Uruguay

Uruguay’s housing market remains robust

Lalaine C. Delmendo

Uruguay’s housing market remains fundamentally strong, buoyed by robust demand and healthy economic growth.  

In Q1 2023, the average price of newly built houses in Uruguay rose strongly by 18.57% (10.47% inflation-adjusted) to UYU 83,000 (US$2,199) per square meter (sqm) from a year earlier, according to the National Institute of Statistics (INE). On a quarterly basis, nationwide house prices surged 18.6% (14.6% inflation-adjusted) in Q1.

Though, house price growth is more muted in the country’s capital city. In Montevideo, the average price of newly built houses rose by a modest 4.43% y-o-y to UYU 114,874 (US$3,043) per square meter (sqm) in Q1 2023. However, because of high inflation, real house prices actually dropped 2.91% over the same period. 

Quarter-on-quarter, new house prices in the capital city increased by 4.4% in Q1 2023 (0.88% inflation-adjusted).  

Demand remains robust. During 2022, the total number of real estate purchase transactions soared by 15% y-o-y to 50,745 units, following a strong growth of 24.8% in 2021, based on figures from INE. 

In the first five months of 2023, the total number of real estate purchase transactions reached 17,610 units, down slightly by 2.3% from the record high seen in the same period last year but remains one of the highest numbers of transactions recorded in recent years.  

This can be mainly attributed to the improving economic conditions and increasing purchasing power of Uruguayans. The Uruguay peso (UYU) has strengthened by almost 16% against the US dollar in the past two years, from an average monthly exchange rate of UYU 43.5 = USD 1 in June 2021 to UYU 37.63 = USD 1 in June 2023. 

Uruguay Monthly Average Exchange Rates graph

Real estate transactions in Uruguay are typically quoted in dollars because of a history of fluctuations in the value of the Uruguayan peso. 

Demand from foreign buyers is also gradually increasing. The real estate market in Uruguay, and particularly in its beach resorts, relies heavily on foreign buyers, around 75% of whom have traditionally been Argentines, followed by Brazilians (with about 20% share) while the remaining 5% were buyers from other countries. Some European retirees are also drawn to Montevideo, especially writers and artists.  

In addition, the country also offers decent rental yields to potential property investors. The typical gross rental yield in Montevideo – the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs – ranges from around 3.63 to 9.63%, according to a Global Property Guide research conducted in November 2022. 

Uruguay’s house price annual change

Uruguay’s house prices are expected to continue rising during the remainder of the year, particularly in Montevideo and its coastal neighborhoods, buoyed by rising demand from both local and international homebuyers. 

For the overall economy, Uruguay registered a real GDP growth rate of 4.9% during 2022, following an expansion of 4.4% in 2021, buoyed by strong exports of agricultural products and recovering service sectors, including tourism. However, the International Monetary Fund (IMF) expects the country’s economic growth to slow to 2% this year, while government estimates are more pessimistic, projecting a minuscule growth of 1.3%. 

House price variations in Montevideo 

The neighborhood of Puerto del Bueco has the most expensive housing in Montevideo, with an average house price of US$4,410 per sqm in 2022, according to a Mercado Libre report as published by El Observador. It was followed by Villa Biarritz (US$3,944 per sqm), Carrasco (US$3,862 per sqm), Punta Carretas (US$3,808 per sqm), and Punta Gorda (US$3,658 per sqm). 

Carrasco is considered Montevideo’s most exclusive suburb. Many are attracted to Punta Carretas for its magnificent Rambla (seaside avenue), Villa Biarritz for its strategic location, and Punta Gorda for its beautifully restored historic spots. 

Other posh neighborhoods in the capital city included Malvin, with an average house price of US$3,503 per sqm, Pocitos Nuevos (US$3,473 per sqm), Buceo (US$3,124 per sqm), Parque Batlle (US$2,925 per sqm), and Parque Rodó (US$2,921 per sqm). 

Prado and Ciudad Vieja registered average house prices of US$2,372 and US$1,949 per sqm, respectively. 

The neighborhoods with the cheapest housing in 2022 included Nuevo París (U$971 per sqm), La Teja (US$1,016 per sqm), Cerro (US$1,018 per sqm), Colón (US$1,040 per sqm), and Maroñas (US$1,160 per sqm). 

Uruguay Median Prices of Residential Properties graph

Montevideo’s massive housing boom 

Montevideo saw a spectacular housing boom from 1995 to 2005, with prices of newly built houses surging by 198.6%, according to the INE. 

House prices continued to rise in the following years, registering an annual average growth of 11.9% from 2006 to 2015 (2.5% inflation-adjusted). 

The housing market started to slow by end-2015 due to Uruguay’s economic slowdown and Argentina’s economic crisis. Uruguay’s economy grew by a meager 0.4% in 2015, 1.7% in 2016, 1.6% in 2017, 0.5% in 2018, and 0.4% in 2019 - a sharp deceleration from annual average growth of 5.4% from 2004 to 2014. 

House prices have been almost unchanged from 2016 to 2018 when adjusted for inflation. In 2019, nominal house prices increased by 2.04% but actually declined by 6.2% in inflation-adjusted terms. 

Then the Covid-19 pandemic worsened housing market conditions. During 2o2o, nationwide house prices plummeted by a huge 20% (-26.9% inflation-adjusted), as both demand and supply fall sharply.  

The housing market started to show some improvements in 2021 and the upward trend continued in 2022, as economic activity returns to pre-pandemic levels amidst the removal of Covid-related restrictions. 

Uruguay GDP Per Capita graph

Property demand remains strong 

During 2022, the total number of real estate purchase transactions soared by 15% y-o-y to 50,745 units, following strong growth of 24.8% in 2021 and y-o-y declines of 4.4% in 2020, 11.9% in 2019, and 5.9% in 2018, based on figures from INE. 

This is supported by an article released by El Observador, which showed that the sale of real estate in Uruguay reached at least US$2.2 billion in 2022, sharply up by about 37.5% from US$1.6 billion in 2021. Said figures were calculated based on the collection of the Property Transfer Tax (ITP), which is equivalent to 2% to the buyer and another 2% to the seller of the property’s value. 

Demand remains robust this year, but there is an indication that its rate of growth is now slowing. In the first five months of 2023, real estate purchase transactions fell by 2.3% y-o-y to 17,610 units.  

Montevideo accounted for the biggest share of about 34.2% of all property transactions in Jan-May 2023, followed by Maldonado (17.3%), Canelones (13.2%), Rocha (6.3%), and Colonia (5%).  

Uruguay Purchase and Sales of Registered Properties graph

Punta del Este: from an idyllic vacation spot to a year-round retreat 

The fashionable beach resort of Punta del Este is currently transforming from an idyllic vacation spot to a year-round destination for the rich. Sometimes called the “Monaco of South America”, it became a pandemic refuge for thousands of wealthy investors in recent years, according to an article published by Bloomberg. 

Accordingly, Punta del Este and its neighboring provincial capital Maldonado together are home to around 170,000 people, with about 15,000 new residents settling in the area since the onset of the Covid-19 pandemic. In fact, just outside Punta de Este, the resort of La Barra, a former fishing village, is also becoming a popular second-home market for international buyers. 

“We’ve experienced continuous growth through immigration for 20 years, which accelerated in the two years since the pandemic,” said provincial governor Enrique Antia. “That shows there is a bigger population of young people.” 

A five-acre mixed-use real estate project named Atlántico situated at the northwest edge of the city broke ground in 2021. Its developer Altius Group said that the first phase of the project, comprising of a shopping center, an 18-floor apartment block, and a 14-story office tower, is scheduled to be completed by end-2024. The whole project has an estimated cost of US$130 million. 

Another US$42 million 25-story World Trade Center-branded office tower on the city’s historic peninsula district is also currently being built. The building is expected to house at least 1,200 people when it opens by early 2025.  

Punta del Este’s luxury property market is dominated by foreign buyers, particularly from Argentina and Brazil, as well as from the United States. 

Luxury homes in Punta del Este typically cost from US$2 million to US$6 million. Beachfront luxury homes command even higher prices, ranging from US$7 million to as high as US$20 million. 

Some of the most expensive residences in Punta del Este can be found in the “Mouette” building and Trump Tower apartments, with prices ranging from US$7,000 per sqm to US$10,000 per sqm. The cheapest new apartments in the area range from US$ 2,500 to below US$ 7,000. 

More modest homes are available farther from the beach, starting at around US$200,000 for a small two-bedroom house, said Sandra Sofio, Engel & Völkers Punta del Este. 

Rental yields are moderate to good; rents continue rising 

The typical gross rental yield in Montevideo – the return earned on the purchase price of a rental property, before taxation, vacancy costs, and other costs – is moderate to good, at around 3.63 to 9.63%, according to a Global Property Guide research conducted in November 2022. Though 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. 

Gross rental yields are an important consideration even for those who do not intend to become landlords because a high rental yield indicates that the property market is reasonably priced. 

Rental yields in Maldonado range between 5.99% and 9.89% and in Colonia the expected returns are slightly lower at 3.47% to 5.40%. 

Round-trip transaction costs are high in Uruguay (i.e., the total costs of buying and selling a property).  See our residential transaction costs analysis for Uruguay and Residential buy/sell costs in Uruguay compared to the rest of Latin America. 

Residential rents are rising. In May 2023, rents rose by 6.42% to a monthly average of UYU 18,586 (US$491) as compared to a year earlier, according to INE. 

As of May 2023, there are 84,895 current rental contracts in Uruguay, up by 0.9% from the previous year. Of these, about 77.5% were in the city of Montevideo, 11.6% in Canelones, 1.9% in San José, 1.6% in Maldonado, 1.3% in Paysandú, and 1.2% in Colonia. 

Falling interest rates buoy housing loan growth 

Banco Central del Uruguay (BCU) cut its benchmark policy rate by 50 basis points to 10.75% in July 2023, following a 25 basis point rate cut in April 2023, as inflationary pressures continue to ease. 

In line with the policy rate’s movements, the BCU housing lending rate for indexed units (UI) fell to 4.7% in May 2023, from 4.8% a year earlier and 5.8% two years ago. 

The Indexed Unit, or Unidad Indexada (UI) in Uruguay, created in 2002, is like Chile’s Unidad de Formento, which is adjusted with the CPI, and replaced the previous Unidad Reajustable (UR) which was adjusted according to a wage index. The index is calculated by INE and is subject to daily changes to reflect changes in the CPI. The indexing to the price level does not incur inflation risk since the real value of payments remains constant. 

Uruguay Interest Rates on Housing Loans graph

Uruguay’s mortgage market is highly concentrated and is dominated by Banco Hipotecario del Uruguay (BHU) which accounts for about 80% of all housing mortgage credits. 

In May 2023, housing loans in local currency rose by a modest 2.7% to 213 million UI from a year earlier, mainly buoyed by falling interest rates, according to the BCU. For the first five months of 2023, UYU-denominated housing loans increased strongly by 14.9% y-o-y to an accumulated 980.3  million UI. 

Uruguay Housing Loans graph

Robust economic growth, improved public finances 

Uruguay’s economy grew by 4.9% during 2022, following an expansion of 4.4% in 2021, buoyed by strong exports of agricultural products and recovering service sectors, including tourism.  

Foreign trade registered a strong increase in both exports and imports last year. Total exports of goods surged 16.5% y-o-y to a record high of US$13.36 billion in 2022, according to the country’s trade promotion agency Uruguay XXI. Beef was the leading export product last year, accounting for nearly 20% of total exports, followed by soybeans, cellulose, dairy products, beverages concentrate, and wood, among others.  

Likewise, the import of goods, excluding oil and derivatives, rose by 22% y-o-y to US$10.94 billion last year. 

The IMF expects Uruguay’s economic growth to slow to 2% this year, while government estimates are even more pessimistic, projecting a minuscule growth of 1.3%. 

“The economy is expected to decelerate, while risks are tilted to the downside. Real GDP growth is projected at 2 percent in 2023 amid high uncertainty due to the impact of the current drought,” said the IMF in its March 2023 Mission Concluding Statement. “Despite external headwinds, tighter financial conditions, and the impact of the drought, growth would be supported by a strong tourism season, increased cellulose production and exports, and robust private consumption as real wages recover.” 

The country registered strong economic growth averaging 5.3% annually from 2004 to 2014, before slowing sharply to just 0.4% in 2015, as commodity prices slumped and Uruguay’s trade partners slowed. The country’s economic growth remained sluggish in the succeeding years, expanding by an average annual growth of only 1% from 2016 to 2019. Economic conditions worsened tremendously in 2020 due to the Covid-19 pandemic, with real GDP contracting by a huge 6.1% - the country’s worst performance since 2002. 

Uruguay GDP Growth and Inflation graph

In April 2023, credit rating agency Standard and Poor’s raised Uruguay’s credit rating two notches above the minimum investment grade – the highest rating in the nation’s history. The upgrade reflects recent improvements to the country’s fiscal policy framework, including the likely passage of pension reform, which will help stabilize public finances and limit debt increases.  

This followed another credit rating upgrade from Fitch Ratings in June 2023, raising the country’s long-term foreign-currency and local-currency issuer default rating to ‘BBB’ from ‘BBB-’ with a stable outlook. 

“Uruguay’s ‘BBB’ rating continues to be supported by relatively high GDP per capita, strong governance indicators, and robust external finances,” said Fitch Ratings. 

With an economic freedom score of 70.2, Uruguay is tagged as “mostly free” and the world’s 27th freest economy in Heritage.org’s 2023 Index of Economic Freedom, up by seven notches from the previous year. It ranks 4th out of the 32 South and Central American countries and its overall score is significantly above the world and regional averages. 

“Overall, Uruguay’s economy performs quite well in maintaining the four pillars of economic freedom and a prudent macroeconomic environment. Scores for property rights and freedom from corruption are relatively high compared to other countries in the region. The modern regulatory environment encourages the development of a more robust private sector,” The Heritage Foundation said. 

The government’s budget deficit stood at around 3% of the country’s GDP in 2022, down from 3.7% in 2021 and 5.1% in 2020 but still higher than the pre-pandemic levels equivalent to 2.8% of GDP in 2019 and 1.9% in 2018. Likewise, public debt also declined to about 66.9% of GDP last year, down from 69.1% in 2021 and 74.5% in 2020. 

“The fiscal deficit and government debt declined substantially over the last two years, reflecting the authorities’ efforts to stay within the targets of the fiscal rules while protecting the most vulnerable,” said the IMF. 

In June 2023, nationwide inflation fell to 5.98%, down from 7.1% in the previous month and 9.29% a year earlier, according to figures from INE. In fact, it was the lowest level recorded since September 2017. The recent deceleration in price growth is an indication that the market is responding to the central bank’s aggressive interest rate hikes. Inflation averaged 8.4% in 2012 to 2022. 

Uruguay’s unemployment rate was 8.3% in June 2023, a slight improvement from the prior year’s 8.4%. During 2022, the nationwide jobless rate stood at 7.9%, lower than the annual average of 9.3% in 2018-2021 but higher than the 7.4% from 2007 to 2017. 

Uruguay Unemployment Rate graph

Sources: 

Uruguay - More data and information