Property Investor News Magazine - UK
Property Investor News Magazine - United Kingdom
By: Mark Hempshell
April 2006
Argentina was sparsely populated until Europeans arrived in 1502
and the country was colonised by Spain - from whom independence
was declared in 1816. Over the next 160 years centralist and
federalist, conservative and radical, and civil and military
administrations traded power. In 1983 after decades of political
turmoil, plagued by terrorism and oppression under which
countless numbers of opponents 'disappeared', the last military
dictatorship was ousted and democracy was restored. In the
1980's and 1990's the Government introduced measures to take
civilian control of the armed forces and permanently establish
the country as a democracy.
Despite, at times, having suffered from political and economic
turmoil República Argentina is still the most developed country
in South America, and to all intents and purposes a 'first
world' nation, not a 'third world' one. It has the highest GDP
per capita, the highest levels of university education and an
infrastructure comparable with industrialized nations.
The Economy
Foreign investment and immigration from Europe shaped Argentina
into an advanced economy during the 19th century. From 1880-1930
the country was one of the ten wealthiest nations in the world.
But years of political problems contributed to economic decline,
leading to massive public debts and severe hyperinflation by the
late 1970's. In 1991, under President Carlos Menem, the
Government embarked on a programme of trade liberalisation,
deregulation and privatisation with the aim of rejuvenating the
economy. Most significant of these, as we will see later, was
the 'Convertibility Law', which pegged the value of the
currency, the peso, to the US dollar on a one-for-one basis.
Initially the economy improved but falling exports, growing
imports, unemployment and the impact of the Asian economic
crisis eventually took their toll. By 2001 GDP had plummeted,
inflation exceeded 1,000% and unemployment reached 25%. The
peso-dollar tie was ended in 2002 and the currency lost 70% of
its value. Argentina defaulted on its international debts,
public employees went unpaid and bank accounts (an extremely
unpopular measure known as corralito) were frozen, leading to
street rioting.
In 2003 strict fiscal measures including revaluing the
currency, import substitution policies and increasing exports
contributed to a sudden surge in GDP. Internal consumption
increased, foreign investment returned and the so-called 'Tango
Revival' began. The economy grew 8.8% in 2003, 9% in 2004, and
9.1% in 2005 by which time unemployment had fallen to 10%. The
Government completed restructuring of the national debt in
February 2005, which now stands at 69% of GDP and is slowly
decreasing. According to INDEC, the National Institute of
Statistics and Census, GDP expansion for 2006 could be 7%.
State Of The Property Market
As in other developed nations property here was always
considered a rock-solid investment. But the economic collapse of
2001-2002 shook that belief to its foundations. During this time
people lost the majority of their savings and their pensions.
The breaking of the peso-dollar tie caused the currency to lose
70% of its value against the dollar by December 2002 - making
previously-attractive dollar mortgages cripplingly expensive.
People were desperate to sell their property to salvage
something and, burdened by many sellers and few buyers, the
property market collapsed. The rental market was also severely
affected : According to 'Reporte Inmobiliario', which reports on
trends in the market, average residential rents dropped by 74%
from US$29 to US$7 per mē during 2001 alone.
But with the economic revival the market began to move again. By
the end of 2003 residential property had, on average, recovered
to 67% of its pre-crash value. By January 2006 prices in many
areas have recovered to their pre-crash levels, and in some have
increased by as much as 34% in a year. Property transactions,
together with new build completions, reached a new record in
November 2005. Some outside observers wonder how, given recent
events, confidence has returned to the market so quickly. One
key reason is that, after the corralito, many Argentineans do
not trust the banks and still regard land and property as a more
secure investment.
Another factor which bodes well for the property market is that
buying property here is straightforward. Foreign investors may
buy without permission. Once you have found property the title
is checked, the escritoire is signed and the purchase is
registered. There is no capital gains tax.
Buenos Aires
Argentina is divided into 23 provinces and one autonomous city -
Buenos Aires, widely known as capital federal. The city itself
has a population of 2.7 million and the city plus the greater
metropolitan area 11.5 million, making it one of the largest
conurbations in the world.
Buenos Aires has a modern high-rise centre with thriving
commercial districts, yet is notable for its quality of life
with extensive green spaces, good public amenities and transport
and - as the name suggests - a pleasant climate. It is gradually
becoming recognized as something of an undiscovered gem compared
to most overcrowded international cities. In a recent article
'The Washington Post' proclaimed 'Forget about Europe, go
instead to beautiful Buenos Aires - the city with everything but
without the high costs of European cities.' Living costs are
indeed low for any city, although rising : A good meal for two
with wine costs US$20, a cinema visit US$4 and domestic staff
can be hired for US$2 an hour. Not unsurprisingly, therefore, it
is proving a major draw to expatriates, migrant workers,
entrepreneurs, retirees and students from Argentina, the rest of
South America and, increasingly, the USA.
Property prices here have been rising briskly since 2003, but
are still extremely low by capital city standards. It is still
possible to buy a studio apartment in a good central area for
US$50,000, although these are becoming rarer. Across the city
generally new build property tends to be more expensive than
old, and floor area tends to be more generous than in most
European cities.
Recoleta, north of the centre, is regarded as the most desirable
and fashionable residential district and is also popular with
tourists. It is very much the 'Fifth Avenue' or 'Mayfair' of the
capital, home to deluxe hotels, fine restaurants and designer
shops. Current apartment prices range between US$1,500-US$3,000
per mē, with one bedroom apartments typically selling for
US$90,000 and two bedroom apartments starting at US$135,000.
Prices were already high by Argentinean standards so showed a
relatively modest 15% price rise in 2005.
Palermo is another good quality residential area, with a
reputation as a 'trendy' district. Current prices in Palermo
range between US$1,300-US$2,800 per mē. Puerto Madero is a newly
developed area, similar to the London Docklands. Prices are
already at a premium here, at around US$2,200-$3,000 per mē and
only a few sites are left for new development.
Of course, as elsewhere, the greatest price appreciation is
often found in the up-and-coming districts. San Telmo to the
northwest of the centre is a bohemian area of pavement cafes,
bistros and antique shops, still showing signs of its working
class roots. A regeneration programme to improve security and
enhance the street scene is currently underway. Also
up-and-coming is La Boca on the southern edge of Buenos Aires at
the mouth of the River Riachuelo. These districts are home to
the city's famous Tango clubs. Prices are currently in the
region of US$800 to US$1,200 per mē and these areas are tipped
by many commentators for growth.
Michael Koh, President of ApartmentsBA.com, has made extensive
real estate investments on behalf of his own company and as a
consultant to investors, and firmly believes in Recoleta despite
its relatively high prices. He says 'Recoleta will always be
Recoleta. The best investment is buying in a good area like
Recoleta but not on a posh street like Avenida Alvear where
prices have already gone over US$3,000 per mē. You can go just a
few blocks away in a very nice part of Recoleta and pay US$1,500
per mē.' He points out 'Many investors are buying for short-term
rentals (serviced apartments). So it doesn't make sense to pay
US$3,000 per mē when you can pay half of that in a good part of
Recoleta. The average tourist that comes down and books an
apartment won't know the difference of 5 or 6 blocks.'
Michael is also very confident about the Palermo Soho/Viejo/Hollywood
areas which he believes will be transformed, particularly as
tourism increases. He tells us 'I predict these areas will
explode with growth within the next 3-5 years' and he has
started to purchase up plots of land in this area in
anticipation of building luxury houses and boutique hotels.
Tourism, Agriculture And Land Investments
An important issue to factor in is the part tourism could play
in the property market. Tourists dwindled to almost nothing when
the peso-dollar tie made it prohibitively expensive to visit.
But today's bargain living costs saw visitors rocket to 3
million last year. Tourism Secretary Carlos Enrique Meyer
recently predicted 4.1 million tourists and US$3.5 billion of
tourist income for 2006, with 10 million visitors projected by
2010. A number of airlines are restarting or launching new
routes.
Major draws for tourists are Buenos Aires, the Iguazú Falls and
Patagonia. There are several good quality ski resorts in the
Andes (the season is June-September) such as Bariloche, Las
Leņas and Villa Angostura. Hotels in these areas are frequently
fully booked, fuelling the demand for short-term house and
apartment rentals. Investors are also active in buying land with
future residential development potential in tourist areas.
Argentina has always been a major and well developed
agricultural country. As well as being self-sufficient in food
it is the world's fifth largest agricultural exporter, and
agriculture accounts for 60% of all exports. Agricultural land
is very cheap by international standards and there has already
been notable foreign investment in agricultural land.
International investors such as George Soros, Kerry Packer, the
Sultan of Brunei and Ted Turner are already believed to have
bought up large tracts of land, particularly in Patagonia.
Analysts agree that, should the USA and EU eventually agree to
remove or reduce subsidies for their own agricultural sectors
countries like Argentina could benefit considerably.
Future Prospects
So what are the prospects for prices in 2006 and of course
rental yields? Michael Koh reports 'Prices have drastically
risen all over the city in good areas like Recoleta, Barrio
Norte, Palermo, Palermo Soho/Viejo/Hollywood, Puerto Madero.
Areas outside of those areas were not as drastic. Property
prices went up by as much as 25%-30% last year in some areas of
the city. However, much depends on the kind of apartment,
building and location.'
On rental yields he says 'The rental market has exploded. There
are a lot of apartment rentals on the market for tourists.
Hundreds if not over a thousand. The typical average rental
probably yields about 6-8% per year on the total investment.'
However, he advises that high quality, well equipped properties
can yield much more. I offer luxurious furniture, high-tech
electronics, local cellphones, USA phone lines, high-speed
Internet and many other features. Most locals aren't willing to
make this investment. However, it enables us to make a much
higher rate of return. Many of my clients have yielded as high
as 11% - 16% a year on the rental income alone.'
Michael is extremely confident about prospects for the market,
stating 'I've always said that real estate here in Argentina is
one of those once in a lifetime opportunities. I still maintain
that property rates can easily double in good areas from today's
prices.'
If you have any questions whatsoever, do not hesitate to contact us for more details at:
info@patagoniapropertytrust.com
We look forward to working with you...
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