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Despite the increase in rents, real estate profitability fell again in CABA
December 4, 2023
The rent/price ratio experienced a new decline, reversing the upward trend that it maintained at the beginning of the year. What type of properties offer the most solid profitability
By José Luis Cieri
The profitability generated by the relationship between the purchase of an apartment to rent decreased again in CABA (Illustrative image Infobae)
Despite the increase in real estate rental prices in the city of Buenos Aires (increases of more than 220% were recorded in all neighborhoods), profitability, which is measured by the ratio of the income generated by the rental of a property with its sale value. That relationship, measured as an annual percentage, had a significant decrease.
This was confirmed by a private analysis that detected that based on data from last October, the average annual gross profitability of apartments used from 1 to 4 rooms was 3.48%, while until July it exceeded 4% and at the beginning of the year had reached an average of 6% annually.
The main cause was the devaluation and the evolution of rental housing prices.
José Rozados, from Reporte Inmobiliario, explained to Infobae that the size of the devaluation caused a decrease in the value of the rentals, despite the notable increase in these in pesos when converted to the blue dollar price. Simultaneously, housing prices in dollars did not experience the proportional reduction necessary to maintain profitability. In the calculation formula, the numerator (the rental price in dollars) decreased faster than the sale value of the property, also measured in the same currency.”
Real estate profitability is derived from the comparison of the average values of less than 550 units available for formal rental for three years in pesos, published in Internet search engines. This analysis is compared with the homogeneous units offered for sale in each Buenos Aires neighborhood.
Source: Real Estate Report
“In an economy marked by unstable macroeconomic variables, such as the exchange rate and inflation, which experience monthly and even daily changes, it is extremely challenging to establish or project a horizon of stability in income. Fluctuations in profitability are a direct consequence of this instability,” added Rozados.
What should you buy and why?
In relation to the average profitability at the beginning of a traditional 3-year rental contract for used units, the two environments stand out by offering the highest rent with 4.1%; They are followed by studio apartments with 3.57% and 3 room apartments with 3.51 percent. On the other hand, the largest 3-bedroom units have the lowest profitability, registering 2.75% last October.Daniel Bryn, Real Estate analyst and creator of Monitor Inmobiliario, told Infobae that there is still a favorable time to acquire properties. “The value of the square meter, adjusted for inflation, fell to levels equivalent to those of 2008. However, profitability will depend on the evolution of rents, between 3% and 4% annually,” he explained.
Smaller units, such as one-bedroom or two-bedroom units, are best for those planning to purchase a property for rental purposes.
“Sometimes, having three studio apartments yields more than having a single three-bedroom apartment in CABA. As the area of the department increases, performance decreases. For this reason, currently, the typical choice to invest in rentals is the two-room apartment, and even the one-room apartment,” explained Bryn.
In the historical context, during the '80s and '90s, the profitability of residential rentals was generally between 10% and 12% per year.
Source: Real Estate Report. Here you can see the profitability by neighborhood where rental prices and sales prices of used properties in a given area are compared.
According to Rozados, “with the fall of convertibility starting in 2002 and the realignment of relative prices as a result of the strong devaluation of that year, profitability was reduced by half, remaining constant between 5% and 4%. until 3 years ago. In that period, it even reached close to 2%. For 18 months, it has fluctuated between 3% and 4%.”
By neighborhoods
In studio apartments, in Villa Crespo a profitability of 5.33% is obtained, and in Retiro it drops to less than 3% annually.“Due to the limited and low-quality rental offer, restricted to a few neighborhoods with below-average maintenance conditions, prices are significantly restricted. This results in a lower profitability for these units compared to the intended value for their sale. On the other hand, smaller units experience greater demand, generating price competition that supports an increase and contributes to balancing their profitability,” said Rozados.
In two environments, San Telmo climbed in October to a profitability of 5.49% and the lowest was found in Palermo, which gave 3.16 percent.
Source: Real Estate Report. Here you can see the profitability by neighborhood where rental prices and sales prices of used properties in two rooms are compared.
The outlook may improve, but it will depend on the macroeconomic variables generated by the next national government. The evolution will be linked to the trajectory of the exchange rate over time. During devaluations, rental prices in pesos, measured in dollars, decrease faster than sales prices, which are established in dollars, leading to a reduction in profitability in dollars in those cases. In periods of exchange stability with high inflation in pesos, profitability in dollars tends to increase.
“The best deals are made when few are buying. Today the m2 values are at the bottom, and could even go down a little more, but my advice is that, if there is interest in a specific property, a negotiation is started and the current uncertainty in the economy is considered in the offer values. and politics,” Bryn concluded.
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