Has Argentina’s real estate market peaked?

26th September 2019

By Ignacio Portes

Has Argentina’s real estate market peaked?

Argentines have consistently sought for real estate as a savings instrument. “Invest in bricks” has been somewhat of a mantra in a context of high inflation and macroeconomic instability; maybe not as strong as “buy dollars,” but still very common throughout decades of crises.

But although having a house of one’s own remains a much-desired source of security for many, the market seems to be ready for a significant downturn in terms of price.

With the economic crisis now really starting to hit home, sales are plunging at rates comparable to previous crises in the sector. And although prices have only timidly fallen so far, the fact that that counter-offers significantly below the initial ask price are starting to be considered by sellers is one of several signs pointing to a bear market in the sector.

</p> <h2><strong>Stats point down</strong></h2> <p>The latest data point from the sector came earlier this week when the Buenos Aires city notaries public association <a href="">reported</a> that barely 2,964 real estate transactions were completed in the district in August, less than half of the figure seen on the same month in 2017, when 6,022 sales were seen as housing credit neared its peak.</p> <p>The current number can only be compared to those of the years of the Kirchnerite “clamp” (or <em>cepo</em>) on foreign currency transactions, which froze the real estate market as those transactions are almost always carried out in US dollars. Between 2012 and 2015, the years of the <em>cepo</em>, monthly sales in the city oscillated between 2,900 and 3,700.</p> <img class="wp-image-3954 aligncenter" src="" alt="Property sales in the month of August between 1998 and 2018, courtesy of Reporte Inmobiliario" width="600" height="270" srcset=" 300w, 600w, 609w" sizes="(max-width: 600px) 100vw, 600px" /> <p>The fact that the notaries’ figures are one-month old means they were registered before President Mauricio Macri re-introduced a slightly-altered version of that “clamp” through a decree on September 1. With those restrictions now back, how much lower could sales now go from September onwards?</p> <p>As for prices, <a href="">statistics compiled by ZonaProp</a>, a widely-used web site to buy and sell real estate in Argentina, show they peaked in 2018 and remained stable until this year, when the decline commenced. August was the fifth consecutive month in which sale prices went down, although at a much slower pace than sales so far.</p> <img class="wp-image-3955 aligncenter" src="" alt="Price per square meter in Buenos Aires city property sales between 2012 and 2019, courtesy of Zona Prop" width="600" height="262" srcset=" 300w, 768w, 600w, 861w" sizes="(max-width: 600px) 100vw, 600px" /> <p>&nbsp;</p> <h2><strong>Boom and bust cycle</strong></h2> <p>As the graph shows, property prices started an upward swing when President Mauricio Macri took office late in 2015, gaining as much as 25 percent throughout the period. This followed a period of mostly flat values during the 4 years of Cristina Fernández de Kirchner&#8217;s second period in charge, in which currency controls flattened property markets.</p> <p>The reason for the recovery was not only the lifting of the <em>cepo</em>, however. Macri&#8217;s economic team also launched two ambitious economic policies that helped push prices up: a tax amnesty aimed at undeclared undeclared money held outside of the Argentine system, some of which ended up in the sector; and the creation of the inflation-adjusted UVA housing credits, which grew significantly throughout 2017 despite criticism about its risks from across the political spectrum.</p> <p>But the effect of the tax amnesty only lasted so much, and the beginning of the peso&#8217;s collapse in 2018 started to spook families from taking on new UVA-based credits. With the hidden inflationary risks now evident again as the <a href="">lagging exchange rate</a> could not be contained anymore by Central Bank policy, the hopes of having a credit-based, Chilean-like boom in Argentina&#8217;s housing market tanked.</p> <p>To make things worse, Macri is ending up his term by <a href="">re-imposing the <em>cepo</em></a> he initially lifted, with effects that no one can yet fully quantify. But which surely won&#8217;t be positive for real estate salesmen.</p> <p>&#8220;The market has been falling for 15 months now. The decline in credit has been key in all of this, it&#8217;s not just short-term political reasons. Demand at the moment is not accepting the prices on offer, so nothing gets sold in the end,&#8221; Reporte Inmobiliario analyst Germán Gómez Picasso told <em>The Essential</em>.</p> <p>&#8220;The general feeling when you talk to potential buyers is that they think prices are too high. We did a survey among constructors, salesmen and buyers and 67 percent said they believed prices for used property would eventually go down. Owners at the moment are hanging on to the prices they had in their minds,&#8221; Gómez Picasso argued.</p> <h2>How low can prices go?</h2> <p>So how bad would a new bear market in housing be?</p> <p>A look at history shows two declines which were much harsher than the one of the first cepo, between 2012-2015. Those came in 1981 and 2002: the first, due to the bursting of a credit-based housing bubble; the second, due to the 2001 financial crisis.</p> <p>These are pictured in the graph below (<a href="">source</a>), which shows a long-term view of housing prices in BA city, denominated in US dollars. The sky-blue line shows nominal dollar prices and the red line shows prices adjusted for US inflation.</p> <img class="wp-image-3968 aligncenter" src="órico-300x156.png" alt="Price data from Buenos Aires city's housing market since the late 1970s, courtesy of Properati" width="600" height="312" srcset="órico-300x156.png 300w,órico-768x399.png 768w,órico-600x312.png 600w,órico.png 956w" sizes="(max-width: 600px) 100vw, 600px" /> <p>In 2002, prices suffered more than sales as the amount of Argentines indebted in foreign currency but with peso-denominated income was frighteningly high. This led many to sell their property to pay back their debts. Although the current economic crisis also looks like it could be highly damaging, the private sector is significantly less indebted in foreign currency when compared to 2001.</p> <p>1981 was even worse, as much that year&#8217;s debt and banking crisis came with the collapse of a housing bubble in the city as well. The memories of that housing crisis still scar older Argentines, many of whom took on sizable credits with adjustable rates that kicked in if, for example, banking interest rates were raised — which they did when the crisis took off.</p> <p>It was with that crisis in mind that many argued against the inflation-linked UVA credits of Macri&#8217;s administration. However, although some households have complained of difficulty to pay due to rising inflation, figures show that the amount of debtors in arrears was <a href="">only 0.3 percent</a> in March 2019.</p> <p>&#8220;Crises are always different,&#8221; Gómez Picasso said. &#8220;In 2001-2002 prices fell 50 to 60 percent and that made it very attractive for buyers to step in. You have to remember that the people that managed to get their dollars out of the bank didn&#8217;t want to hold on to them for long either. So they went to their nearest salesman and asked what was on offer.&#8221;</p> <p>&#8220;At the moment, prices have barely fallen by 5 percent, even if sales are plunging. But those prices are merely the figures initially listed. Often, buyers haggle and end up having much lower counter-offers accepted. Sometimes 15 percent lower, sometimes maybe even 30 percent. That is not reflected in the statistics, so you could say that the drop in prices has been higher than what appearances show at first sight in many cases.&#8221;</p> <p>

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Ignacio Portes

Ignacio Portes is The Essential's General Editor. Former Economy editor at the Buenos Aires Herald, he has also written for publications such as Naked Capitalism, NSFWCorp and Revista Debate.