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Devaluation effect: What will happen to the price of properties, the cost of building and where the opportunities are
December 15, 2023
The answers to eight key questions for those who want to buy property, build or move
By Carla Quiroga
Property prices hit a floor, say sector leaders
The new rules of the macroeconomy game announced by President Javier Milei's small table are not foreign to the real estate industry, a historically dollarized sector because properties are quoted in that currency. “The announcements are on the right track, although they are incomplete to understand the impact they will have on the square meter. In any case, real estate is a long-term investment that is affected by the current situation but not as much as other sectors”, analyzes Martín Boquete, director of Toribio Achával.
The representative is convinced that if the variables of the economy, mainly the dollar, are made transparent and circulate abroad, it will be a good sign because the dollars will flow and even investments that are abroad could be allocated to the local brick. In this context, some key questions arise to define whether the new president's economic plan will truncate the “cycle change” with which the sector has been flirting for six months.
Real estate is a long-term investment that is affected by the current situation but not as much as other sectors.
1) If the blue skyrockets, will property prices go down?
The Government announced the increase in the official dollar by 100%, which implied a devaluation of 54%. Now the big dilemma in determining the impact on the sales values of real estate is how this movement could affect the value of the dollar bill, which is the one in which real estate operations are carried out. Today, real estate prices are at a historic low and industry leaders agree that there is no room for them to continue falling. In numbers, prices of the notices published in Zonaprop reflect, since July, a change in trend and the sales values have accumulated an increase of 0.8% since that moment.However, this year they fell 1.3% nominally and the price is 22.5% below the maximum reached in 2019. Today a 40 square meter studio apartment located In the city of Buenos Aires it has an average price of US$95.1891, while one with two rooms and 50 meters is US$114,364 and one with three rooms and 70 meters is at US$158,989, according to to the Index of the notification platform.
Sales prices of apartments according to their typology
Germán Gómez Picasso, director of Real Estate Report, adds that in a hypothetical case that the blue skyrocketed to, for example, $5000 no one will come out to auction units because it is not of a mortgaged market. That is, the owners do not need to sell to pay a loan. Likewise, he clarifies, that a blue trigger could paralyze the market.
Alejandra Covello, director of the real estate company of the same name, prefers not to enter into the “speculative” debate about the dollar. “You have to be honest, there is only one value of the dollar, which is that of the bill and the real estate market has always understood it that way,” she says.
2) Why does the market insist that prices have hit a floor?
Boquete responds that properties are “cheap” because there was little demand “except for the last semester when it was reactivated and because the cost of construction, in dollars, is still low. “If it goes up it will be a sign that the sales values will also do so,” he summarizes.On the other hand, there are trends that explain “the floor” of sales values. The first was the takeoff of real estate operations that occurred in 2023 which shows that buyers validated the prices. In October, 4,559 properties were registered in the city of Buenos Aires, 53.3% more than those surveyed a year earlier. The number encourages real estate expectations, since it proved to be the best October in the last six years. To find similar figures you have to go back to the times of the UVA mortgage credit boom of the government of former president Mauricio Macri.
“The October data marks a line of three months of a higher volume than the rest and consolidates a quarter of practically more than 4,000 monthly operations. There are almost 32,000 deeds of sale in all of 2023: that glass half full gives an increase of 22% in the accumulated of the 10 months compared between 2023 and 2022,” says Jorge De Bártolo, president of College of Notaries of the City of Buenos Aires. Along the same lines, Soledad Balayan, owner of Maure Propiedades, recognizes that until the elections people made decisions and “were eager to write.”
The other two reasons that validate the decline are that the closing values of operations have not fallen for six months and in some cases there are even glimpses of increases in some specific neighborhoods. The latest report from Zonaprop reveals that although in 2022, 83% of neighborhoods registered a price drop every month, in November 2023 the trend is reversed and 58% of the neighborhoods register a monthly price increase.
The closing values of operations have not fallen for six months and in some cases there are even glimpses of increases in some specific neighborhoods
Another indicator of leveled prices is that theowners who until three or four months ago were willing to negotiate, are now resisting. “They are tougher, they want the asking price while buyers are looking to make the big deal”, adds Covello. In fact, the volume of revalued apartments published in Zonaprop fell and stands at 20% of the offer, while the average discount made remains stable at 7.2%.
And the third trend is that the supply of property for sale advertisements decreased by 35 percent in the last year according to data from Real Estate Report. Why? A percentage of the properties that were on offer and at market price have already been sold and on the other hand, the owners who do not want to negotiate price directly chose to take out the sale sign.
3) With the devaluation, is there a risk that the cost of building will increase?
Boquete recognizes “the uncertainty about how much it will cost to build” as one of the concerns of the sector. He claims that is still cheap and that a possible increase will be a sign that sales values will also increase.”During the last two years, construction costs measured in US currency were subject to a roller coaster ride, fluctuating in time with inflation in pesos and continuous devaluations. “We can say that the cost to build a country house ranged between US$900 and US$1000/m²″, this year,” details Gómez Picasso and adds the concern that the developers have that the blue is being so low "the meters sold in dollars are missing us, we receive dollars at $1000 from the buyers but they turn around and the costs in pesos increased a lot due to the devaluation of the official” “This asymmetry can cause some builder-developer without backs to have problems,” advances the specialist.
From the perspective of the investor in bricks, the most linear analysis is that, in this context, for those who have the dollars saved, a devaluation works in their favor because you will need to exchange fewer bills to obtain more pesos, but the reality is that the official devaluation affects the value of imported inputs in the construction cost.
This graph shows the evolution of the cost of building versus the sale prices of properties
Miguel Ludmer, director of Interwin, believes that the devaluation of the official dollar will impact with the increase in some input costs. “Until now, those who imported at 380 official pesos perhaps did not transfer it to their price list at that value but transferred it to an intermediate one,” explains the reason why does not expect a huge shock so strong in prices. “There was a lot of distortion and speculation in the construction of values,” he adds.
In short, the broker explains that although directly this will generate an increase in costs, they will also be more competitive when imports are opened and the prices are more limited. profit margins. “Whoever has the dilemma of whether to build or buy I recommend a ready-made house because the replacement cost of that construction and the headaches will be much greater than that you pay for a finished one,” analyzes Daniel Bryn, creator of Monitor Inmobiliario Invertire.
4) Is it a good time to buy a property?
Taking into account that the sales prices are at their historic low, the answer is: yes. Today the average value of a square meter of a property in the city of Buenos Aires is around US$2,171, a year ago it was US$2,300 and in 2018, it marked a peak at US$2,800/m², according to Zonaprop data.
Value in dollars per square meter according to the age of the property in the city of Buenos Aires
Beyond these numbers, Gómez Picasso clarifies that “the best moment was six months ago.” He affirms that today whoever goes to the market to look for a property gets a property for the same investment in worse conditions than if they closed the operation in May or June.
5) Where will the opportunities be?
In this scenario, there is an expectation that some developers or investors who were “holding out” units about to be delivered or completed waiting for a price increase, could make the decision to get rid of the increased cost of the inputs necessary to finish it, most of them in dollars.“There is pressure on completion costs and even on the equipment of a house. A refrigerator today is more expensive than last week and so is decorating it,” explains Gómez Picasso. Leandro Molina, director of Zonaprop, clarifies that there are differences in the price per square meter depending on whether the unit is brand new, in a well or used: in the first case it is US$2,465/m², in the second US$2,366/m² and US $2035/m² in the third, almost US$400 less than a new apartment.
6) Is there a risk that the CAC index will skyrocket?
The CAC is the index created by the Argentine Chamber of Construction with which the fees in pesos paid by those who buy a well-funded apartment that is financed during its construction are updated.In specific data, for example, if the latest series of the CAC index is analyzed since November 2022, the monthly increases varied between 4.66% and 19.69%, the latter recorded in August compared to July. While between September and October the increase was 11%.
“It is an index whose evolution is always in line with real inflation”, says Federico González Rouco, economist on the Empiria team, Hernán Lacunza's consultant. In fact, in the year-on-year analysis, for example, in October the increase was 161.77%. Another fact: August was the first month that increases reached three digits.
The index carried out by the Argentine Chamber of Construction is always on par with real inflation
7) What will happen to UVA credit fees?
There is no expectation that the new Government will help the around 100,000 people who took UVA credits (Purchasing Value Unit). “If I decide to have a reckless life, I have to pay the consequences. They would have taken another type of credit,” President Milei was forceful in one of his first statements after being elected.Although the issue was part of the political agenda and the Chamber of Deputies gave half-sanction to a project to mitigate debtors' payments that was ultimately never discussed in the Senate, sector leaders agree that the results are not “adverse” when contextualized in time and space. “There are two big indicators to look at here: quota and debt,” explains González Rouco.
As for the fee, note that it increased approximately in line with inflation, below rents and above salaries. “Today a UVA mortgagee of a two-room apartment pays $174,500 in rent and would pay $255,700 in rent. They wouldn't be reckless, they are privileged,” Bryn clarifies. That is to say, if they had not taken out the credit and had to rent, today they would have to pay a higher fee.
Throughout the credit, each installment paid reduces the debt but does not modify the value of the property. That means that wealth increases. Generally, mortgage credit is seen as a way to save or accumulate capital for the same reason. So, if the installments are paid and the debt is reduced, less and less is owed and the debtor's assets increase,” González Rouco summarizes. In short, the UVA debtor who started owing 75%, today owes less than half, close to 35%.
The UVA debtor who started owing 75%, today owes less than half, close to 35%.
8) What are the real possibilities of achieving a market with mortgage credit?
In the term cost the answer is that there are no possibilities because long-term financing is tied to a reordering of the macro which, If it advances, it will require at least two to three years of maturity.The lack of credit in Argentina goes against what is happening in the region: in the last two decades, mortgage loans expanded and became cheaper in Chile, Colombia, Mexico, Peru and Paraguay. In the case of Chileans, according to an index prepared by González Rouco, author of the book Owners or Tenants, the percentage of housing loans over GDP rose from 12% in 2000 to 28% today.
“In the country, not even with an excellent job can you access a mortgage loan. Today to be able to pay a loan you have to earn $2.5 million”, clarifies the specialist who recognizes that with almost two decades of sustained inflation, the loans fixed rate disappeared as an alternative and variable rate mechanisms were fleeting experiences in the face of a reality of delayed salaries.
In short, Argentina never had the instruments or the regulation of mortgage loans to be able to sustain them in times of high inflation. “That dichotomy of credits or inflation, for me, does not exist. There has to be a bridge, reinforce the indexed fees and implement the compensation fund, a solution that I like,” she summarizes. It refers to an instrument that allows the debtor to pay based on salaries and the creditor (Bank) to collect a fee associated with inflation.
A key step, especially if you take into account that mortgage credit in Argentina is low in relation to its GDP. At the end of 2022 it represented 0.5 percent, while in countries such as Paraguay 4.9%, in Peru 6.7% and in Chile, 28.5%.
Relationship of mortgage credit with GDP according to the country
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