she can't figure out how to pay for them! Anses is depleted and I just read an article today saying BCRA only reports currency gains and not losses ( just like the Chinese). If my calculations are correct they have about U$9-11B in hard currency reserves, the rest are all gone.
8 redpoll (#) Aug 28th, 2012 - 05:24 pm Report abuse
Pesification or pestification?
9 slb (#) Aug 28th, 2012 - 08:04 pm
Comment removed by the editor.
10 Captain Poppy (#) Aug 28th, 2012 - 09:11 pm Report abuse
And yet 62% of Americans own there homes. Arizonia is like villa 31 sussie
11 BAMF Paraguay (#) Aug 28th, 2012 - 09:35 pm Report abuse
Argentina is screwed. It is too bad because it used to be a great place to take a woman traveling to. Now you go there and you risk getting robbed or worse.
12 slb (#) Aug 29th, 2012 - 01:02 am Report abuse
@10 Captain Poppy
yes but type of homes built in 1950 without insultation with rotten roofs...Well, Arizona is not my residence...I am moving back to Las Vegas and enjoy the casinos life! ....good food and easy money!
13 Captain Poppy (#) Aug 29th, 2012 - 02:45 pm Report abuse
I still enjoy my trips to BA and fail as safe (cautiously) as I do in any large city. There I always find it revolting when I drive past villa 31.
14 Frank (#) Aug 30th, 2012 - 06:35 am Report abuse
@12... 'easy money'... on your back.......

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