Uruguay: Overview

RENTAL YIELDS

Last Updated: Nov 06, 2008

Gross rental yields, excellent in Montevideo

PARA Properties in Montevideo upscale areas of Montevideo, the capital of Uruguay (Carrasco, Pocitos, and Prado) enjoy high average gross rental yields of 7.8% for apartments, and 8.9% for houses, according to research by the Global Property Guide.

There was a 13% rise in the average price of apartments in Montevideo in 2007, according to the well-known Buenos Aires research house Reporte Imobiliario (RI). High-end property prices are now well above their 2001 pre-devaluation levels.

Houses in upscale areas of Montevideo earn rental returns of between 8.4% to 9.3%, on average, for properties of between 100 square metres (sq. m.) and 500 sq.m. A 200 sq. m. house in Montevideo might be priced at around US$244,200, and might fetch a rent of around US$1,896 a month; which translates into a gross rental yield of 9.32%

In Montevideo’s Old Town, property prices are not very high. True to its name, it is quiet, with very few new buildings. The Old Town is filled with French-style properties.

However the Old Town is becoming fashionable in a bohemian manner. Aside from fully refurbished properties which can command be priced as high as US$1,076 per square metre (sq. m.), prices tend to range from between US$538 and US$860 per sq. m., according to Reynolds Propiedades (www.uruguay-real-estate.com).

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TAXES AND COSTS

Last Updated: Feb 18, 2009

Income is now taxed in Uruguay

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	10.3%	10.2%	10.2%
Click here to see a worked example
Source:			Disclaimer

Rental Income: Net rental income from leasing property is taxed at 12%.

Capital Gains: Capital gains realized by individuals are taxed at 12%.

Inheritance: There are no inheritance or gift taxes in Uruguay.

Residents: Resident individuals pay tax on their Uruguayan-sourced income. Labor or earned income is taxed at progressive rates, from 0% up to 25%, while income from capital and capital gains are taxed at 12%.

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BUYING GUIDE

Last Updated: Mar 21, 2007

Total transaction costs are moderate in Uruguay

The total roundtrip transaction cost, i.e. the cost of buying and selling a property, is 14% This includes the real estate agent's fee of 6%, which is paid equally by both buyer and seller.

Property registration takes about 66 days, and involves eight separate procedures.

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LANDLORD AND TENANT

Last Updated: Jun 05, 2006

Freedom to contract, limited rent control in Uruguay

Uruguay's landlord and tenant law is pro-landlord.

Rents: Rents can be freely agreed between landlord and tenant, except for properties constructed before June 2, 1968.

In the free sector rent increases may be freely mutually agreed between landlord and tenant.

For rent-controlled properties, rent increases are indexed to the Unidad reajustable de alquileres URA or (Re-adjustable Unit for rent), published by the government.

Tenant Security: The duration of a rental contract can be freely agreed. The court system works adequately to enforce evictions and lease agreements, but is quite slow.

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ECONOMIC GROWTH

Last Updated: May 31, 2008

One of Latin America’s most fortunate

Uruguay’s economy has bounced back from the 2002 recession, and it is still a relatively prosperous country, with GDP per capita at US$6,477 (2007). It does not share its neighbors’ problems of unemployment, inequality, poverty and slums.

With a population of 3.5 million, it is known for its progress in education, its advanced welfare system and its liberal laws on social issues such as divorce. It has an excellent climate, good communications, fine ports, high agricultural and cattle productivity, and an experienced service industry.

Uruguay was among the first Latin America countries to establish a welfare state system and has maintained this, together with one of the region’s lowest poverty rates, through relatively high taxes on industry. Good access to health care contributes to a high average life expectancy.

However, there is a downside. Large swathes of Uruguay’s economy are in the hands of the state, including telecoms, most of the electricity industry, oil imports and several banks. Though economic performance is reasonable, the country could do much better, and it suffers from relatively high emigration.

Uruguay’s colonial towns, sandy beaches and year-round mild climate have created an increasingly important tourist industry. However, Uruguay's dependence on livestock and related exports make it vulnerable to fluctuations in international commodity prices. Recessions in Brazil and Argentina - its main export markets and source of tourists - propelled Uruguay into economic crisis in 2002.

Disbursements from the International Monetary Fund (IMF) and a restructuring of foreign debt have helped to foster a fragile recovery.

In November 2004 Tabaré Vázquez from the leftist Broad Front coalition won the presidential elections. Vázquez immediately approved at US$100 million emergency plan to help the poor, and opened investigations into the disappearances under military rule in the 1970s and 1980s. He also restored ties with Cuba.

This is a significant shift from the centrist presidency of Jorge Battle (1999-2004), who had pushed some significant reforms.

Yet Vázquez’s finance secretary Danilo Astori is a moderate, who has pursued tight fiscal policies, and also spearheaded the reform of the taxation system, including the introduction of a 12% tax on rental income. It seems likely that Astori will be the Broad Front’s candidate in the 2009 presidential election.

Uruguay is part of Mercosur (Mercado Común del Sur), the commercial and political agreement with Argentina, Brazil, and Paraguay, which provides a potential market of 200 million people. But it may be more of a handicap than a benefit, as it condemns the country to paying high import duties on imported machinery.