Real Estate News The impact of inflation on the price of premium homes: How much of the increase in construction costs will be passed on to those for sale? - Infobae

[BuySellBA]

The impact of inflation on the price of premium homes: How much of the increase in construction costs will be passed on to those for sale? - Infobae​

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El impacto de la inflación sobre el precio de las viviendas premium: ¿cuánto del aumento del costo de construcción se trasladará a los de venta en pozo?

Los desarrolladores deben ser muy meticulosos y ajustar los planes de venta si quieren que sus proyectos mantengan viabilidad y atractivo en un segmento en que cada unidad cuenta

www.infobae.com

May 18, 2024

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Developers must be very meticulous and adjust sales plans if they want their projects to maintain viability and attractiveness in a segment where each unit counts.

By José Luis Cieri

The works that are already underway continue at their usual pace in the city of Buenos Aires

In a complex economic context, the premium real estate market faces challenges ranging from fluctuating costs to political uncertainty. This situation forces companies to rethink their immediate strategies and adapt to the situation, from cost management to project redefinition.

According to the Association of Construction SMEs (Apymeco), the cost per square meter of construction was established at $1,214,258.05 last March. In the premium sector, this value increases by a minimum of 25 percent. Building costs registered an increase of 289.67% year-on-year.

However, according to data from the entity, the price of some materials, such as wooden carpentry and hollow bricks, have recorded an average reduction of 13% due to a drop in sales of more than 12% since the end of the year.

Sold in dollars​

Hernán Nucifora, from Global Investments, emphasized to Infobae that the current situation is especially complicated for projects sold in dollars at a fixed price and with an advanced degree of execution. “The units that are marketed in pesos plus adjustment through the Index of the Argentine Chamber of Construction (CAC) were affected. Adaptation includes slowing construction and renegotiating with suppliers so as not to negatively impact profitability. “We focus on completing ongoing projects as efficiently as possible.”

“There is a positive valuation in the used property segment, contrasting with the indecision that predominates in the new construction segment” (Javier Rius, from Ayres Desarrollos)

Prudence became a constant and in the last six months there was a notable tendency to postpone decisions to start new works and developments. “At the same time, there is an interesting trend in the market for existing properties, in which prices are experiencing a recovery. Despite the presentation of offers with lower reduction percentages, an increase in list prices was noted, with properties being sold almost at their full value. This phenomenon suggests a positive valuation dynamic in the used property segment, contrasting with the indecision that predominates in the new construction segment,” added Javier Rius , from Ayres Desarrollos.

Cost adaptation: impact on prices​

Development and construction companies are adopting different strategies to adapt to increases in material costs.

Catalina Sur Shipyards are still making progress in the current economic situation

Leonardo Rodríguez Nader , from CMNV Investment Community, described how material costs, with increases of up to 289% year-on-year, forced the sector to reevaluate and adjust its purchasing and construction processes and strategies. "This scenario led us to partially transfer the increases to the final price of the homes in the well, although we seek to balance this measure so as not to compromise the accessibility and attractiveness of the projects."

Even in the current context, the value of m2 in CABA maintains its competitiveness, turning the present into an opportunity to acquire units in cash and insure against potential future increases.

The increase in construction costs can lead to an increase in the price of units in the most advanced stages of projects, as well as the need to review financing plans to adapt them to higher costs.

“However, for projects that are already in their completion stage, these variations in costs do not have a significant impact,” clarified Rodríguez Nader.

Staggered payment​

In another Balvanera development, they opted for staggered payment plans, where the buyer pays certain installments during the construction process and the remaining balance upon delivery of the unit.

Rodríguez Nader expanded: “We also offer financing with preferential interest rates or agreements with financial entities to facilitate access to credit.”

The strategy to reduce costs may include searching for alternative suppliers with more competitive prices, optimizing processes to reduce waste and operating costs, reviewing designs to use cheaper materials without compromising quality, and renegotiating contracts with suppliers and contractors to mitigate the impact of price increases.

Several companies must adapt strategies to remain efficient in a scenario with rising costs and decoupling due to inflation.

Nucifora advised “What we can say without a doubt is that anyone who has decided to buy an apartment will buy many more square meters today than in the future.”

Caution and optimism​

First, to face economic and financial uncertainty, promoters and developers in the premium sector are offering more flexible payment conditions. This includes direct financing options, discounts for cash payments, and the ability to customize payment terms according to the client's needs.

Nucifora pointed out for the future that "leveling inflation is the main problem of our industry as well as the lack of credit, if these two milestones are achieved, added to a whitewash for the sector, they would make our market have a dynamism rarely seen."

The real estate market focuses on price stability to drive the sale of new units at a fixed price, improving liquidity for developers. Adjusting prices to the economic context is key to reflecting rising costs and balancing the value of new and existing projects.

Current trends highlight the importance of adapting real estate projects to the preferences of new generations, prioritizing personalization, green areas and diversity of lifestyles.

“We plan to launch innovative projects, adapting to the evolution of the market, in anticipation of the renewed interest of investors and the boost that mortgage credit could give to the sector,” concluded Rius.


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