While there is no doubt that Argentina has more than its fair share of natural resources, it is also becoming abundantly clear that the Argentina real estate market is in serious trouble. This is a country which should be self-sufficient, a country which should be seeing positive economic growth but one which is struggling to survive. The government has a habit of alienating all previous allies and the ongoing disputes with the UK and the US are but the tip of the iceberg. However, what does 2014 hold for the Argentine real estate market?
There are a number of factors to take into consideration which we will cover below to give you a broad summary of the short-term prospects for Argentina’s property market.
There is no doubt that inflation in Argentina is way above that quoted by the government with many experts believing it is near twice that quoted by the authorities at around 25%. So in effect, the cost of living in Argentina is increasing 25% per annum at a time when the economy is struggling, household incomes are falling and morale within the public services sector has hit rock bottom.
Quote from PropertyForum.com : “The economy is in free fall, the currency is under massive and the real rate of inflation is around 25%! What does the future hold for property in Argentina?”
The authorities will have you believe that inflation is significantly below the 25% level but independent reviews of price rises across Argentina very much suggest otherwise. Relatively low inflation is of assistance to property markets because it allows rents to rise which effectively increases the value of property due to growing income. However, there is no way that the property market can maintain a 25% increase in the cost of living, including rents, going forward.
We only need to look at the construction sector to see that the economy is in serious trouble with some experts believing it will be 2016 before we see any positive growth in this particular area. Overall GDP growth for 2014 is expected to hit around 2.9% although with construction struggling to even move into positive growth territory, the government banning the use of US dollars and major problems with the Argentine currency, the future does not look good.
The value of Argentine property is anybody’s guess at this moment in time because those able to sell their property and take their money out of the country have probably already done so. We may see relatively small reductions in theoretical asset prices but the fact remains that the Argentine real estate sector is in serious trouble. Against this background, with economic woes expected to continue for at least two years, perhaps we are now entering the final down leg of the rebalancing of not only the Argentine economy but also the Argentine real estate market?
It would take a very brave person to pick up significant amounts of Argentine real estate bearing in mind the current economic situation, the volatile political climate and the downward spiral of the local currency. There will come a point when markets overreact, when prices overshoot their short term theoretical values on the downside and this may be the time to start picking up long-term assets. However, there will at some stage be a devaluation of the Argentine currency and this is something which international investors need to bear in mind.
How many times do we see doom and gloom in property markets only to see a recovery in the medium to long term? How many times do we look back and kick ourselves for not picking up what were at the time significantly oversold assets? It may not be the time to invest in Argentina but when you bear in mind the enormous natural resources the country possesses, it must only be a matter of time before it hits rock bottom and then surely the only way is up for the real estate sector?