We try not to sugar-coat at Discovering Buenos Aires. We want to give you the straight dope on what we see on the ground here in BA…
One unlikely outcome from our trip to Salta, where we could reflect with a clearer head about the big city, was that we now think the property market here may be getting tapped-out.
We think we’re seeing some signs of a possible real estate bubble, at least short-term…
The market is hot no-doubt. Too hot. It smells of the bubble we just bounced from in southern Florida…
Of course, it’s very different from the creative-mortgage fueled bubble in the US… there are no mortgages here…
But, the symptoms are the same, for sale signs are sprouting up like weeds. Another BA blogger recently remarked on the proliferation of such signs in San Telmo…
This doesn’t mean that you still can’t find good deals, you can… but they are getting further and further between. Also, many sellers have greater expectations about how much money they can make…
If you look at the Buenos Aires Craigslist Rentals, they are saturated with foreigners (or others on their behalf) trying to rent out investment apartments they bought.
In Salta we spoke with yet another well-informed Argentine architect, a Porteno (from BA), who again confirmed our instincts regarding the market, that it’s probably due for a short-term slip… things have risen too fast in too short a time.
Also, the general economy could be due for a check in the near future. It’s pretty much fact that the old specter, inflation, in Argentina is creeping up briskly. And the government’s efforts to hold it down will only aggravate the situation.
We still think Argentina is a great long-term bet for numerous reasons…
But we wouldn’t pursue real estate here in the city as aggressively, as one would’ve wanted to maybe a year ago. We’re on the tail end of a good run.
That doesn’t go for all of Argentina. By all accounts, good buys can still be had around the country…
We could be entirely wrong about this. We have some clients coming into town this week, so we’ll get their opinion… but we’re going to give them the same advice we’re giving you dear reader… Let’s be selective, look around, and bide our time. There’ll be some better deals for us down the road…
12 comments
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April 17, 2007 at 2:04 pm
matt
Hi Will,
i was involved in real estate in BA, helping other foreigners buy properties and also renovating our own house. we got out for a couple of reasons. first was personal as my girlfriend is chilean so we’ve moved to chile and the second was the quite obvious overheating of the market…i’ve been looking at this site for a while and was wondering when you were going to realise…
BA is a brilliant city and argentina a great country but investing is a completely different story. The economy has a 10 year boom and bust cycle and anyone who thinks it’ll be different this time is going to be in for a shock. The government has made no effort to effect the structural changes necessary to haul the country out of its cycle and the economy has strengthened so much *in spite of* the government and not because of. The economy bottomed out so much it had nowhere else to go but up and it coincided with high agricultural prices which are unsustainable beyond another couple of years.
Inflation is bombing along at a supposed 9% but everyone knows the figures are fixed. In my almost 3 years in BA i saw inflation of between 15 and 30% per year. The exchange rate is fixed at 3-1 and the peso is undervalued by around 25-30% which will change after the next election when i’d expect the government to let the peso float freely in order to curb the ‘galloping inflation’ (World Bank’s words).
As for the property market-what a bubble…Prices have more than doubled since the last crash and why? Rich argentines (the top 10% of the population) and in a couple of select areas foreigners have fueled the boom by buying multiple properties. The market is completely unsustainable as the vast majority of the population, including the so-called middle class, cannot afford to buy a property. Mortgages are, to all intents and purposes, unavailable and will remain so which means that the market has nowhere to go. Now is the time to sell up in Argentina, not invest more. Get out now while the market is high and if you want to, go back in 5-7 years time after the next crisis robs more middle class and down argentines of their money while the rich get richer, again.
So in a couple of years the market will bomb which will precipitate a major downturn in confidence in the economy. Couple this plummetting consumer confidence with a drop in argircultural prices, a higher peso and and another major recession will hit the country (agricultural prices also follow a regular cycle and are at a high right now). Rich argentines will send all their money out of the country in capital flight and wait until the economy hits bottom before coming back and re-investing in the country with easy pickings from the desperate populace. This is what has happened regularly for the past 80 years or so and will undoubtedly continue to happen in the future. It’s what most argentines think will happen and it is rather a self-fulfilling prophecy.
Argentina is a mirage, an illusion. It’s a beautiful country which much to recommend it but when investing you have to get your timing right. The timing is not right.
April 17, 2007 at 3:34 pm
carlos Nevares
Hi Will
You have explained ,what is happen in my country,very well.
That is in Salta ,Buenos Aires etc.except some “islands”as Villa La Angostura,or,Calafate etc.Congratulations!
Best Regards
Carlos Nevares
April 18, 2007 at 3:45 am
vardaman
Oddly, I am subscriber to a daily news letter and I was reading a wonderful story about a horse back ride in the Andes and I was thinking how nice it would be to have some photos of the terrain being described and a few minutes later I happen upon your photos of the same area! What are the odds?
April 18, 2007 at 9:10 am
Fernando Cassia
Btw: I guess an economist can tell you that it isn’t the usual “stop and go” or “bounce back” effect after a devaluation. If that would be the case, the economy would have gone berzerk last year.
Of course, you are free to believe what you want.
April 18, 2007 at 6:00 pm
Micheal
The first comment holder is now spouting doom and gloom about the argentine economy from the safety of chile.
Sounds like sour grapes to me.
The economy will grow substantially for 5 more years and I suggest that you buy up real estate now as prices are set to double in the next years.
April 18, 2007 at 11:00 pm
matt
have a read of an argentine’s view of the economy here: http://www.dfordisorientation.blogspot.com
micheal, would you like to give any of your own personal insights as to why the economy will grow for 5 more years and that property prices are set to double? I’d be interested to hear on what basis you’re making these fantastical claims-facts, history or are you just trying to convince yourself?
also, no sour grapes from me, i lived in argentina for almost 3 years and left reluctantly for personal reasons and the obvious fact that the market and economy are not going to hold for much longer. But i’m also now perfectly happy where i am and with my choices, as you might be able to tell from my blog.
April 19, 2007 at 10:30 am
Micheal
Matt
You seem to be one one of those doomsday philosphers hoping that the ship sinks because you are not part of it anymore.
Im sure that you will regret selling your properties here In Buenos Aires in the coming years
April 19, 2007 at 5:33 pm
matt
still waiting for the economic analysis as to why the economy will continure to grow for 5 years and why the property market will double. those are predictions that even kirchner’s economists would baulk at.
the only reason i’ll regret selling my property in buenos aires is that i won’t have it to stay in when i visit friends. i fell in love with BA at first sight and do, certainly, miss the city but there will certainly be no economic regret and i’m more than happy living in valparaiso, one of the continent’s most beautiful cities. i have no desire to see argentina fail again but all the indicators suggest that it will, unfortunately. some rational analysis on your part wouldn’t go amiss.
April 19, 2007 at 9:58 pm
Micheal
To compare Buenos Aires to Valparaiso is laughable . Like comparing Birmingham to London
There are more than 100 economic indicators that suggest that the economy will continue to grow and real estate will increase in value.
Buenos aires will be as expensive as Paris New York Milan within 7 years.
April 19, 2007 at 10:58 pm
Christian
Alan Kay said “the best way to predict the future is to invent it.”
April 19, 2007 at 11:41 pm
Piojo Lopez
Gentlemen:
Here’s a bit of professional insight from The Economist (from a late Dec. ‘06 issue) regarding Argentina’s economic forecast:
” The durability of economic recovery has surprised many. But is the government mortgaging the country’s future…
…To the surprise of many, recovery from this national catastrophe has been swift. Since the nadir in March 2002, Argentina’s GDP has grown by 45%, an average of 8.6% a year. “You have to look back to the Argentine golden age to see this [rate of growth],” says Ricardo Delgado of Ecolatina, a consultancy. “No one was expecting it.”
On the streets of Buenos Aires, the change is tangible. Cars and white goods are flying out of the showrooms thanks to cheap credit. Cinemas and restaurants are packed at weekends. Seaside resorts are heavily booked for the southern-hemisphere summer. Unemployment has fallen to 10.2% (excluding people on make-work programmes).
The question, as it has been for the past four years, is how long the growth can continue. The debate has an ideological edge. Supporters of the fixed exchange-rate that brought growth and then collapse in the 1990s have poured scorn on the sustainability of the recovery. Fans of Néstor Kirchner, the president since 2003, like to claim that Argentina will continue to grow apace because it shrugged off the IMF’s advice and is following “heterodox” policies.
Many economists in Argentina are now coming round to the view that the country can continue growing at a reasonable rate—partly because some of the policies are less “heterodox” than is claimed.
At a brutal cost, the collapse rebalanced the economy. A steep devaluation and the debt default turned deficits in the public finances and the current account into surpluses. Roberto Lavagna, the finance minister from 2002 to 2005, kept spending under control. The government relied mainly on monetary policy to boost demand. The central bank stopped the peso from appreciating, issuing pesos to buy up exporters’ dollars. The government meets its fiscal targets partly by taxing farm exports, which are unusually profitable because of the artificially cheap peso and high world prices.
These policies have had the effect of supercharging growth. Their obvious drawback is inflation, which began to rise again in 2004 as spare capacity was used up (see chart). Mr Kirchner’s response was to bully producers with “voluntary” price-freezes, outright price controls and export bans. Similar tactics caused several foreign investors, such as France’s Suez and EDF, in privatised utilities to pack up and go.
Mr Kirchner’s critics said these measures would halt investment. Anyway, they said, investment was of the wrong kind, in housing rather than factories. So far they have been wrong. Argentina does lack foreign investment. But its own smaller companies have moved quickly to expand capacity in response to demand. The boom in construction and tourism has created many new jobs. Overall, investment has almost doubled as a percentage of GDP since 2002, from 11% to 21.4%, enough to sustain growth of 4% a year. “Most people thought that security, credibility and structural reform were the key to attracting investment,” says Javier Alvaredo of MVAS Macroeconomía, a consultancy. “But it’s actually profits.”
Some serious doubts remain. The biggest worry is energy. Because of the price controls Argentines pay less than half as much for energy as their neighbours in South America’s southern cone, according to Daniel Montamat, a former energy secretary. In this industry, the arguments of Mr Kirchner’s critics ring true. Consumption has risen but investment has collapsed. Argentina has depleted its gas reserves, from 15 years’ worth of production to fewer than ten. Industry sources warn of blackouts in 2007 if weather conditions are unfavourable. Fear of blackouts has suppressed investment in energy-intensive businesses, such as steel, aluminium and petrochemicals.
Other bottlenecks will make it harder to sustain growth even at a more modest pace. The economy is still benefiting from private investment in infrastructure under Carlos Menem in the 1990s. Now roads are again becoming congested. There are some shortages of skilled workers, too.
After Mr Lavagna’s sacking, fiscal policy has become looser. Provincial governments are already running a deficit. On the other hand, the central bank is quietly tightening monetary policy. Many assume that Mr Kirchner will relax price controls and allow the peso to appreciate after an election next October at which he is likely to seek a second term.
The risk is that inflation might then take off, unless the authorities act to slow the economy. But officials remain bullish. “What do we have beyond two more good years?” the foreign minister, Jorge Taiana, asks. “We have higher investment than ever before. We have an extended commodity boom. We have cancelled our debt. We have a favourable exchange rate. We have trade and budget surpluses. This growth can be sustained.” At what pace remains to be seen, but it has become harder to doubt the overall argument.
April 20, 2007 at 12:35 am
matt
i never ‘compared’ valpo to BA, i merely said that valpo is one of the continent’s most beautiful cities, which it is. You can’t compare the two cities because they’re completely different in so many ways. BA is beautiful in BA’s way and Valpo is beautiful in Valpo’s way.
And i’m *still* waiting for some sort of analysis that backs up your claims. It’s very easy to make wild predictions about what will happen in argentina but you need to supply some facts and analysis, otherwise you’re just spouting hot air.
I gave my views *and* i gave reasons: Let’s hear yours.