Real Estate: Is Milei’s win a good or bad sign for the real estate market in Argentina?
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The experts were excited about a change of direction and a reactivation of the real estate sector, analyze the implications of the volatility of the dollar and the electoral results.
The abrupt devaluation on a black Monday for the markets and the results of the PASO generated a scenario of uncertainty in the real estate sector. During the last months, the industry was excited about a cycle change with a tail breeze and a system of sales values from the low floor in prices. Real estate developers have been surprised in recent months because the needle has moved contrary to what usually happens in normal election years. That is, there was no wait & see attitude. Despite the economic ambiguity, the properties were consolidated as an investment refuge. However, the current political and economic scenario opens more than one question: How will the surprise election results impact the real estate market? Will it affect the cost of construction? Will operations be halted?
“The results of the elections have removed the fear of populism and have reinforced the idea of private property, a crucial aspect for investors”, responds German Gomez Picasso, founder of Real Estate Report, who also clarifies that, historically, every time there is a jump in the price of the dollar, consultations decrease -a phenomenon that paradoxically did not happen in the last few weeks-. However, he is optimistic and believes that once stability in the dollar’s value is established, the consultations will return with greater force.
It must be borne in mind that the market is going through “bonanza” times compared to the demand since 2020. Queries have not decreased in recent months, despite the volatility of the parallel dollar. In this line, July set a milestone: It was the first month in 52 -since March 2019- in which prices grew, albeit in an incipient way: 0.1% in a market in which the average sale value of a property in the city stands at US$2,153 per m2 -based on data from Zonaprop-.
In addition, the sector closed the first half of the year with a rise of 15% compared to 2022. ” This encouraging data is consistent with the fact that all the months of this 2023 were positive compared to the previous one, something that had not happened in 2022. And the curve of the pandemic up to here is in slow recovery,” says Jorge De Bartolo, president of the College of Notaries of the City of Buenos Aires.
Daniel Bryn, owner of Invertire Real Estate, marks three time horizons: short, medium and long-term. First, it foresees a decrease in consultations and closings of operations due to the dollar’s volatility. However, it suggests that if the dollar stabilizes, these figures may recover. In the medium term, he anticipates more uncertainty until the end of the year. Still, he is confident in many buyers’ continued desire for investment, which could boost the market. In the long term, he considers the prospects positive, primarily if a change in the political cycle promotes more excellent economic stability and less state intervention.
The real estate broker Fabian Achaval contributes that the market has been most dynamic in recent months, driven mainly by a price drop that boosted demand. “Both national and international investors returned to the market, reactivating sectors such as higher-value real estate and premium ventures,” he says.
These signs reflect an interest in long-term investments and a possible transition in the business cycle. He points out that the PASO results and the exchange rate’s consequent volatility had a predictable impact. As other experts have already mentioned, when the official exchange rate shakes, inquiries and visits are consequently reduced until it stabilizes again, and according to Achaval, this reaction pattern is a constant in the market. “In this case, the jump in the exchange rate will generate uncertainty and slow down the operational activity, exceedingly since the result of the elections was not foreseen by the market “, he affirms.
However, the broker emphasizes numerous positive factors influencing the real estate market. The reform agenda proposed by the candidates stands out, all in line with promoting the market. “Although the turbulence generated by the exchange rate jump generated a momentary pause, in the medium-term outlook, it continues to be favourable,” he says. In his vision, the combination of price changes, the attractiveness for investors and a pro-market reformist agenda augur an optimistic horizon for the sector.
Concerning used properties, Diego Migliorisi, managing partner of Migliorisi Inmobiliaria, provides his particular analysis. It is noteworthy that prices, which have been adjusted to current values since 2019, will not experience significant changes. According to his perspective, these values have already reached their lowest level.
The impact on the cost of construction
When talking about investments in a well, Gomez Picasso explains that construction costs anticipate a window of opportunity for those with dollars and projects underway since they could take advantage of the lower costs in dollars that devaluation always generates. However, they already discount an accelerated process of pass-through -the impact of an increase in the exchange rate on prices. What did this mean? That the window of opportunity will be short-term.
For Jose Rozados, another of the directors of Real Estate Report, the new construction costs will generate an opportunity in the short term for those with projects underway and dollars. This is due to the possibility of taking advantage of a temporary decrease in costs in foreign currency, as happened last June when it was estimated that the cost of building a high-quality house was around US$2,299.73 per square meter. Official quote. However, if the price of the blue dollar was considered towards the end of the month, a considerable cost reduction was observed. In this case, the cost per square meter decreased significantly to US$1,247.73. This is equivalent to almost half the original cost calculated at the official price.
Martin Pinus, an expert in the premium real estate market, points out that the outlook is quite encouraging in the long term, regardless of the candidate who becomes president. “Although these variables can even affect the acquisition of materials in the case of construction, the current retraction is mainly temporary,” he says. As uncertainties clear up, the situation “could improve.”
Bryn emphasizes that input suppliers, such as steel and iron, are on “frozen lists” and are not accepting dollar-related orders. “In the short term, this could result in an increase in the cost of construction in pesos, but over time it will adjust,” says the expert.
However, despite this, he stresses that construction costs have remained low over the past 10 years. Over the past year, construction cost has held steady but is still 10 per cent below the decade average. That is to say, it is not the opportunity of October 2020 when it touched its historical floor of the last 20 years, but it is still an attractive investment. In this context, Bryn explains that it is feasible to seize the opportunity to carry out construction projects.
The future of rentals
Soledad Balayan, owner of Maure Inmobiliaria, focuses on the rental market. “Today I could not pass a rental appraisal in pesos,” he says, confessing that he has not received orders for two weeks. Remember that July marked another record increase with numbers through the roof. In specific data, a studio apartment in Buenos Aires reached an average value of $143,825 per month, a two, $176,244 and a three, $230,178, according to data from Zonaprop. .
These apartments have not yet found a tenant who entered the market and adjusted their values to start the new contracts. Only in July, prices climbed 11.3%, a rise that for the third consecutive month marks a monthly increase record since the real estate portal carried out the survey. In the first seven months of the year, the published value of rentals grew by 89.6%, above the increase in inflation (62.5%) and the index with which rental contracts already in force are updated ( 57.3%). While in the interannual comparison, the increase was 152.9%, also the maximum registered since the beginning of the series in 2012. This rise exceeds the variation in year-on-year inflation, 116.4%, and the ICL adjustment, 108.2%.
Although uncertain, Balayan expects the outlook to clear up after the elections and sees more challenges in the rental market than in the sales market in the coming weeks. “I see the rental market as more complicated than the sales market in the coming weeks,” he insists.
Beyond the reality of the rental market, in the sales market, experts anticipate a temporary slowdown in inquiries and operations; they expect a more encouraging outlook in the medium and long term, hoping for greater economic and political stability in the country.
Source: La Nacion
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