By Luc Cohen
BUENOS AIRES: Argentina’s real estate sector is preparing for a development boom spurred by a successful tax amnesty program and an expected revival in mortgage lending, potentially prompting a rebound in construction jobs and boosting bank loans.
Both would be welcome in an economy that remains in recession one year after market-friendly President Mauricio Macri took office after more than a decade of populist rule led to a slowdown in real estate activity.
“We still lack a stable economy, but if inflation falls next year, that widens the possibilities of developing the mortgage market,” said Alfredo Blanco, an economist at the University of Cordoba, adding that more demand for housing would boost the economy. “Construction is the mother of all industries.”
Real estate activity started to pick up in 2015, as Argentines sensed that currency controls put in place by the previous administration, limiting access to U.S. dollars, would be lifted, said Carlos Allende, president of Argentina’s College of Notaries.
Now, a tax amnesty program that allows Argentines to declare previously hidden wealth has spurred additional demand, as Argentines look to park newly declared cash in safe-haven properties.
Program participants can avoid paying a fee if they invest their money in real estate development funds. Argentina’s largest developers including Consultatio SA and IRSA Propiedades Comerciales SA have launched funds, hoping to raise tens of millions.
Demand-boom
The residential sector is ripe for a “demand boom,” since the value of mortgage loans as a percentage of the economy is below its historical norm and below that of regional peers, said Christian Lopez, chief executive of Consultatio’s asset management division.
Mortgage are less common than elsewhere in Latin America because of a history of high inflation, leaving Argentines leery of adjustable-rate mortgages and resulting in expensive fixed-rate mortgages. Inflation is seen ending 2016 at 40 percent, but economists expect it to fall to around 20 percent next year.
Mortgage loans as a percentage of GDP were lower in Argentina in 2015 than in far poorer countries like Haiti, Paraguay and Guatemala, according to data from the Washington, D.C.-based Housing Finance Information Network, a think tank.
Nearly 34,000 deeds for home purchases and sales in Buenos Aires were notarized during the first ten months of 2016, 12 percent more than last year and the highest since 2012, College of Notaries data show. Of those, 12.8 percent were purchased with mortgages, up from 11.2 percent last year.
While public works provides more construction jobs than the private housing sector, a boom could provide a modest boost in employment. Formal private sector construction jobs increased for the second straight month in September, government statistics agency INDEC said.
New star in property boom
Around 1 billion pesos ($64.34 million) of loans have been issued by several banks under a new central bank program linking mortgage rates to inflation. The local branch of HSBC and state-owned Banco Nacion have both launched new mortgage programs.
Recent property booms in Argentina have primarily benefited individuals looking for safe investments, and whether this one can put home ownership within reach of the middle class remains to be seen.
So far, those who have taken advantage of the central bank’s program are primarily wealthier people who could have afforded mortgages anyway, said Eduardo Elias, president of Buenos Aires realty firm Izrastzoff.
But Predial, a Buenos Aires-based real estate company, created a tax amnesty fund to develop six buildings targeting the middle class, namely first-time buyers, betting on an acceleration in mortgages.
“We think the real estate sector will grow, but unlike other booms in Argentina, this time, the star will be the middle class sector,” said Pablo Brodsky, Predial’s commercial director.
(Editing by Caroline Stauffer and Bernadette Baum)
Source: Reuters