With Uruguay’s economy growing at 8.5% in 2010 and managing to skip the 2009 slowdown with a 2.86% expansion, the housing market in the capital Montevideo is going through an excellent moment according to Global Property Guide based on info from local appraisers.
Montevideo apartment prices surged 22% over the year while showing particularly strong growth at year-end and houses became 17% more expensive, according to the property valuation firm Valora, reported on the site Situacion Inmobilaria.
Of Montevideo’s districts, Carrasco Norte had the highest annual house price increase, at 28.1%. Punta Carretas, with 2nd highest house prices, followed with an annual price growth of 25.5%. Next was Pocitos (22.5%).
Punta Gorda and Cordón had the lowest price rises, at 8.4% and 7.7% respectively.
Prices in Montevideo’s east coastal areas tend to be substantially higher than elsewhere, ranging from US$1,970 to US$2,315 per sq. m. (for properties of between 90 and 165 m²). Sea view buildings command an 11% to 18% price premium above the average coastal district price, according to Valora.
The price gap is heavily evident in New Pocitos, with sea-view apartments priced 18.1% higher in 2010, as compared to only a 4.8% gap in 2009. Malvin and Pocitos had 16.6% and 16.1% seaview price-gaps in 2010, up from 11.5% and 3.2% gaps in 2009, respectively.
Especially high increases in prices of sea-view apartments occurred in New Pocitos (up 39.1%), Malvin (up 27.4%) (New Pocitos has the most expensive houses in Montevideo).
Pocitos also experienced high price increases with prices up 27.7% (with view) and 13.6% (without), while apartments with sea-views in Punta Carretas increased by 26.6% during the year, to an average price of US$2,446 per sq. m.
Other significant price increases took place in Parque Rodo (21.9%), Centro (22.5%), and Carrasco, Buceo and Parque Batlle (ranging from 8% to 15%).
Buildings in Montevideo's downtown areas (Old Town, Centro, Cordon, Palermo and Parque Rodo) had average prices ranging between US$1,145 and US$1,425 per square meter (for buildings with average areas between 62 m² and 104 m²). In Parque Batlle and Tres Cruces, average prices were US$1,478 per sq. m. and US$1,669 per sq. m.
Global Property Guide rates rental yields in Uruguay as moderate to good.
Gross rental yields on 300 sq. m. and 200 sq. m. apartments were around 6.88% and 6.73%, respectively, according to Global Property Guide Research in November 18, 2010.
On the other hand, smaller units of 50 sq. m. had higher yields, at 7.59%. Rental values rose 10.17% n the year, according to official statistics.
Apartments in Montevideo cost around US$2,100 to US$2,500 per square metre (sq. m.) or around US$200 to US$235 per square foot. Meanwhile, houses in Montevideo cost around US$1,500 to US$1,770 per sq. m., or around US$150 to US$165 per square foot.
Looking ahead the IMF has warned that Uruguay must adopt monetary and fiscal measures to address rising inflation and record low unemployment rates.
Last March, the Banco Central del Uruguay (BCU) raised its key lending rate from 6.5% to 7.5%, citing February’s 7.7% annual inflation rate, well beyond the central bank’s target 4% to 6% range, and up from 6.23% in 2010. But the pace of inflation has continued to rise, to 8.17% y-o-y to March 2011.
Because of inflation concerns, the IMF expects slower growth during the next 2 years.
Uruguay is the world’s 33rd freest economy according to Heritage.org’s 2011 Index of Economic Freedom with a score of 70, and is ranked 3rd out of 29 South and Central American countries. But in reality, the government’s continuing influence over economic activity hinders overall economic growth.
Uruguayan Peso housing mortgage lending rates were 14.3% in February 2011. The rate for using Indexed Units (UI) rose to 7.0% from previous month’s rate of 6.9%, and the lending rate for Re-Adjustable Units (UR) also increased from 5.2% to 5.3%.
The Indexed Unit, or Unidad Indexada (UI) in Uruguay, was created after Uruguay underwent a financial crisis in 2002. This unit is like Chile’s Unidad de Formento, which is adjusted with the CPI, and replaced the previous Unidad Reajustable (UR) which was adjusted according to a wage index.
The index is calculated by the statistics office, Instituto Nacional de Estadistica’s (INE), and is subject to daily changes to reflect changes in the CPI. The indexing to the price level does not incur inflation risk since the real value of payments remains constant. As of May 5, 2011, 1 UI is equivalent to 2.226 Uruguayan Pesos ($). The US dollar housing lending rate for loans payable within 367 days dropped from 7.3% to 7.1% in February.
Uruguay’s housing mortgage market is highly concentrated, and is dominated by Banco Hipotecario del Uruguay (BHU) which accounts for 80% of all housing mortgage credits.
“Uruguay has not seen a slump in the real estate market…partly, because Uruguay has a very small mortgage-backed-lending market, so the country did not experience an asset bubble,” according to Dr. Juan Federico Fischer, a Managing Partner at LVM Attorneys at Law.
In the year to February 2011 housing loans for new operations in local currency declined 14.75% from 163 million UI to 139 million UI.
According to Global Property Guide the sharp decline of loans and number of operations since January may be attributed to the gradual increase of lending rates, or may be a sign of nervousness, or may be simply a meaningless blip. Certainly, lending rates are heading up, as in March the central bank raised its key interest rate by 1%, to 7.5%.