Argentina Real Estate: Still Holding Up
Source: NuWire Investor
By: Yemisrach Kifle
Buenos Aires, Argentina's capital, is one of a few Latin American cities where violent crime isn't an overriding concern. The city is full of gorgeous architecture, brimming cafes, and galleries and it sports a buzzing nightlife. English is widely spoken. "Buenos Aires is known as 'the Paris of South America' with its beautiful architecture and European flair," said Scott Mathis, CEO of DPEC Partners, a private equity firm that helps its clients identify investment opportunities.
Argentina shares borders with Bolivia, Brazil, Chile, Paraguay and Uruguay. It boasts an Atlantic coast to the east and the mesmerizing Andes mountain range to the west. Argentina also claims sovereignty over parts of Antarctica, the Falkland Islands, South Georgia and the South sandwich islands. With the sub-tropical north and sub-polar south, Argentina is climatically as diverse as it is geographically. Roughly 40 million souls call the country home.
One look at Argentina's ranking in The 2009 Human Development Index published by the United Nation and it is hard to see that it suffered from a complete economic bankruptcy in 2001. The index puts the country second only to Chile among its Latin American neighbors. The World Bank labels it as an upper-middle income country, among the likes of Poland and Latvia.
Argentina enjoys a robust export sector with commodity products such as soybeans, petroleum, gas, vehicles, corn, and wheat, according to the CIA's World Factbook. Its main export partners are Brazil, China, the U.S., Chile, and Spain. Its official unemployment rate is relatively low at 7.9 percent, with 23.5 percent of its population falling below the poverty line.
Interest in Argentina has grown in leaps and bounds since the country's economic collapse in 2001, according to the Smithsonian Magazine. The resulting weak Argentine peso attracted international nomads with foreign currency. The number of visitors to Buenos Aires grew to 2.5 million in 2008, six times the number for 2001.
Visitors are attracted to the Argentine capital both for its character and relative affordability. It has hundreds of galleries, theaters, and museums, according to International Living. Bustling cafes and bookstores are everywhere. And let's not forget the parrillas (local grills) that populate almost every city block. Argentines have one of the highest rates of beef consumption in the world.
It is not yet clear how much the tourism sector is affected by the global financial crisis. "Tourism, our third largest industry after agriculture will, undoubtedly, slow down a little," according to a statement fro Paul Reynolds, Managing Director of Reynolds Propiedades SA. "Argentina will, [however], continue to be an amazing tourism destination mainly because of its natural attributes, geo-political location, 450 years of sophisticated culture and a cosmopolitan, mainly European population mix."
Real Estate in Argentina
"The real estate market in Argentina has fared much better than the US or Europe over the last year as almost all real estate transactions in Argentina are non-leveraged," said Scott Mathis. "Obviously, sales have stalled somewhat as buyers are waiting to see what happens around the globe but real estate prices have not be hit nearly as hard in Argentina." The private equity company Mathis chairs - DPEC Partners - invests in Argentine real estate.
The Argentine real estate market continues to remain stable for two reasons - lack of credit and paltry investment options, according to Reynolds Propiedades SA. "Argentines have been burnt in the past with anything resembling a bank [as a result of the 2001 economic crisis.]" according to Reynolds. "As such, nationals mistrust Argentine based banks and now, because of the U.S. crisis, have founded fears over U.S. and European financial institutions."
This fear of banks and other monetary markets have translated to a great deal of investment in hard assets such as property. "The preferred investment tier lies in the area of USD 50,000 to USD 150,000 which allows investors to rent these units to local tenants and attempt to satisfy the massive shortage of living space," according to Reynolds.
International buyers have been attracted to the Argentine property sector because of the relatively affordable prices. "You can buy property in Argentina at a fraction of what you would pay in the US and in Europe" said Mathis. "Buenos Aires in the most popular but Mendoza [Argentina's Napa valley] is gaining recognition for its wonderful wine route and stature as making the best Malbec in the world."
There are investment opportunities elsewhere in the country as well. "We see a grand entry opportunity not only in traditional farming activity, such as soy and cattle, but also in alternate crops like vineyards, export plums and walnuts," according to Reynolds Propiedades SA. Ski heaven San Carlos de Bariloche and the town of Cafayate in Valles Calchaquíes are other points of interest.
Buying property in Argentina
While foreigners are allowed to buy in Argentina, there are some restrictions regarding owning land in border areas. "Foreigners are allowed to buy property," said Jamie Schectman owner of Bariloche Vacation Rental (www.barilochevacationrental.com). They have the same rights as Argentineans in most parts. That said, there are some restrictions buying in areas that fall under the Zona Seguridad - "roughly within a 100 kilometer of the Chilean border," according to Living in Patagonia (http://www.livinginpatagonia.com), a blog chronicling the lives of an American couple, Jamie and Shanie Schectman.
However, recent changes to the laws governing such purchases have made it easier to acquire property in that part of Argentina. Non-Argentineans can now buy real estate without much ado as long as the property under consideration is located in an urban or suburban area, is less than 5,000 square meters, and isn't bought for commercial purposes.
The prospects of the Argentinean real estate sector seems to be bright. Professionals in the property industry are optimistic. "In general I think most of South America will boom.
I liken it to the real estate boom that was experienced in Russia some 15 years ago and that of China and India over the last 7 years," said Mathis. As the star of Brazil's economy rises, Argentina's is likely to tag along, according to Mathis. Brazil is Argentina's biggest trade partner.
Given the current financial crisis and the sliding dollar, investors may also see real estate as a safer place to park their money. Given the downward pressure on the US dollar and the likelihood of this transferring to other important currencies, we share the belief that investors will be securing their savings in hard assets like Real Estate," said Reynolds.
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