Buenos Aires Real Estate Investment - Buy to Rent Property in Buenos Aires Agentina Page 2

Buenos Aires Real Estate Investment. Page 2

Unlike the burst real estate bubbles of the Northern Hemisphere, most specialists believe growth in property values is sustainable in the long term in certain parts of Argentina and in particular Capital Federal. W hy? "It is not a bubble" - cash is king and underpins the growth in the sector – supply and demand dictate property prices and outlandish supplies of credit neither fuels nor sustains the Argentine property sector. In short it is an orderly market. The capital used for construction, buying and refurbishing is real, and there is practically no bank financing of construction projects," says Andrew McCance, of Mainline Security Ltd, an investor in Buenos Aires real estate. “I am no financial or property guru, it is common sense. Investors need to complete their own research, but no doubt they will find that bricks have always been a relatively stable investment in Buenos Aires. That will continue, as Argentines learned long before the rest of the world that banks and government are not to be trusted.” Therefore, the reality and peculiarity of the Argentine property investment sector today, is that it offers one of the few orderly markets left in the world. Andrew is fond of pointing out that there is the first world, the third world, Japan, China, and then there is Argentina. He also points out that Buenos Aires is the jewel of Argentina’s tilted crown.

Recently, even when the rest of the world was falling apart, demand was exerting upward pressure on Buenos Aires property prices, which in turn stimulated growth in the supply – we think prices reached their plateau last Summer when first writing this article, but we are pleased to see property prices holding their value because Argentine’s will not sell cheap and larger businesses who might invest in construction have tightened their belts and wait to see how Government deals with the impending economic downward trend. We most certainly expect to see some bargains as foreign investors seek liquidity, but do not expect the domino effect knocking down the locals – they will wait for better times and supply may drop helping to sustain Buenos Aires property prices.

However, we do not believe that will affect smaller-unsophisticated investors, quite the reverse, Argentines use both property investment and the United States Dollar to protect their wealth; traditionally the dollar is the currency of choice when the Argentine peso fights devaluation. Money is already moving out of the peso into the dollar and worryingly for the government billions in cash went abroad or into the United State Dollar during the last 7 months. The Central Bank avoids greater devaluation by selling dollars cheap – but for how long can they apply first aid and avoid dealing with the real problems?

Astonishingly, the government imposed ‘de facto exchange control’ last year and appropriated private pensions to state control sending even more tremors through ‘Argentina’s economic bones’ as the people remember the last economic crisis of 2001. We feel reasonably confident, we will say it, bullish, that many dollars will find their way into property, as Argentines are now even more suspicious of banks. We think that the Buenos Aires real estate sector, in the key barrios we advise on, will hold its value. However, in our opinion, tourism is a key economic factor in sustaining property values and tourist numbers must be sustained.

Tourism is fast becoming a ‘powerhouse’ in the Argentine economy and it is important to throw some figures at you:

Tourism grew an amazing 52% between 2003 and 2007
Various government and independent agencies outside of Argentina predict 47% growth over the next six years.
That means 6,500,000 visitors to Buenos Aires in 2012 - where are we going to put them.
Tourist spending grew in Argentina 180% between 1990 and 2006

Apartments and hotel accommodation in the traditional tourist barrios is running scarce as tourism grows, and demand pushes both apartment rental rates and hotel room rates upwards. Also, both cost and supply pushes tourists into less traditional barrios. As a result, other barrios have and are gentrifying to meet that demand. Palermo Soho and Las Cañitas are two great success stories. We have some great ideas on where you might find the next Palermo. Given the pressure on the peso, we might safely assume further devaluation to around the 4 pesos to the United States Dollar making Buenos Aires even cheaper to tourists thus counteracting the recent downward trend in international travel.

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