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Construction costs rose almost 25% in the last quarter, complicating the profitability of real estate developers - Infobae
Source:
www.infobae.com
February 13, 2025
Builders and investors face a challenging scenario, with rising prices for projects in progress and greater uncertainty about new investments. Meanwhile, used properties are gaining in appeal and rentals remain profitable.
By Jose Luis Cieri
The cost of construction per square meter reached USD 1,350.75 in January, with a year-on-year increase of 50.83%, which affects the profitability of developers
The 24.63% increase in construction costs in dollars during the last quarter of 2024 affected the profitability of real estate projects and increased the prices of undeveloped and brand new properties. Building a building in the city of Buenos Aires and Greater Buenos Aires already exceeds USD 1,300 per square meter.
Meanwhile, the sale price at the well increased only 3.28% in the same period, which widens the gap with the increase in costs and reduces the profitability of the sector, reported the Metadato analysis carried out by the Chamber of Urban Developers (CEDU).
This phenomenon is the result of a combination of persistent inflationary inertia and a stable exchange rate, which has led to an increase in the dollar in different sectors of the economy, including construction. The situation poses new challenges for developers, investors and buyers in a market that is still trying to stabilize.
One of the determining factors in the decline in construction activity is the halt in public works nationwide. The Government, which even dissolved the Housing Secretariat , has already confirmed that this policy will continue throughout 2025, which impacts the dynamics of the sector.
The lack of state investment not only directly affects construction companies, but also reduces the activity of suppliers, contractors and other key players in the industry. In this context, rising costs slow down the progress of private projects, as low profitability discourages developers from speeding up the delivery of new units.
Damián Tabakman , president of CEDU, warned that uncertainty about the evolution of costs complicates the forecast of new investments. “If the exchange rate lag and the rise in the price of dollars continue, it will be difficult for the sector to show signs of recovery,” he explained.
According to Tabakman, hundreds of companies are implementing strategies to improve efficiency and reduce costs to mitigate this impact, although the scope for action is limited in an adverse macroeconomic context.
The increase in construction costs has also reshaped the relationship between the value of new and used properties. While projects in the pipeline face increasingly higher costs, the value of used homes remained relatively stable and trending upwards in several Buenos Aires neighborhoods . This generates greater demand in the market for already built properties, which could lead to a revaluation of this segment in the short term.
“New projects face high costs (a three-room apartment in CABA costs USD 209,000 ), while used properties remain at bargain prices. This makes investing in already built homes a better alternative in the short term,” said Tabakman.
However, in the medium term, he expects that real estate developments will regain their value, thus supporting the recovery of the sector's profitability.
Another key factor in this dynamic is access to mortgage credit. With rising interest rates , thousands of families are choosing to rent rather than go into debt, which impacts the demand for purchases and the profitability of rental properties.
“The rental investment business remains strong and yielding good returns, while the resale of properties will depend on market developments and long-term financing,” Tabakman said.
Despite the slowdown in year-on-year variation, an upward trend continues that impacts the profitability of real estate projects.
The sector is concerned about the increase in construction costs (Illustrative Image Infobae)
The cost structure shows that materials led the monthly increase with a rise of 1.69%, while labor did not register changes. Among the inputs with the greatest increases were hollow bricks (41.37%), vehicle ramps (14.09%) and countertops (8.63%). In contrast, there were decreases in materials for fire installations (-2.12%) and water (-1.28%), as well as in round fluted iron (-4.65%).
The sector is awaiting divisible mortgages that will allow the purchase of houses in a pit , while waiting for the Ministry of Economy to finish implementing access.
The availability of long-term credit would facilitate the alignment between the values of real estate projects and construction costs, reducing price volatility.
“Meanwhile, rental yields remain one of the most attractive options for investors in a context where buying for resale depends on market developments,” concluded Tabakman.
www.buysellba.com
Source:
Los costos de construcción subieron casi 25% en el último trimestre y complican la rentabilidad de los desarrolladores inmobiliarios
Constructores e inversores enfrentan un escenario desafiante, con precios en alza para los proyectos en pozo y mayor incertidumbre sobre nuevas inversiones. Mientras tanto, las propiedades usadas ganan atractivo y los alquileres mantienen su rentabilidad
www.infobae.com
February 13, 2025
Builders and investors face a challenging scenario, with rising prices for projects in progress and greater uncertainty about new investments. Meanwhile, used properties are gaining in appeal and rentals remain profitable.
By Jose Luis Cieri
The cost of construction per square meter reached USD 1,350.75 in January, with a year-on-year increase of 50.83%, which affects the profitability of developers
The 24.63% increase in construction costs in dollars during the last quarter of 2024 affected the profitability of real estate projects and increased the prices of undeveloped and brand new properties. Building a building in the city of Buenos Aires and Greater Buenos Aires already exceeds USD 1,300 per square meter.
Meanwhile, the sale price at the well increased only 3.28% in the same period, which widens the gap with the increase in costs and reduces the profitability of the sector, reported the Metadato analysis carried out by the Chamber of Urban Developers (CEDU).
This phenomenon is the result of a combination of persistent inflationary inertia and a stable exchange rate, which has led to an increase in the dollar in different sectors of the economy, including construction. The situation poses new challenges for developers, investors and buyers in a market that is still trying to stabilize.
One of the determining factors in the decline in construction activity is the halt in public works nationwide. The Government, which even dissolved the Housing Secretariat , has already confirmed that this policy will continue throughout 2025, which impacts the dynamics of the sector.
The lack of state investment not only directly affects construction companies, but also reduces the activity of suppliers, contractors and other key players in the industry. In this context, rising costs slow down the progress of private projects, as low profitability discourages developers from speeding up the delivery of new units.
Damián Tabakman , president of CEDU, warned that uncertainty about the evolution of costs complicates the forecast of new investments. “If the exchange rate lag and the rise in the price of dollars continue, it will be difficult for the sector to show signs of recovery,” he explained.
According to Tabakman, hundreds of companies are implementing strategies to improve efficiency and reduce costs to mitigate this impact, although the scope for action is limited in an adverse macroeconomic context.
The increase in construction costs has also reshaped the relationship between the value of new and used properties. While projects in the pipeline face increasingly higher costs, the value of used homes remained relatively stable and trending upwards in several Buenos Aires neighborhoods . This generates greater demand in the market for already built properties, which could lead to a revaluation of this segment in the short term.
“New projects face high costs (a three-room apartment in CABA costs USD 209,000 ), while used properties remain at bargain prices. This makes investing in already built homes a better alternative in the short term,” said Tabakman.
However, in the medium term, he expects that real estate developments will regain their value, thus supporting the recovery of the sector's profitability.
Another key factor in this dynamic is access to mortgage credit. With rising interest rates , thousands of families are choosing to rent rather than go into debt, which impacts the demand for purchases and the profitability of rental properties.
“The rental investment business remains strong and yielding good returns, while the resale of properties will depend on market developments and long-term financing,” Tabakman said.
Measurement
According to the index compiled by the Association of Construction SMEs of the Province of Buenos Aires (Apymeco), the price per m2 of construction reached $1,620,901 in January 2025, reflecting a year-on-year increase of 50.83%, while in dollars, the cost increased 2.19% in the last month, from USD 1,321.87 to USD 1,350.75 per m2.Despite the slowdown in year-on-year variation, an upward trend continues that impacts the profitability of real estate projects.
The sector is concerned about the increase in construction costs (Illustrative Image Infobae)
The cost structure shows that materials led the monthly increase with a rise of 1.69%, while labor did not register changes. Among the inputs with the greatest increases were hollow bricks (41.37%), vehicle ramps (14.09%) and countertops (8.63%). In contrast, there were decreases in materials for fire installations (-2.12%) and water (-1.28%), as well as in round fluted iron (-4.65%).
In the future
In the medium term, the real estate market, especially the construction and development sector, could find a point of equilibrium if the main macroeconomic variables are stabilized and financing tools are expanded.
The sector is awaiting divisible mortgages that will allow the purchase of houses in a pit , while waiting for the Ministry of Economy to finish implementing access.
The availability of long-term credit would facilitate the alignment between the values of real estate projects and construction costs, reducing price volatility.
“Meanwhile, rental yields remain one of the most attractive options for investors in a context where buying for resale depends on market developments,” concluded Tabakman.
www.buysellba.com
