Stable tenancies are the priority for landlords for 2019

Organizing and budgeting at a time of high inflation a schedule of expenses for the 2019 year requires property owners to be looking at the total cost of housing, especially if it is for renting and even more if a rental contract needs to be renewed.

Specialists of the real estate sector foresee for 2019 annual residential rental adjustments of up to 30% in prices but owners will need to prioritize having a “secure tenant”. On the other hand, tenants may find themselves in the dilemma of needing to look for smaller apartments or a cheaper neighborhood so they can live within their means.

According to José Rozados, owner of Real Estate Report, the rents that are signed for next year will take into account the inflation projections for 2019 to make their adjustments, which will be at least 15% per semester approximately.

But this will not be the only factor in the balance: the agreements will be “one to one”, that is, a deal between what the tenant can pay and other market valuations that the owner takes into account. For example, the security of keeping a property occupied.

“The contracts that had been agreed in 2018, in general, had increases of 25% per year, but that is very far from the actual inflation level (which was closer to 45%),” analyzed Rozados, adding that this year there will be a need to more “flexible” on the owner’s side, which will need to take into account having “a secure tenant” for a beginning of the year that “appears to be quite complicated” so, “they will not be able to generalize too much re the current adjustment indexes”.

“It is also not normally advisable to keep a property unoccupied for a prolonged period because it is necessary to cover fixed expenses, such as services and expenses,” he said. In addition, he anticipated that there will be variations in the price increases between the most central areas of the Federal Capital, which are more in demand and would allow the owners to raise rents; whilst in more remote neighborhoods increases in rent could not be equated to inflation rates because “there would be no one out there to pay for it”.

The exception to this might be new properties in prime areas where it sometimes better not to rent them at all in these market conditions to avoid suffering wear and tear thereby lowering their value but keep them in pristine condition with a view of selling them when the market recovers.

In China, for example, up to 30% of new investment apartments are unoccupied.

According to official statistics of the City, in the third quarter of 2018, the increase over the price of the square meter for rent averaged 35.8% for non-new apartments, 31.8% for the apartments of two bedrooms used and 25.8% for used units of three bedrooms.

If prices are observed per neighborhood, a non-new studio apartment in Palermo rents around $ 10,120 AR per month and in Floresta around AR 7,032. Meanwhile, for a two-bedroom apartment in Palermo, a rent has an approximate income of AR 13,876 and in Villa Luro, of around AR 9,461.

New alternatives

Alejandro Bennazar, president of the Argentine Chamber of Real Estate (CIA), estimated the same percentages of increase as Rozados, but predicted that by 2019 some trends that were seen last year could be deepened.

In particular, for those who can not afford to pay the rent, according to their survey, they will opt to move to smaller spaces, and new locations (in general, more remote neighborhoods) or take temporary rentals.

“Next year the snapshot of 2018 will be repeated. The forecast aims to contemplate the situation of the tenant, that is to say, what can be afforded by the market, and to have the properties fully occupied because today the fixed costs are high and they can even exceed the cost of rent, “said Bennazar.

“In 2019 there is a scenario of low profitability for the owners, whereas the tenant demand continues to increase and unfortunately there is no replacement of new apartments coming on stream, which again reduces the number on offer sot the indications are that the pace of rent increases will continue,”.

Obviously, this is not viable long-term so either property prices must come back to reward new landlords or the general economy improves making tenants ability to paid higher rents possible.

What will happen to Mortgages?

UVA credits are one of the main driving forces of the Government to improve access to housing. Although during 2017 and early 2018 they had exponential growth, towards the middle of last year they started a downward path which is yet to recover.

According to the last report of the Association of Notaries Public, in November 2108 the number of deeds made in the City with mortgages fell 87.4% with respect to a year ago and represented only 7.4% of the total operations for that month.

It is not expected that there will be a meaningful increase due to a landlord qualification issue. Commentators do not believe that the real estate market will be reactivated via new credits, because the values in pesos have increased but revenues have not increased in the same proportion. As well interest rates also rose. This produced a great mismatch, said Rozados.

According to the latest figures from the Real Estate Report, to access a UVA credit from Banco Nación that covers 80% of the property sales, today a monthly income of AR 120,475 is needed and the initial fee would be AR 30,392. These values are above the average salary of those seeking credits and the fee is far from the price of a monthly rent.

“However credit can serve as leverage for someone who already has an existing property and is perhaps missing the 30% of the total needed for a deposit,” said Rozados; Bennazar agreed, but with a little more optimism: “In a second semester credits could be reactivated, but entering a new loan today is very complicated as co-debtors cannot assist like in the past.

Those who remain are those who only need part security of a second home. 

Of course, the other uncertainty is the upcoming elections. Investors still have burned in their minds the lost decade of the Kircheners and the damage it caused to Argentina’s reputation as a safe place to invest.

It was a decade where corruption reached unbelievable levels even for Argentina and politicians had few limits on their power.

Unless the current administration’s policies on transparency, the stamping out of corruption and the strengthening of the rule of law continue and are deepened then sadly we will little new investment in housing.