☀ South America Land Prices Review
South America Land Prices Reviewed
In the central American and Andean countries, fertile farmland has never been very abundant, and some of those countries also have restrictions in place regarding larger land holdings by foreigners. Ie Argentina *, Brazil* and Uruguay.
* Current policies under review for removal or change.
Foreigners have bought large tracts of land over the last few decades, due to the previous low valuations and absence of restrictions in the following regions:
– Brazil, the inner, or “Cerrado” states like Mato Grosso do Sul, Mato Grosso, Goais, Tocantins, western Bahia
– Argentina ( in the North and the deep South )
– Uruguay ( everywhere )
– Paraguay ( everywhere )
– Bolivia, the eastern lowlands ie Santa Cruz Valley
– Bolivia might be the country with the nominally cheapest land, due to its low level of development and leftist populist Evo Morales government plus a risk of political violence and measures against large landowners. Investors who have been purchasing there tend to come from neighbouring countries. ie Argentine; Fund El Tejar has 10,000 ha there.
– The second lowest land valuations are found in Paraguay, which has an attractive risk/reward ratio. The most productive farms (soya, rice, sugar cane), are intensively operated and are close to processing plants. Currently cost $6,000- $10,000 USD per hectare whereas developed cattle ranch land $500-$2000 USD per hectare with virgin forest covered land, in the semi-arid Chaco region with good soil fertility, costs $250 – $600 USD per hectare.
Buyers of land in the Paraguay Chaco are mostly Agriculture or Pastoral farm Investors from Argentina, Brazil and Uruguay followed by domestic buyers plus some Western European and American investors.
Paraguay has the region’s most favorable tax regime, 10% personal income tax, 10% GST or IVA. On the downside Paraguay ranks comparably low in transparency, quality of public services, rule of law, short comings associated with its Third World status. Think of Paraguay as Uruguay 10 years ago.
– Uruguay is in many aspects the opposite case. A mature civic society with a stronger rule of law and a distinctive European flair.
However, it is not cheap anymore. With $8000-12000 USD per hectare for prime crop land (soy, corn, wheat), US$4,000-6,000 per hectare for good cattle pasture where returns can be expected to be in the 3-4% range. Virgin land does not exist anymore in Uruguay. Income is taxed in the 15%-25% range, GST/IVA being 22%
– Argentina is geographically and hence agriculturally much more diverse. The heartland, the humid Pampa is comparable to the better parts of Uruguay, and so are the prices (though in Argentina there is a lot more top fertility cropping lands that rank higher both in price and productivity than anything found in Uruguay, Paraguay or Chile costing up to 15,000 USD hectare.
Cropland in the tropical north, Formosa Province etc, costs around $3000 USD per hectare, cattle pasture land of medium productivity costs anywhere between $1000 and 3000 USD per hectare with the best pasture lands (fattening) up to $5000 USD per hectare. Virgin land, with potential for profitable future farming/ranching, starts at US$300 per hectare.
While Argentinian income tax and GST/ IVA is within the region’s typical rates. Taxes have been recently reduced for exports.
Estimates of the share of foreign holders of land in Argentina vary between 10% and 15%. A law passed in 2012 by Parliament that limits the maximum of land a foreigner can purchase to 1000 hectares in the agricultural heartland, somewhat larger sizes in less fertile areas, and the maximum share of the nation’s entire land bank to 15%, and to 15% of a single province, and to 15% of a single municipality. (existing land holdings are not affected). This law is under review by a new and progressive new government and is likely to be repealed or seriously modified soon.
– Brazil without intending to discuss Brazil’s land market, due to its sheer size and regional variations – purchasing rules changed significantly in 2010, with new restrictions now limiting the size of farmland foreign entities can buy. Limits range from 250 hectares in densely populated intensively farmed regions like Sao Paulo to 5000 hectares in sparsely populated regions like Amazonia.
Since the law also puts a limit on the total share of foreign-owned land for each district, some district level governments refuse any permit, due to lack of knowledge of how much land is foreign-owned already. Again, as in Argentina, established land holdings are not affected. Here too this law is likely to be repealed.
In summary potential investors of rural land have a number of options at their disposal :
- Buy farmland and operate it oneself, the disadvantage being – being a farmer is a profession not to be taken lightly and being the employer of local farm workers is not an easy task either, or
- Buy farmland and hire a management company to run it, disadvantage – management fees may eat up significant part of profits, or
- Buy farmland and rent it out, rental return typically beings in the 3% range, advantage – requires less attention than any of the above, and income being rather (though not 100%) predictable, or
- Buy raw land that has potential to be converted into farmland (land banking), advantage – least attention required, disadvantage – no operational return, or
- Buy into a farm syndicate that is run by experienced farm developers.
Land is the ultimate asset class, even more so than gold, where more of it can be continuously extracted from mines. The purest play of land investment would be to buy raw (virgin) land where you pay no premium for anything man-made (like buildings, or an operational farm set up).
But here the real analysis just starts. Over 90% of the world’s raw, idle land will forever stay that way, without any real commercial value, being deserts, semi-deserts, mountain ranges, or lands that should be left untouched due to environmental considerations.
Virgin land with potential to be productive into agricultural land, should have a favorable combination of climate, topography, soil fertility and environmental viability. If one is looking for recreational potential, obviously scenery counts for more.
Land that is still virgin nowadays is so usually due to being remote, difficult to reach so the extent of remoteness would be another factor to consider when valuing raw land.
Update: Due to the change of government in Argentina to a more market-friendly one investors have switched their previous focus on Uruguay land to Argentina options resulting in a large drop in land prices there.
Contact the Gateway to South America team to learn about the best investment opportunities in the region. The company is a benchmark for foreign investors wishing to invest in Argentina, Brazil, Chile, Paraguay, Peru and Uruguay, providing expert advice on property acquisition and investment tours.