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House prices rising in Montevideo
Real estate transactions in Uruguay are typically quoted in dollars because of a history of fluctuations in the value of the Uruguayan peso.
Among the seventeen Montevideo neighborhoods included in the survey, Aguada posted the sharpest house price hike of around 11.46% during the year to June 2017. It was followed by La Blanqueada (8.97%), Prado (7.47%), and Punta Carretas (7.30%).
Areas with meagre house price increases include Malvin (1.75%), Parque Rodo (1.68%), Carrasco (0.92%), and Tres Cruces (0.61%). In contrast, house prices in Jacinto Vera (-1.11%) and Union (-1.14%) contracted.
Carrasco, Montevideo’s most exclusive suburb, had an average price of US$ 3,390 per sq. m. in June 2017. Currently, a 65 sq. m. residential property in the area costs about US$ 220,325, according to El Observador.
In Punta Gorda, a beautifully restored historic district, a 65 sq. m. residential unit costs around US$ 223,173. In Punta Carretas, where the magnificent Rambla (seaside avenue) can be found, the same unit has an average price of US$ 218,643.
The selling price of a 65 sq. m. residential property are still quite high in the districts of Malvin, Pocitos, and Buceo, ranging from US$ 203,526 to US$ 186,957. In the districts of Parque Rodo, Parque Batlle, and Tres Cruces, the same property costs from US$ 173,027 to US$ 159,865.
Union has the most affordable housing in the capital city, with an average price of US$ 107,190 for a 65 sq. m. residential property.
Foreign buyers can buy both built properties and land in Uruguay. In November 2013, Congress prohibited ownership of productive land by corporations in which foreign countries are direct or indirect shareholders. But the bill does not affect individual foreign buyers, who can still purchase land.
Gross rental yields on Montevideo apartments and houses are good
Gross rental yields are moderate to good, at around 5.5% to 7.5%. They are better on smaller houses and apartments, as is typical in most countries. Bear in mind that these yields are gross, i.e., before costs and taxes, and so realistically net rental returns would normally be a couple of percentage points lower.
Rental yields in Montevideo have not changed much in recent years, though they are slightly lower than they were 10 years ago.
Income is now taxed in Uruguay
Rental Income: Net rental income from leasing property is taxed at 12%.
Individuals who obtain income derived from renting properties shall pay a monthly payment in advance of the abovementioned tax. The amount of withholding tax arises to 10.5% of the total amount of income received each month. In case the only income obtained by individuals is derived from renting properties, advance payments can be considered as definitive tax payments.
Capital Gains: Capital gains realized by individuals are taxed at 12%. Taxable capital gains are the difference between the sales price and acquisition costs.
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 30%, while income from capital and capital gains are taxed at 12%.
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.
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.
Favourable economic outlook in 2017, 2018Uruguay's economy bounced back in 2016 with a GDP growth of 1.5% y-o-y, following a sharp slowdown the previous year, picking up especially in the second half of the year, mainly driven by the recovery of consumption and a larger decline in imports (-2.9% y-o-y) than in exports (-1.4% y-o-y).
This favourable growth continued in the first two quarters of 2017, with 2.8% growth during the year to Q2 2017.
Uruguay’s economy started to slow In 2014, with GDP growth of just 3.2%. It was followed by a 0.4% slowdown in 2015 as commodity prices slumped, and Uruguay's trade partners slowed.
This year, Uruguay's economy is expected to grow by 3.5%, and by 3.1% in 2018, based on IMF projections. In May 2017, credit rating agency Standard and Poor’s revised its outlook on Uruguay from negative to stable, citing its economy's resilience, and expects the government to continue implementing fiscal consolidation measures. Moody's Investors Service followed suit in July 2017, also revising its negative outlook to stable.
Uruguay is tagged as a “moderately free” and the world’s 38th freest economy in Heritage.org’s 2017 Index of Economic Freedom, up by three notches from the previous year. It ranks 5th out of 29 South and Central American countries. But in reality, the government’s continuing influence over economic activity hinders overall economic growth.
The Uruguay peso (UYU) has weakened by 40.2% against the US dollar, from an average monthly exchange rate of UYU19.266 = USD1 in December 2012 to UYU 32.235 = USD 1 in March 2016, stoking inflationary pressures in recent years. The UYU has strengthened against the US dollar since then and has gained by 9.7% to an average monthly exchange rate of UYU 29.387 = USD 1 in October 2017.
The government’s fiscal deficit stood at around 3.9% of GPD in 2016, up from 3.6% in 2015, and way higher than the average deficit of 1.4% of GDP seen over the past decade. In 2017, the government intends to reduce deficit to only around 3% of GDP, and to 2.5% of GDP in 2019. To achieve these targets, the government is expected to implement higher public utility rates, an income tax hike, and a possible cut or delay in outlays. Uruguay’s gross public debt widened to 52.7% of GDP in 2016, up from 48% of GDP in the previous year.
One of Uruguay’s main risks was its high inflation. However, annual inflation rates has been on a declining trend since June 2016. Inflationary pressures were reduced due to the appreciation of the Uruguay peso and the higher interest rates.
In October 2017, Uruguay's annual inflation has increased for the third consecutive month at around 6%, up from 5.8% in September 2016 and 5.5% in August 2017. The recent price hike was still within the central bank's target of 3% to 7%. In 2016, inflation was at 9.6%, from 8.7% in 2015, from 8.9% in 2014, 8.6% in 2013, and 8.1% in 2011 and 2012, according to the IMF.
Uruguay’s unemployment rate slightly rose to 7.8% in August 2017, from 7.6% in the previous month, according to Instituto Nacional de Estadística. In 2016, nationwide jobless rate was at 7.9%, higher than the 7.3% from 2007 to 2015 but far lower than the average jobless rate of 14% from 2000 to 2006.