Argentina Residential Real Estate Market Analysis 2024
Argentina's housing market continues to struggle, which is not surprising given the country's prolonged currency crisis, hyperinflation, and ailing economy.
Table of Contents
- Housing Market Snapshot
- Demand Highlights
- Supply Highlights
- Rental Market
- Mortgage Market
- Socio-Economic Context
Housing Market Snapshot
In 1989, Argentina experienced a period of hyperinflation, with annual inflation reaching almost 5,000%. Combined with power cuts, this led to the downfall of Raul Alfonsín's presidency. A similar crisis in 2001 forced another president, Fernando de la Rua, to vacate his seat, leading to what is now considered the largest-ever sovereign default, amounting to US$95 billion.
After experiencing robust growth of 6.4% from 2003 to 2011, Argentina suffered another crisis under populist leader Cristina Fernández, forcing it to default again on its debt in 2014. Stubbornly high inflation persisted and the Argentine peso (ARS) lost more than 50% of its value from 2012 to 2015.
After a short-lived recovery, the country saw another economic recession. The economy contracted by 2.6% in 2018 and another 2% in 2019. As a result of the public outrage over the depressed economy, exorbitant inflation, and austerity, center-left Peronish Alberto Fernandez defeated incumbent president Mauricio Macri in the 2019 presidential elections.
The Covid-19 pandemic exacerbated Argentina's suffering, with the economy contracting by a huge 9.9% in 2020. After growing by 10.7% in 2021 and by another 5% in 2022, the economy suffered another decline of about 1.6% in 2023. Recently, the International Monetary Fund (IMF) revised downwards its 2024 economic forecast for Argentina to a contraction of 3.5%, worse than its earlier estimate of a 2.8% decline. Worse, the overall inflation skyrocketed to a staggering 133.5% in 2023, the highest level seen since 1991. Inflation is expected to surge further to an average of 250% this year.
Since 2019, the Argentine peso (ARS) lost another 96% of its value against the US dollar, reaching an average monthly exchange rate of ARS 922.4 = USD 1 in July 2024 from ARS 37.33 = USD 1 in January 2019.
Argentina's house price annual change
Clearly, Argentina's economic and financial turmoil is jinxing the country's property market. In the second quarter of 2024, the average sales price of apartments in Buenos Aires rose by a modest 5.49% to US$2,269 per square meter (sqm) compared to a year earlier, following a y-o-y increase of 1.29% in Q1 2024 and annual declines of 1% in Q4 2023, 3.35% in Q3 2023, 5.49% in Q2 2023, and 6.09% in Q1 2023, according to data published by Zonaprop. However, when adjusted for inflation, apartment prices actually plunged by a whopping 71.61% y-o-y in Q2 2024.
On a quarterly basis, nominal apartment prices in the capital city increased by 3.04% in Q2 2024 but actually dropped by 13.08% in real terms.
Inflation-adjusted residential property prices in Argentina have been continuously falling in the past decade.
Demand Highlights
Residential property sales are showing improvements
Demand is showing improvements, but still low by historical standards. During 2023, there were 40,539 property sales transactions in Buenos Aires, up by 20.1% as compared to the previous year but still far below the annual average of 65,000 sales recorded in 1998-2011, and 55,000 sales seen in 2016-18, based on figures from the Colegio de Escribanos de la Ciudad de Buenos Aires. In the first half of 2024, sale transactions increased further by 25.4% y-o-y to 19,952 units.
Residential construction activity in Argentina fell sharply by 32.6% in May 2024 from a year earlier, following y-o-y declines of 37.3% in April, 42.2% in March, 24.6% in February, and 21.8% in January, according to the data on Synthetic Indicator of Construction Activity (ISAC) released by the National Institute of Statistics and Censuses (INDEC).
The overall economic outlook remains gloomy. The hyperinflation-battered Argentina contracted by 1.6% during 2023, in sharp contrast to annual expansions of 5% in 2022 and 10.7% in 2021. The economic downturn was broad-based, with private consumption, public spending, fixed investment, and exports all falling considerably.
Recently, the International Monetary Fund (IMF) revised downwards its 2024 economic forecast for Argentina to a contraction of 3.5%, worse than its earlier estimate of a 2.8% decline, as newly-elected President Milei's austerity measures sent consumption and economic activity plummeting in the first half of this year.
Supply Highlights
Construction activity is plunging, amidst supply overhang
With very limited demand, there is now a growing supply overhang, especially in Buenos Aires. "The total stock of real estate is above 163,000 units and only 1.57% of what is offered is sold. The excess of properties is so great that at the current level of demand, 6 years are required to absorb all the properties for sale in Buenos Aires when the historical average was two years," said Jose Luis Cieri in an article published by Infobae.
Two years later the situation has not changed much.
As a result, construction activity in Argentina plunged 32.6% in May 2024 from a year earlier, following y-o-y declines of 37.3% in April, 42.2% in March, 24.6% in February, and 21.8% in January, according to figures from INDEC. For the first five months of 2024, construction activity actually went down by a cumulative 32.2% y-o-y, far worse than the 1.3% fall over the same period in 2023.
Likewise, the total covered surface of building permits issued fell by 12% y-o-y to just 933,963 square meters (sqm) in April 2024, following a cumulative decline of 7.4% for the whole year of 2023 and 9.3% in 2022, based on figures from INDEC.
How capital controls thwarted housing market growth
The lackluster performance of Argentina's housing market in the past decade can be partly attributed to the imposition of capital controls in the country.
After 2011 capital controls introduced by then-President Cristina Fernandez made it extremely difficult for most Argentines to acquire property. On the one hand, sellers demanded to be paid in dollars, proven safer than the peso. On the other hand, buyers were prevented from acquiring these dollars by strict currency controls. Thirdly, the indexation of peso loans has been forbidden since 2004, at the height of Argentina's currency crisis.
Coupled with high inflation, these factors caused the country's real estate market to enter a three-year crisis. In 2014, just 2,800 property sales per month were registered in Buenos Aires, a city of about 3 million people. That compares with 5,200 in 2010, 6,100 in 2007, and a historical average of 5,000, according to the Buenos Aires Notary College.
In addition, Argentina's very high inflation rates made granting peso-denominated mortgages too risky for banks. In 2015, the number of new mortgages in Argentina slumped to its lowest level in 15 years, accounting for just 1% of the country's total GDP - the lowest in Latin America, according to a recent report by the Housing Finance Information Network. This was down from 5.4% in 2000 - a drop that would have been considerably larger without the help of the government's Procrear housing program, according to a report by Ecolatina consultancy.
Immediately after taking office in December 2015, President Mauricio Macri began to reverse the economic legacy of populist former president Fernández, including devaluing the currency and lifting tight capital controls.
Ironically Macri decided to reintroduce currency controls after he was defeated by Peronist candidate Alberto Fernández in the August 11, 2019, primary poll. On September 11, 2019, the central bank unveiled a new round of currency controls to tame speculation and stem a spiraling debt crisis. The new measure requires anyone purchasing foreign currency to present a sworn oath promising to wait at least five days before using it to purchase bonds.
Under previous regulations, a buyer could use foreign currency to purchase a bond and then immediately sell it at a more favorable exchange rate, easily gaining a profit of about 5% to 7%.
In other new measures, individuals seeking to purchase dollars face a monthly limit of US$10,000, and transferring money abroad requires government permission. The government also requires companies and exporters to obtain permission from the central bank to access the foreign exchange market. In just over a month, the Argentine peso plunged by 20% against the US dollar.
From December 2015 to December 2019, the Argentine peso lost over 81% of its value against the US dollar. The domestic currency has been continuously plummeting since. In the past four years, the peso lost another 90% of its value against the US dollar.
Rental Market
Rental yields are low to moderate
Gross rental yields on apartments in Argentina are low to moderate, especially by the standards of the continent (yields in Latin America tend to be high). The typical gross rental yield on an apartment - the rental return earned on the purchase price, before taxation, vacancy costs, and other costs - isn't something that will attract foreigners to invest, even if they could get a mortgage in Argentina, which they won't be able to.
Nationwide, the average gross rental yield stood at 4.64% in Q2 2024, down from the previous quarter's 5.9%, according to research conducted by the Global Property Guide.
In major cities:
- In Buenos Aires, gross rental yields for apartments range from 3.4% to 6.38%, with a city average of 4.88%.
- In Rosario, gross rental yields are lower, ranging from 2.19% to 4.24%, with a city average of 3.29%.
- In Córdoba, residential properties yield between 5.17% and 6.62%, with a city average of 5.75%.
Given that a typical landlord's expenses are around 2% per annum in maintenance, repairs, empties, etc., this means that many landlords will effectively earn nothing. In fact, round-trip transaction costs are quite high in Argentina (i.e., the total costs of buying and selling a property).
Renting has till recently been the only option for many who have no means of saving and buying property, owing to limited mortgage lending. In the past years, rents have been continuously rising by double-digit figures. However, despite these rent increases, the rental market remains unattractive to landlords and property owners because of very high inflation and poor rental yields.
A two-bedroom apartment located in a prime location in Buenos Aires is currently offered for a monthly rent of US$350 to US$900.
Mortgage Market
Housing loan interest rates declining, following BCRA's successive key rate cuts
On its May 14, 2024 decision, Banco Central de la República Argentina (BCRA) slashed its key interest rate "Leliq" by 1,000 basis points from 50% to 40% - its sixth consecutive rate cut since December 2023. The central bank's latest move brought the key interest rate to its lowest level since June 2022.
"The BCRA's responsibility to limit endogenous money creation is managed through the monetary policy interest rate, which acts as a complementary anchor to keep inflation expectations on a downward path. Today, bank credit to the private sector in Argentina is at historic lows. It should be noted that, unlike economies where a drop in the interest rate expands secondary sources of money creation through bank credit, in Argentina the contractionary effect predominates over the primary expansion of money," said the BCRA.
"For this reason, and with the aim of continuing to reduce primary money creation and deepen the disinflation process, the BCRA decided to reduce the interest rate on overnight passive repurchase agreements to 40% of the TNA," added the central bank.
In line with the central bank's aggressive monetary loosening, mortgage rates have been falling rapidly in recent months. In June 2024, the average mortgage interest rate was down to 28.34%, from 75.44% in June 2023 and 36.67% in June 2022, according to BCRA figures.
By maturity:
- Up to 5-year term: 30.69%, sharply down from 76.34% a year earlier and still lower than the 37.88% two years ago
- Over 5 and up to 10-year term: 21.13%, sharply down from 69.88% in June 2023 and 30.40% in June 2022
- Over the 10-year term: 24.11%, far lower than the 48.28% in the previous year but at par with the 24.96% two years ago
The mortgage market is dying!
At the beginning of former president Macri's term things looked so promising! Elected in December 2015, Macri made a campaign promise to offer one million mortgages during his tenure. Within three months he had devalued the currency and lifted tight exchange controls - and there was an immediate surge in the number of requests for property quotes. "For the first time in years, homeowners want to exchange properties instead of sitting on their assets," said Alejandra Bugna, a property lawyer at Baker & McKenzie.
In April 2016 an inflation-linked mortgage credit system called Acquisition Value Units or Unidad de Valor Adquisitivo (UVA), similar to the system used in Chile and Uruguay, was introduced.
Under the scheme, real-estate prices either for rent or for purchase will no longer be denominated in US dollars or in pesos but instead will be denominated in UVA. The system guarantees that the transaction represents the same number of consumer price index baskets if, for example, there's a tighter or looser monetary policy. Rents will be priced at the same amount as UVA if the peso gets stronger or weaker. While the payment would be nominally higher with a devaluation, the payment's UVA value would remain constant.
In addition to the introduction of UVA, the government launched a subsidized mortgage scheme in March 2017 to grant subsidized mortgages to around 90,000 locals with monthly incomes ranging from ARS 16,000 (US$17) to ARS 32,000 (US$34).
Despite these measures, demand remained depressed. First-time homebuyers either delayed their plans to purchase homes or canceled their loans, mainly due to plummeting pesos. Then in 2020, the Covid-19 pandemic halted property transactions, making the situation even worse. With the continued plunge in the value of the peso against the US dollar, the mortgage market is shrinking rapidly.
Despite the surge in the nominal value of total housing loans amidst exorbitant inflation, the mortgage market is actually shrinking. During 2023, the size of the mortgage market was equivalent to less than 0.4% of GDP, down from 0.9% in 2020, 1.26% in 2018, and 5.36% of GDP in 2000.
Homes in Argentina are priced in US dollars, even though buyers can only take out mortgages in pesos.
The situation is currently aggravated by soaring interest rates and the government's new regulations on foreign exchange controls.