Buying in ArgentinaThe Argentinian economy is booming and this is reflected in its property market. It is dominated by locals but more foreign investors are arriving, writes Tom Heneghan
Just five years after the country almost slipped into an economic black hole, Argentina is booming and no sector is hotter right now than its property market. Prices are galloping ahead and the pace of construction has doubled since 2001.
On arriving in the capital of Buenos Aires visitors are greeted with immediate proof of this rebound. Cranes hang over busy building sites across the city and new towers are being added to the skyline at a hectic pace. Perhaps not surprisingly, Irish investors are now starting to get involved.
The state of the property market reflects the performance of the wider economy. This year is set to see Argentina rack up a fourth straight year of plus 8 per cent GDP growth, a remarkable turnaround from December 2001's default and subsequent devaluation, which caused a 10 per cent contraction of economic activity in 2002.
The rebound is being fuelled by agricultural exports, especially soy, and an import substitution programme that has mushroomed in the wake of the peso's devaluation.
But the property market is also being fuelled by Argentines who held money offshore and are bringing it back home to invest now that the slump is over, leaving those holding dollars better off than those unlucky enough to be stuck with devalued pesos.
Traditionally up to half the country's wealth has been stashed in dollars off-shore or under the mattress and not in the country's financial system. Mortgages are almost irrelevant in what is essentially a US-dollar denominated cash market. In Argentina it is not unusual for a property deal's closing to involve bundles of US dollar bills which both parties will painstakingly count through.
Mortgages had been a growing factor in the market during the boom of the 1990s, mortgage financing rising to 7 per cent of GDP by 1999. But the crash of 2001-'02 saw that fall back to 1.6 per cent. With current interest rates at close to 10 per cent and additional bank charges pushing the total cost of mortgages to over 13 per cent, financing now plays a negligible role - the polar opposite of conditions in Ireland.
But despite the lack of leverage there is enough offshore money coming in to keep prices racing ahead. Sought-after apartments in some of Buenos Aires' most desirable neighbourhoods have more than doubled in price in recent years. The hyper-trendy rejuvenated docklands of Puerto Madera has seen a huge influx of speculative money pushing some prices up towards a city high of US$4,000 a square metre.
Prices in the broader market have risen somewhere between 35 and 50 per cent in the last two years.
Even so, by international standards prices remain low. A luxury 180sq m (1,937.5sq ft) three-bedroom apartment around the corner from the British embassy in the upmarket Recoleta neighbourhood costs US$440,000. A 49sq m (527sq ft) one-bedroom apartment with balcony and access to a swimming pool and barbecue in the increasingly chic neighbourhood known as Palermo Hollywood will cost around US$65,000.
Many visitors view such prices as absolute bargains considering that Buenos Aires is South America's most liveable city with excellent services, a rich cultural life and safe streets even by European standards.
The biggest risk for investors is that this latest Argentine boom will be followed by another bust as has so often happened in recent decades. But analysts are cautiously optimistic that the country is learning to smooth out its economic cycle. They point to the safety valve of a more flexible exchange rate and a series of fiscal surpluses by the federal government - a feat unprecedented in modern Argentine history.
The long term potential for the construction industry is promising.
There is a deficit of two million dwellings in the country today, increasing by 120,000 a year. Fifty thousand new dwellings are required each year in the greater Buenos Aires region alone just to keep the deficit stable.
The government is now working on legislation and other measures to kick-start the mortgage market and to force the banks into reducing their charges in an effort to encourage Argentines to move monies stashed under the mattress or in Miami into the longer-term investment that is bricks and mortar.
While the market is dominated by locals there are foreign investors involved. The European contingent is led by the Spanish, who are big players in the local economy.
Argentina is not on the radar screen of most Irish investors even though Buenos Aires is on the same latitude as Cape Town, which has seen significant Irish investment in recent years.
The biggest Irish player in Argentina is Jack Murphy of Cork. He is developing a series of apartment blocks in the leafy Belgrano neighbourhood of Buenos Aires through his own Feng Shui Homes group (www.fengshuihomes.com.ar).
For him the attraction for Irish investors is that, as markets in Ireland and the UK peak, the Argentine one is just getting going: "Now that real wages here are growing again and we have the slow reappearance of the mortgage market, the near to mid-term outlook is extremely promising. It will be many years before overheating is even a possibility."
Each Feng Shui Homes project is stand-alone and is fully funded before breaking ground. His investors are Irish - many of whom know him from his time in the 1970s and 1980s when he headed up Murray Kitchens and then Mountbatten Properties - though he now considers himself an Argentine by adoption having lived and worked in the country since the early 1990s.
After developing land in the north of the city in the 1990s he sat out the 2001 crash. He re-entered the market in 2004 with the first of five apartment blocks Feng Shui Homes is building in Belgrano. Built and sold in under two years the investor return on this first block was 40 per cent.
