Buenos Aires Real Estate Bubble deflates: Property prices down 10% in dollars
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According to the College of Buenos Aires Notaries, what really shrank was the lower number of the title transfers in the city in past year.
What happened had to happen. After a year in which the Argentines faced a devaluation of the peso of 50%, and the doubling of the price of the dollar, a surge of inflation and the virtual disappearance of mortgage credit, the property price bubble began to deflate.
In one year, the average real values at which houses and apartments are sold fell 10.2% in dollars. The data comes from the Association of Notaries Public of the City of Buenos Aires, which calculates, based on the deeds signed in a given period, the average dollar value of such operations. Last November -the last data available- that value was 122,493 dollars per operation. In November 2017, it had been $ 137,015.
It is worth noting that this figure given by Notaries is the closest to reality. Because it is well known all over the world that the settlements reflect, approximately, 80% of the real value of the operation. But if that “black or undeclared part” of 20% of a closing is more or less constant, the statistic is still valid. In any case, this clarification is important.
The UVA mortgage credit boom financed a good part of the real estate operations until June of last year when the boom of the exchange rate paralyzed the market. The data is relevant because when a purchase is financed with a mortgage loan, it is more difficult to “hide” the real amount on the deed since behind that document when there is a mortgage.
There then arises another point that stands out. While the numbers of the notaries -which are the best possible approximation to what actually happens in the market- show a fall in the value of the real estate, the various real estate sites where the classified ads are shown still show a rise in dollars of the value of the properties listed.
This can be easily explained: the owners who put their property up for sale, find it difficult face reality. Also, it must be said that more than a few real estate agents price above market value to tempt the owner and thus increase their client offer.
Although after the property passes months if not years without selling the owners realise they must meet the market.
This, in turn, leads to erroneous conclusions, given that the listing price is often based on other owners properties offered for sale they are often priced far away from what would be needed to make a sale in a reasonable time.
It is also true that the Argentine real estate market is very rigid, for several reasons: sellers usually are not pressurised by mortgages, so that very few are in a hurry to get rid of their property and accept a lower price than they originally wished. Another obvious: given that the value of real estate is not listed on the stock exchange – like the stock of a bank, for example – there is no way to quickly find out what is happening in the market.
But there is one objective fact: in November there were only 3,689 deeds, 45% less than in November 2017.
It is estimated that more than 75,000 properties are sold via the real estate portals.
The number on offer clearly exceeds the demand. In the Stock Exchange, an share that faces that scenario mean prices can only go down.
Look also changes in the market of sale of real estate: what taxes are paid after the tax reforms for example. The data the market is giving us is the reason the economist Juan Jose Cruces, future rector of the University Di Tella, who for more than a year has been warning that prices were slightly inflated in dollars terms.
“My vision is the same as always. The economy had an important shock and that has to be reflected in all market prices. I think that the low is not over yet and I would not rule out that it still has to be cut by 10 or 15 percentage points more.
Do not forget that with the drop in construction costs we have now seen, a new department can be priced at a lower price than what a used one is currently being offered for, and that has to drag down all used stock down, because the builder wants to sell fast.
The collective idea of expressing real estate prices in dollars leads sellers to ask for prices that are impossible to achive with the lowered demand.
An external shock like the one we had in 2018 implies that the prices in dollars of the goods that can not be exported or that have an imported component will fall. Real Estate takes its non-tradability in its name: Property, that is, due to the fact it can not be exported “.
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