Economy Pessification of real estate?

[SerchMinm]

The following article talks about the possible pessification of the real estate market, pretty alarming for expats who own property as they may never be able to recover their investments if this happens:

Moreno se impone entre los consejeros de la Presidenta

Hay una fuerte interna en el equipo económico; analizan pesificar operaciones inmobiliarias

www.lanacion.com.ar

 

[TechNow]

I'm not so sure this is such a bad thing. This would actually make the peso a lot more useful. One of the reasons no one wants pesos is that you can't buy anything of real value with it. There are very few investments that hold their value in pesos. If you could at least use it to buy Argentine real estate it would have some more value because it could be transformed into something that would hold its worth over time.

 

[DaveDed]

I agree with this. The whole dollar-mania is what makes the peso so difficult to use anywhere. All things sold in Argentina should be sold at fixed prices in Argentine Pesos and not pegged against the dollar. If you live in Argentina, use Argentine money!

 

[SerchMinm]

Interesting comments but I'd like to ask the writers if they are property owners.
Also did they live in Argentina during the last crisis? Those who had money in banks lost a lot of money as their accounts were frozen after being changed to devalued pesos. '

What about property owners who have decided to leave Argentina? How will they recover their investment and get the money out of the country? The peso could be devalued radically overnight. That would mean that selling in pesos would be highly risky as by the time you bought dollars on the parallel market, at considerable loss, the peso could be a fraction of its value.

By posting this I was not looking for an expat referendum on Cristina. If you are an expat and you think she is doing the right thing by the economy, fine. I am more interested in hearing from expat PROPERTY OWNERS about what they think and what plans they have and what ideas they have to sell and get the money out of Argentina before it is too late.

 

[TrophyCs]

About the same level of sympathy as for those bond holders who speculated in Argentine stock then whinge because they didnt make a profit?

health warning - any investment can go down in value as well as up

Property investment is the largest contributor to the economic and political instability of western nations. I'm currently reading David Harvey's essays - Rebel Cities

Setting aside the concerns about the current macro-economic management or likely mismanagement of the Argentine currency, the pegging of the $A to the $US by a currency board to get some stability in a hyper-inflating economy (by Domingo Carvallo under a Radical not a Peronist President) was in retrospect only ever a short term option that stayed on well beyond it's "sell-by" date and then predictably came back to haunt with a vengeance!

Carvallo went from hero to zero = and never got that Nobel prize for economics

Argentine recent economic history - at a glance! http://www.economist.com/media/globalexecutive/and_the_money_kept_rolling_in_e.pdf

Fact is many foreigners who bought Argentine property in the "knock down" years immediately after the corralito got a huge bargain at the time.

I'm sorry for anyone who is in danger of loosing their home N.B there is a lot of that about not just in Argentina

 

[SerchMinm]

I did not buy at a huge discount due to the economic crisis but that is not the issue here. I paid CASH. I did not buy to make a profit but to better assimilate and to live with some comfort and stability, just like Argentines.

The US market was based on SPECULATION and bad LOANS. Not so in Argentina. The problem is NOT with any instability in the Argentine real estate market but with govt economic policy and the instability of the peso. For that reason real estate sales are in DOLLARS. Take that away and the ability to change pesos for dollars and you have absolutely NOTHING left in the way of stability.

 

[MDirtBoy]

I haven't heard a strong argument yet for keeping the Dollar as the "defacto" currency for real property, or anything for that matter, in Argentina. Having a foreign currency subplant the national currency is a disaster waiting to happen - eg current Argentina econmic events. Argentina (I believe) is one of only a few countries in the world that have this problem.

I don't think real property is ever a bad investment over time. And I can't imagine that if property were somehow denominated in $ARS that you would lose your value. The heart of the issue is that as long as Argentines don't have confidence in the government (Peso) then there will be a parallel currency and that doesn't seem to be changing anytime soon.

I'm sure someone will have a contrary, and empassioned, opinion.

 

[RichardES]

The real estate market is already officially denominated in pesos, look at your title of deed, escritura! It shows a small peso transaction/value amount. Nothing close to the real transactonal value of the property. The only thing Keratina could do, would be to force people only to list and do the transaction in pesos. But even then the value would properly not change, since that there will always be a parallel dollar market. Most Argentinians themself only save dollars, (Under the pillow or in Uruguay, NOT in the bank!). What could cause a problem to the real estate market would be a ban on foreign ownership, which I cannot imagine anytime in the future.
So again, if the value of a house today is 100.000 USD, the peso value would be around 600.000......if the peso goes to 10, the peso amount would just adjust to 1.000.000, (All under the condition that nothing else changes).
The risk that Sergio talk about to start with, receiving pesos for a transaction and then losing the full amount, could only happen, if Keratina abandonded the peso totally in the same second or did a serious devalueation exactly at that same time.
So, therefore everybody need of course to convert the peso amount to a solid currency, gold or whatever, when they get the money.
To talk about real estate going to zero here in the country is totally nonsense, sorry to say it! (Everybody would buy long before that).

 

[WillyNext]

Many good and valid points. I agree with those that say that real estate will continue to be transacted in dollars, that's the whole point of real estate in Argentina. It's a hedge against economic uncertainty. The current government is making real estate hard to maintain as a hedge. Those who want to leave now may have to wait until a change of government or settle for bags of Pesos of questionable worth. Of course this government won't be around forever. But given the political climate in the country the long term prospects for investments or real estate would have to be considered below average.

 

[SerchMinm]

I don't understand why some readers seem to miss the point:

Pessify real estate transactions and you take away ALL security. You can be holding a large amount in pesos and OVERNIGHT the peso can be devalued 100-200-300% The history of Argentina shows that the unpredictable happens but in this case a massive devaluation IS predictable so anyone caught with pesos on hand at the wrong moment is in trouble.

Someone said that as soon as you sell you have to buy a safe currency. Just HOW do you do that at the same time that you sell? As I said, waiting ONE DAY can make a world of difference.

If you have trouble changing pesos for dollars - even at great loss through the parallel market - but can't get the money out of Argentina, THEN WHAT?

Pessifying real estate transactions without first making serious long term structural changes leading to a stable peso and public confidence in the peso will only serve short term interests by the Cristina administration. Nothing will be gained by the public but individuals could LOSE a lot. Let's hope it doesn't happen.

 

[RichardES]

I don't understand why some readers seem to miss the point:

Pessify real estate transactions and you take away ALL security. You can be holding a large amount in pesos and OVERNIGHT the peso can be devalued 100-200-300% The history of Argentina shows that the unpredictable happens but in this case a massive devaluation IS predictable so anyone caught with pesos on hand at the wrong moment is in trouble.

Someone said that as soon as you sell you have to buy a safe currency. Just HOW do you do that at the same time that you sell? As I said, waiting ONE DAY can make a world of difference.

If you have trouble changing pesos for dollars - even at great loss through the parallel market - but can't get the money out of Argentina, THEN WHAT?

Pessifying real estate transactions without first making serious long term structural changes leading to a stable peso and public confidence in the peso will only serve short term interests by the Cristina administration. Nothing will be gained by the public but individuals could LOSE a lot. Let's hope it doesn't happen.

Again,

Dont hold any peso over night!!!!
Any seller of real estate are not forced to sell if the conditions are not ok, (price). Legally, on the paper, you can be forced to do the transaction in pesos, but, at that same time you just need to calculate in the risk and the loweer value of the peso. And once more, I have never heard about anyone in the last several year, that have done any real estate transaction in pesos, (exept, on the paper).
You are fully right about the risk of holding the peso and the devalueation, so, you just need to work beyond it!

 

[CremaIce]

I'm not sure I follow. Pessification of real estate wouldn't necessarily change the value of the house. Now taking those pesos and trying to get them out of the country to use elsewhere is the real matter. As others have mentioned on this forum, the peso is a bit like store credit, it's good now, but if you don't use it, you lose it... and it's not good anywhere else. Would pessifying the real estate market change that? I doubt it.

Your "investment" should be fine as long as the economy or real estate market doesn't completely tank (and in that case it doesn't matter if the price is set in dollars or pesos.) Look at cars. You buy a car today and next year it might be worth more than what you paid - USED! Nobody considers a car an investment, but depending on when you buy, it might as well be.

In any case, if you're living in your house and using it, then it's not necessarily an investment... it's your home. No matter what happens to the peso you will have your house if you own it outright. There might be an eventual hit to home values (or they may rise, since pesos are much easier to get here than dollars), but eventually prices should settle down and adjust to the market (and whatever is going on in that moment) even if they have to be updated on a monthly basis. Argentina is volatile, that won't change unless the whole economy changes.

Of course none of this would be an issue if the peso were actually trustworthy.
Fiat money has no intrinsic value; it only has value at all because all participants in an economy agree to trust the government issuing the currency.
And who can trust the Argentine goverment?



I see the point now. Yes, cashing out here is difficult to do... especially during these times. But considering that Cristina is so antagonistic towards Europeans and North Americans, I doubt expats or foreign investers are high on her priority list. History has shown the Argentine government has no respect for savings or people on fixed incomes, either.

When you sell you need something else to put your money into or someway to get it out of the country... yes, that is a problem.

 

[TevorCC]

I thought about buying property here about 4 years ago. What worried me at the time was once i was in the country as an investor was being able to easily move to another country and to liquidate the investment.
If the price was cheap enough, that would offset some of the risk, but i didnt think it was cheap enough for the risk.
Just the hassle of having to sell a house in US$, then convert to pesos to transfer out of the country via a bank and then taking another hit on the conversion again from pesos to US$ or NZ$ or AU$ put me off - there was a 10% hit at least after all costs.
My thoughts were once i was an investor here, the chances of being a captive investor in this country was to great a risk for me to take with the lifestyle i have - moving around alot.

If i was thinking of staying here long term, for reasons like arg wife/kids etc, that is a whole different story. The value of a house will be in relationship to the cost of living and incomes.

It is like buying a property in NZ. The NZ$ is one of the 8 most traded currencies in the world, in one of the most open economies in the world, with no restrictions on buying or selling the NZ$, however we are such a small economy, just one large company wanting to buy or sell NZ$ can effect the NZ$. An example of this is in the last 2 weeks, it has gone from US$0.83 to US$0.75, now today i see its on the way back up again and now US$0.76. Next week it could be US$0.80 or US$0.70.
These are big swings in a sort space of time, so if you are an overseas investor you dont know what will happen, you could have purchased a house 2 weeks ago and now sitting on more than a 10% loss in US$ terms. But if you buy in for the long term you will probably end up with an ok return on investment.

So for everyone who has purchased here, your house maybe be worth 1/2 of todays value next year, but in 5 or 10 years it might be worth twice that. In a country like argentina there is a huge risk - if you look at the past you can pretty much get an idea of the future. But there can also be a big upside. And if you look at what investments options there are here, property is pretty much it for the average person. So there will always be demand.

I dont think there is going to be any big drop in house prices - maybe 20%, unless there is a large rise in unemployment. The downside is going to be caused by inflation and the value of the peso. So prices will be trying to keep up.

If I had property here, i would sit and wait it out. The main reason being getting the sale money into a hard currency because its anyones guess what is going to happen with the peso. We could wake up tomorrow with the news that the peso has been devalued by 30%.
However if you can sell your house in US$ and get the money out of the country, i would take it and run for the exit !!!

 

[Chesse]

I agree with Tevor. In my experience real estate in Argentina can be counted on over the long-term. We bought before the crisis in 2001, after which the place was worth a lot less than we paid for it. But we weren't going anywhere, so the harm was only on paper. Since then, the value of the place has more than doubled. But it took a while. There may be some reversals on the horizon, but overall real estate continues to be a safe haven for argentines who are worried about volatility elsewhere in the economy. Having said all that, no one should approach buying in Argentina as an investment opportunity. It's not for the faint of heart. So unless you have an organic reason to do so, stay away. Buy something in Uruguay instead.

As for pesification, I for one would not sell in pesos. Especially not now. The roller-coaster is just about to crest. Hold onto your hats and tuck in your scarves.

 

[TechNow]

I think you all just need to stop freaking out. I have a lot of cash invested in real estate here... residential, commercial, and even parking spaces. You are all underestimating the creativity of the Argentine people. The government can put whatever regulation they want, but people here will figure out a way to make it work. Argentines are very creative financially.

All new construction is being done in pesos now. And there's no problem at all. They adjust the value of the payments by what the Construction Chamber of Commerce publishes each month. These guys are doing millions of dollars of construction over 1-2 year periods and they are signing contracts in pesos with ways to adjust the price over a very long period of time.

You guys are all freaking about about having to sell your property and hold onto pesos for 1 day. Come on! Get serious. You can hold pesos for 1 day.

Let's look at what is realistically going to happen here once transactions in property is pesificado:

1. People will stop signing boletos with a long period of time. It will be more common to go straight to the escritura.
2. People will sign boletos and other longer term contracts for purchase in pesos that are indexed to what the peso trades for in Uruguay or New York.
3. If there is a lot of volitility in the market, like what happened last week, things will slow down in the property market. People will wait out the volatility and sell when things have stabilized.

And to the people who want to get dollars out of the country... there is no need to put the dollars in a suitcase. Stop freaking out. You can pay 4-6% right now and someone will wire the funds outta here. Or if you want to wait and do it slower, there are always people who need to get dollars INTO the country who will trade with you. Every other day there is some poor expat on this board asking how they can get dollars here. It might take a month or two and some legwork, but you can get dollars out of the country for free by trading with other people.

I am not selling my property. I didn't buy property here because I am trying to make a quick buck flipping (with all the taxes involved, flipping is pretty much impossible here). I bought my apartment because I needed a place to live. I bought my office because I needed a place to work. And I bought my parking spaces because I need a place to park my cars.

So if you look at real estate as a long-term investment and it serves a purpose for you, don't freak out. Trust that the Argentines will figure out a way to deal with whatever the government throws at them and that when you finally need to sell, you are going to be able to do so.

Please, let's all calm down! And if you don't want to calm down, let me know and I will buy your property tomorrow from you in dollars at a big discount. The best deals I got in my life were from sellers who were freaking out.

 

[SerchMinm]

I agree the long haul real estate is a safe investment in Argentina. When the big crash comes, and it will, property values will drop however they will recover as they did after the last crash. The issue of selling in pesos, however, is something else. I spoke to an Argentine friend yesterday who told me that in the 1970's there were incidents of people selling and holding onto the money while they looked for another property. In the meantime there was a major devaluation than rendered the money they gained from the sale almost valueless. Some people apparently committed suicide. It is absurd in a country as unstable as Argentina to think that holding onto pesos for one day or less is not potentially risky. A friend who renewed his life savings CD days before the pessification of dollar accounts in Argentina can attest to such risks. In his case that decision resulted in anguish, lawyer's fees, a court case and a long wait until a sympathetic judge finally ruled that he and his wife, both elderly, could have a large portion of their savings back in dollars. The rest is tied up in bonds that they will never be able to cash in.

 

[earlyretirement]

I agree that real estate by nature is a long term investment. Like him, I also own quite a bit of real estate in Buenos Aires. I'm not freaking out either. You have to understand real estate and land is the only safe investment in Argentina and probably always will be. You have a country where you can't even feel safe putting your money in the banks! And Argentines don't invest in the stock market or businesses for the most part. It only leaves real estate and land. That's not going to change. It beats holding your cash under your mattress.

Sure, there can be fluctuations in real estate just like any other investment. Nothing goes up or down forever. You have to buy when there is blood in the street. Same thing happened in the USA. Last year when I was looking at getting back in the USA real estate market, some desirable properties were as much as 60% off peak levels.

Everything moves in cycles. And the most successful investors move with those cycles.

And you can ALWAYS move your funds out of Argentina. You will pay a price for it but never underestimate the ingenuity of the locals to get funds out of Argentina. He was also right the rates now are 4% to 6%. It's the highest that I've ever seen it in 10 years to move funds out. A money exchange firm last week quoted 6.2% which was the highest I've ever seen. Previously it was as low as 1.5% or 2%. But you can always get your funds out if you have connections.

Granted, I'm not saying real estate in Argentina is the best investment out there. I don't think the risk/reward play is worth it at these levels to add to your position, but if you can add properties at distressed prices it's worth considering. Contrary to the fear some people have, real estate has steadily increased over the years and it's not cheap there.

The biggest fear I have and the biggest risk of property prices plunging is AFIP. AFIP is now starting to ask buyers to justify their incomes for the money they are buying properties with. Most locals are serial tax evaders and so are their families. Most have NOT declared most of their income. So now when they want to buy a property, AFIP is asking them where they got that money. THAT is the biggest factor in what happens with the real estate market in Buenos Aires. Foreigners aren't buying many properties there now for good reason. So that only leaves the locals. And if AFIP won't allow them to buy properties then the market is totally screwed.

If you got an apartment really cheap after the last crash, probably no sense to panic sell it. Odds are you are still making cash flow renting it out either on a short-term rental or long-term rental. But if you need the cash, it might be good to sell if you can. But I do agree that real estate in Buenos Aires is not made for flipping. The round trip transactional costs are simply too high to make a lot of money. The best real estate investments I've made were the buy and hold type.