The good times are here again

Argentina is powering ahead. The economy is expanding at breakneck speed, taking with it the real estate market, which is rising rapidly. Argentina has just experienced an excellent year in 2007 – though, arguably, it was not quite good as the positively euphoric year of 2006.

Since the calamities of 2002, when GDP declined by 10.9%, Argentina’s economic growth has been strong. GDP grew around 7.5% in 2007, after 8.5% growth in 2006, 9.2% in 2005, 9% in 2004, and 8.8% in 2003.

The result of the economy’s growth has been (as should be expected) strong growth in residential demand.

The average price of used apartments in Buenos Aires rose 13% in 2007.

This follows price rises of 16.4% in 2006, and 13.5% price rises in 2005, according to Argentina’s on-line real estate magazine Reporte Inmobiliario, which maintains a database of Buenas Aires residential property prices.

Prices of used Buenos Aires apartments in good condition range from US$870 per square metre at the lowest end, to US$2,400 per square metre in Recoleta-Retiro and US$1,550 per square metre in Barrio Norte.

Residential rents have been rising even faster than residential prices, according to the officially-published CPI data.

In 2002 house prices initially remained at their original levels, as house prices are quoted in US$. But rents dropped dramatically, as local wages were devalued against the US$. Argentina had enoyed yields of 11% during the whole period between 1980 and 2000, but now yields fell dramatically to 4.0% in 2002, 3.9% in 2003, and to 3.8% in 2004.

With the economic recovery rents began to rise strongly again. Yields rose to 5.3% in 2005, 5.5% in 2006 and to 5.3% in 2007, according to data from Reporte Inmobiliario. This recovery in yields was followed by a strong upward movement in house prices, as we have seen.

Rental values are likely to continue moving upwards, partly because it is impossible for people on a middle income to get mortgage finance for their first home. A survey of the readers of Reporte Inmobiliario confirms that most people expect the rise in rentals to continue:

However a real recovery of yields to previous levels is unlikely, according to Germán Gomez Picasso, CEO of Reporte Inmobiliario. “People are choosing to buy property, having become more cautious about financial investments because of the various crises around the world,” he says. The general willingness to buy will keep property prices moving up in line with rents, in his view.

2007 was a year of much new construction, but also of rapidly rising construction costs, as the cost of land has risen dramatically. Higher costs are pushing developers to build smaller units, the fastest-growing category being below US$100,000.

2008 is expected to see some slowdown in new development. From the beginning of July new housing projects must apply for a feasibility study. New developments have also met resistance in some up-market areas, amplifying the reasons to build in low-end neighborhoods.

Continued economic growth

In 2001-2002 Argentina was clearly at the bottom, and suffered an 11.8% drop in GDP per capita. In January 2002, the Argentine currency was unpegged from the US dollar, allowing the peso to fall freely. The country suffered a brief period of apparent social chaos, poverty, and an inflation rate of 26%.

Since then, Argentina has been cleaning up its act. Now, it is one of t he fastest growing countries in Latin America and its GDP continues to rise. It registered an estimated GDP per capita growth of 40.6% from 2002 to 2007, which is the highest in the region.

Foreign investment has been growing. Despite higher house prices, Argentina is still relatively inexpensive alternative.

In 2006 inflation was 10.6%, and it is expected to come in at 9.5% in 2007. The result has been a continued slow decline of the peso against the US$.

First lady president

Cristina Fernandez, the attractive and popular wife of former president Nestor Kirchner, swept to victory in the first round of Argentina's presidential election in October 2007 - fighting the election largely on Mr Kirchner’s record.

President Kirchner was criticized for the price controls he imposed. However despite this, the country’s position is generally seen as much stronger, and there is wide support for the former President.

A Kirchner in the office will mean continuance of current policies. Foreign investment will still be warmly welcomed and the real estate sector will be pretty much left alone by the Government.