The Real Estate Market

Februrary, 2010

2009 proved to be the slowest year in terms of real estate activity for the past ten years. Prices, though, as we had anticipated, did not flinch. 2010 is expected to generate a lot more activity, mainly due to the generalized belief that real estate is the best destination to guard off impending inflation in US dollar terms.

In the city of Buenos Aires, where most of foreign investments are focused, the number of transactions dropped approximately 30% over the twelve month period to August 2009. October and November showed a marked recovery with the traditional seasonal slowdown that takes place between December and February, inclusive. Although the drop in activity was more related to the international financial crisis, pricing did not suffer. The key reason can be attributed to the small role that mortgages play in the Argentine real estate market. With only 3% of transactions having a mortgage, owners were not forced to sell and found bricks to be the best destination in a doubtful banking environment.

Today, Argentines are faced with the threat of local and international inflation. Locally, manufacturers are not investing heavily in capital expenditures. The latter is attributable mainly to a vote of non-confidence from the noted sector on the current Kirchner leadership which concludes in 2011. This causes an obvious unsatisfied demand which results in inflation. On the international front, Argentines share the generalized belief that inflation is here to stay in USA and Europe as a result of the massive liquidity that was injected into both economies. These variables, once again, are leading investors, locally and internationally to seek real assets as a proven defence against inflation.

If we believe that inflation is here to stay, our strong recommendation is to invest in finished product or developments with a contracted fixed pricing. Leveraging in dollars at reasonable rates may be worth considering. We believe in the concept of entering the market when the picture is lacking colour but has an overall positive long-term prospect. Argentina displays this scenario today. Areas to take advantage of include the totally unsatisfied long-term rental accommodation market, non-traditional agricultural sector, such as walnut and vineyard production projects, and second home tourism destinations.

Paul A.Reynolds
Managing Director
Reynolds Propiedades S.A.
Februrary, 2010