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Real Estate Boom in Argentina
The skyline in Buenos Aires is changing. In every neighbourhood in Buenos Aires, Argentina, dozens of buildings that are under construction stand out against the horizon. This phenomenon began shortly after the 2001 economic crisis.
Argentina has enjoyed 14 consecutive quarters of continuous and meaningful growth in construction activity. During 2006, growth reached 21.2%.
Some of the factors leading to the current resurgence are low interest rates, high liquidity, exchange-rate stability, changes in public-sector investment and the strong pace of macroeconomic growth.
When the Argentine government defaulted on its debt payments in 2002, it not only aggravated the social and economic situation but also broke the banking system and, with it, the savings of ordinary citizens. And when people were left without a reliable alternative to depositing their money in banks, they turned their investment toward the construction sector. The other factors that contributed to rapid growth are relatively low prices for real estate, and the balance between the construction costs and sales prices, which yields positive returns for real estate developers. Add all that up and there is a real opportunity in the construction sector. The price of a square meter in Argentina currently varies between 750 euros and 2,300 euros.
This phenomenon, known as a real estate boom, seems endless. Some specialists believe that it is here to stay. But it is not a bubble because the growth is real.
The capital being used for construction is real, and there is practically no bank financing for the construction projects. It is definitively not a bubble because it does not have a financial effect. Here it is about private investors who know how to anticipate good opportunities in the market, demand trends, and so forth. Everybody expects growths to continue. Everything points in that direction.
Argentina has reached a stage in the typical real estate cycle where demand exerts upward pressure on prices and this pressure stimulates growth in supply, in turn. Nevertheless, some fundamental characteristics of the current growth must be noted.
These include the improved quality of the average construction project (which makes it more expensive); the relatively high growth in the population segment that is old enough to get married and become independent (which exerts greater pressure on demand); the fact that the economy has moved out of a deep recession that was largely unprecedented; and a positive wealth effect that has several different sources, mainly industrial exports and commodities. However, after those various stimuli have been exhausted, both prices and volume will tend to align with the fundamentals of the economy, causing a growth rates deceleration.
Buenos Aires, also known as the "Queen of the River Plate" and the "Paris of South America", is not the only place that is attracting attention from investors.
The interior of the country is also experiencing feverish construction, especially in the larger provincial cities that have enjoyed growth in the industrial sector, and in agriculture and tourism.
Who wins and who loses? It is not only Argentine savers and wealthy Argentines who are involved.
When it comes to investing in property, foreign buyers are also playing a major role, including other Latin Americans, Americans, and Europeans.
Europe and North America are quite saturated in many business sectors.
Buenos Aires remains one of the most attractive cities in the world, and it has a future.
The country has been stabilized, and forecasts call for growth rates of more than 6% a year. But while the price of a square meter in Argentina is similar to the rest of Latin America, it continues to be cheap compared with Europe and the United States. One of hotspots for foreign investors is Puerto Madero, a recently rebuilt area neighborhood that is near the city's financial center. Its impressive office buildings, equipped with swimming pools, gymnasiums and even restaurants, sell for more than 2,000 euros per square meter, making them popular among business executives, diplomats and others who can afford them.
Nevertheless, a significant segment of Argentina's working population is still unable to acquire property. The real estate boom has left behind these renters, who find it hard to get loans. As a result, the government has launched a plan for low interest rates and loans of more than 20 years. To be eligible, renters must show that they are able to pay.
Although not everyone can qualify for this program, an additional segment of medium-income people will be able to profit from acquiring their own housing; it depends on their previous level of savings and income.
Moreover, the plan promotes relief of the value-added tax when the funds are used for constructing leased and rental properties.
For the time being, the real estate market continues to have positive expectations. The latest data collected by INDEC (the National Institute of Statistics and Census) in July showed that private real-estate developers were optimistic that construction activity would grow by more than 19% during the remainder of 2006. For their part, companies involved in public works were estimating almost 15% growth.
According to Ecolatina, former Mister of Economy Roberto Lavagna's consulting firm, next year will bring a renewal of growth in new niches for real-estate investment and a growing contribution from public sector projects.
Overall, Ecolatina forecasts growth of 15% for 2007. The only thing worrying experts is incipient growth in construction costs.
During the first half of 2006 construction costs registered an overall increase of 18.6% compared with the first half of last year. The rise in general construction costs included 12.7% growth in the cost of construction materials, which represent 46% of the overall index. Labour costs, which constitute 45% of overall construction costs, rose by 28.8% during that period.
Argentina, make your dream investment come true.
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