Category Archives: Real Estate

Real Estate: Argentina Tries to Coax Undeclared U.S. Dollars Into Energy, Construction Projects

The Wall Street Journal – By Ken Parks

BUENOS AIRES–Argentina’s government will ask Congress to approve legislation that will allow Argentines to invest their undeclared U.S. dollar savings in local bonds to finance energy and construction projects, Economy Minister Hernan Lorenzino said Tuesday.

Argentines are thought to hold tens of billions of undeclared dollars in Argentina or offshore bank accounts.

Mr. Lorenzino’s announcement coincides with the weakening of the Argentine peso to historic levels against the dollar on the black market. At the same time, the central bank has struggled to rebuild its foreign currency reserves due in part to persistent capital outflows.

“People might have their cash in a safety deposit box, or under the bed, or worse, in a tax haven. This [measure] means taking those resources and incorporating them into the productive sector,” Mr. Lorenzino said in a televised press conference.

Mr. Lorenzino said the administration of President Cristina Kirchner will submit the legislation to Congress immediately.

All the senior members of Mrs. Kirchner’s economic team were present at the event: Commerce Secretary Guillermo Moreno, who is in charge of import and price controls; Deputy Economy Minister Axel Kicillof; Central Bank President Mercedes Marco del Pont; and tax chief Ricardo Echegaray.

Argentines have long viewed the dollar as a store of value due to their country’s long history of high inflation and economic crisis that frequently ended in major devaluations of the peso. The unrelenting weakness of the peso on the black market in the last six months is feeding fears that a devaluation might be in the works, and stoking even more demand for scarce dollars.

In an attempt to calm the public, Mrs. Kirchner said Monday that her administration won’t devalue the peso.

Inflation that most economists say is around 24% a year coupled with government restrictions on the dollars people and businesses can legally purchase are driving some Argentines into the arms of black market currency dealers.

The peso has lost about 64 cents this month to set a record low of around 10.04 to the dollar Tuesday, according to newspaper El Cronista, which publishes an average of underground exchange rates.

The black market is thought to be small, but does influence prices in some parts of the economy, especially real estate, which for decades has overwhelmingly used the dollar in transactions.

On the regulated currency market the dollar sold for 5.2090 pesos, though dollar rationing means that for most Argentines the official exchange rate is a mirage.

The proven Buenos Aires – Argentina lawyer professionals at the Kier Joffe law firm have experience working with foreign clients involved in all kind of cases in Argentina. Buenos Aires Argentina attorney professionals are knowledgeable in almost all the practice areas of law, to service its international cases in Buenos Aires Argentina. International clients will have the confidence of knowing that the case is being handled by an experienced and knowledgeable Buenos Aires  lawyer in Argentina.

www.kierjoffe.com

Real Estate: Buenos Aires Lures Foreign Buyers With Tumbling Prices

This article appeared May 3, 2013, on page M3 in the U.S. edition of The Wall Street Journal, with the headline: Foreign Buyers With Cash Can Tango in ‘Paris of South America’.

Roderick Chapman, a 50-year-old marketing specialist from Vancouver, British Columbia, was in Buenos Aires last month, looking at one-bedrooms in the city’s posh Recoleta district.

“I’m absolutely amazed by the number of choices,” said Mr. Chapman whose budget for a vacation property is 130,000 U.S. dollars—the currency in which most Buenos Aires real estate typically is traded. “It is overwhelming, really.”

With prices for luxury apartments down by 20% to 25% since last year, according to local real-estate agents, expatriates like Mr. Chapman are finding great buys in Buenos Aires after nearly a decade of steep price climbs.

Nicely renovated apartments with parquet floors and terraces in Recoleta—the neighborhood that gave Buenos Aires the moniker “the Paris of South America”—are selling for roughly $185 per square foot, down from roughly $240 in 2008, according to local agent estimates (closing prices aren’t published in Buenos Aires). One-bedrooms in trendy Palermo list for about $150,000 and sell for less. Local brokers offer listings for $200,000 to $400,000 that they say might have sold for 40% more two years ago. Some multimillion-dollar properties are being marketed for nearly half of what was asked just a few years ago.

But there is a catch to the new Buenos Aires buyers market, as Mr. Chapman’s house-hunting trip illustrates. “I actually have to cut my trip short, because I’ve run out of dollars and I can’t get any more,” he said.

For Mr. Chapman, as for other foreign home shoppers in Buenos Aires, navigating Argentina’s complicated currency landscape is the wrench in the otherwise tempting real-estate works.

In May last year, Argentine President Christina Kirchner strictly limited access to U.S. dollars and other foreign currencies in a bid to stem capital flight. With the Argentine peso facing about 25% annual inflation (government figures, widely discredited, set the rate much lower), and an unofficial exchange rate that has effectively devalued the peso sharply, demand is high for dollars.

These days, the main feature that foreign buyers say they look for in a Buenos Aires property has nothing to do with closet space or a wide terrace. It is a seller with a bank account outside Argentina to which they can legally wire funds. This is a way to get around having to convert any dollars wired into Argentina into pesos at the official rate, after which it is nearly impossible to convert back into dollars at the official rate.

Mr. Chapman has asked brokers to show him only apartments owned by sellers willing to do a foreign-account-to-foreign-account sale. “I absolutely, absolutely, absolutely will not bring my money into Argentina,” he said.

The currency situation has spooked some foreigners living in the country. Real-estate agent Pericles Economides said foreign homeowners make up 90% of the sellers in his listings, while local buyers eager to convert their devaluing pesos into more stable real estate make up nearly all his current buyers.

Still, in such a climate, foreign buyers find that their dollars—in cash, as mortgages are rare in Argentina—give them market clout. Buenos Aires property developer Gabriel Maioli, a partner at M&M Developers in Buenos Aires, began selling newly built apartments in pesos for the first time last year but offers discounts to buyers willing to pay in dollars, he said.

Among luxury apartments currently on the market is the 9,200-square-foot 14th floor of the Art Deco Kavanagh Building, offering sweeping views of the city’s central Plaza San Martín and, on a clear day, neighboring Uruguay across the River Plate. Two of the bedrooms open onto terrace gardens so large their lawns require mowing. The owner, real-estate mogul Alain Levenfiche, put the property on the market in 2008 for $5.9 million but failed to sell it. Today, he is asking $3.3 million.

In Palermo Botánico, considered to be one of the city’s premier neighborhoods, a five-bedroom apartment with a bird’s-eye view from a large deck of the city zoo’s llamas, guanacos and condors is on the market for $695,000. American owners Douglas and Janet Choi, both 43, who moved to the city in 2008 for a “personal-growth opportunity” and are now planning a move to London, said they spent $200,000 on renovations that included a modern, granite-topped kitchen and a wood-burning grill on the terrace.

Some local agents have called the Chois “dreamers” because of the property’s price tag, estimating that $500,000 is a more likely selling price. Mr. Choi said the family doesn’t have “the need to sell such a special place,” and will rent if they can’t find a buyer before their move to London.

Alan Dickinson, a 50-year-old technology sales executive in New York, is looking to buy his second property in the city. “In what other world-class city can you buy property of this caliber at those prices?” said Mr. Dickinson, who raves about the city’s pasta, steak, and “really friendly, inclusive” people. Last month, he met with several Buenos Aires real-estate brokers, instructing them to alert him to distressed sellers looking for a quick, dollar-denominated sale.

In 2005, he paid $185,000 for a newly built Palermo duplex with a terrace, finally taking possession in 2009 after construction delays. He lives in it for a week out of every two months and rents it out to tourists the rest of the time. In four years, he has grossed more than what he spent on the unit, he said.

But with the new restrictions on U.S. dollars and other foreign currencies, many deals are falling apart at the 11th hour due to the difficulty in arranging payment, said Michael Koh, a real-estate investor and consultant who has made more than 500 real-estate transactions in Buenos Aires on behalf of clients. Negotiating sales, he said, has become “crazy.”

In April, two sales Mr. Koh was negotiating on behalf of foreign sellers stalled when one Argentine buyer wanted to pay with gold bars and another offered a studio apartment as partial payment.

The hurdles haven’t stopped him from investing. Mr. Koh owned eight properties in the city before closing last week on a ninth apartment. He bought a 500-square-foot, sleekly furnished one-bedroom with a balcony in Palermo Hollywood for $130,000, which he intends to rent short-term to tourists.

“I swore I would never buy anything there again,” he said, “but there are now some deals that are too good to pass up.”

Richard Maudsley, a San Diego-based real-estate investor, also is undaunted. He arrived in the city in mid-April.

Mr. Maudsley, 57, spent a week meeting with brokers and viewing apartments in Recoleta and Palermo, a hip, bohemian neighborhood.

But he isn’t pulling the trigger quite yet. He met with financial and legal advisers who can help him quickly close a deal if he spies a bargain. He said Argentina’s property market appeals to him because “it is a cash market,” less likely to be affected by rising and falling interest rates.

“The peso aspect is a real risk, but I’m banking on the fact that things will normalize down there,” said Mr. Dickinson, the technology sales executive. “I think the country will get its act together.”

Buying in Buenos Aires:

  • Nonresidents can purchase property in Argentina and payment can be made between overseas accounts, as long as the sale is declared and taxes are paid.
  • The buying process can take a few months. A buyer signs a purchase contract with 30% down and a notary public does a title check. When the balance is paid, ownership is transferred.
  • Costs include a 1.5% tax on the sale price for the seller, an additional 1.8% federal tax on the buyer and seller, and 1% to 2% in notary fees, paid by the buyer.
  • Brokers for buyers and sellers charge between 2% and 5% of the sales price.
  • Additional annual taxes include municipal and provincial property taxes, as well as a federal tax of 1.5%. Income from rental units is taxed at 21%.
  • There are no capital-gains taxes in Argentina when the property is sold later for a profit. But foreigners need a certificate to sell showing taxes are paid up.

The proven Buenos Aires – Argentina lawyer professionals at the Kier Joffe law firm have experience working with foreign clients involved in all kind of cases in Argentina. Buenos Aires Argentina attorney professionals are knowledgeable in almost all the practice areas of law, to service its international cases in Buenos Aires Argentina. International clients will have the confidence of knowing that the case is being handled by an experienced and knowledgeable Buenos Aires  lawyer in Argentina.

www.kierjoffe.com

 

Real Estate in Buenos Aires, Argentina: What to buy now

Everyone in the real estate industry in Buenos Aires agrees.  Real estate agents, brokers, developers and construction companies all point out that the best properties to buy right now are small apartments in good locations priced between US$ 50,000 to US$ 150,000.

The current global financial situation creates uncertainty, even in Argentina where the full effects of the crisis have not been felt as strongly as in the United States and Europe.  The financial markets are unstable and the uncertainty of world economies makes it unadvisable to transfer funds abroad.   The best option for investors in Buenos Aires at the moment is real estate investment.  Property always proves to be a secure investment, at least on a medium and long term basis.  In the short term, it can provide rental income which can yield an annual return of six percent.

Mortgage loans in Argentina have virtually disappeared.  The Cámara Inmobiliaria Argentina has requested that the government reinstate mortgage loans for the middle class.  Such loans accounted for seven percent of real estate sales, but in today’s economy they have disappeared.  In addition to producing a slight drop in sales, this lack of financing forces many people, especially singles and young couples, to rent.

Currently the smartest real estate investment is the purchase or construction of smaller units, one room studios to two bedroom apartments.  Smaller units in good locations are always in high demand as rentals.  A studio apartment is now renting for $900 to $1,100 pesos per month.  Smaller units have lower maintenance costs and in many cases these costs are passed on to the renter.  Apartments in Buenos Aires can be rented with a two year lease or on a temporary basis, usually to foreigners and in US dollars.

Industry experts believe that property values will remain stable, though negotiations will be somewhat more difficult.  Those who are selling already constructed property and are not in need of immediate cash, are unlikely to lower their selling price because they know they will need to pay as much or more for another property.  Premium properties are also retaining their value.

Real estate agents and brokers believe that recent government legislation will help maintain or even stimulate their industry.  The legislation encourages Argentine citizens to legally declare assets held within the country or abroad by taxing them only one percent, as long as that capital is invested in purchasing or constructing real estate property in Argentina.   The new law gives realtors a good leverage point to use when dealing with investors that fall within the parameters of the legislation.

The proven Buenos Aires – Argentina lawyer professionals at the Kier Joffe law firm have experience working with foreign clients involved in all kind of cases in Argentina. Buenos Aires Argentina attorney professionals are knowledgeable in almost all the practice areas of law, to service its international cases in Buenos Aires Argentina. International clients will have the confidence of knowing that the case is being handled by an experienced and knowledgeable Buenos Aires  lawyer in Argentina.

www.kierjoffe.com

Real Estate: Why Mortgage Loans are Lacking in Argentina

The availability of credit in Argentina depends on the level of savings deposited in the banking system.

Mortgage lending at present is limited in Argentina because the private sector of the Argentine economy has limited savings.  The situation is further aggravated by the fact that those limited savings often don’t enter the banking system.  Fears of having funds confiscated (as they were in the economic crisis of 2001) and a loss of real buying power drive people to buy US dollars and place them in a safe deposit box or under the mattress. Others simply transfer their funds outside of the country.

When internal savings are lacking, having external savings would be an alternative.  This would mean that foreigners, individuals and companies, from different countries, would deposit funds in the Argentine banking system or purchase national savings bonds.  Since the economic crisis of 2001, however, Argentina has difficulty attracting this type of foreign investment.

This reduction in both internal and external savings greatly reduces the availability of mortgage loans with affordable interest rates.  The limited amount of mortgage lending and the high interest rates most mortgage lenders offer is keeping many middle class families from acquiring their first home or upgrading to a larger home.

The only affordable mortgage loans are subsidized government loans that charge interest rates below market values.  Funding for these subsidized government loans comes from the government’s tax revenues and other revenue sources such as the recent nationalization of private retirement funds.  If government revenues drop, the supply of government loans declines as well.  Currently, the availability of mortgage loans with reduced interest rates is dependent on the government’s limited stock.

Lower income families that might qualify for these lower interest rate loans may still be reluctant to take on the payment responsibility.  An increase in unemployment, a decline in real buying power and an uncertain labor market makes many people put off spending.  They are particularly leary of getting into large debt, as required with the purchase of a home.

To get a sense of the current loan situation, the amount of available mortgage credit has dropped by one third from the year 2000 to the present.  This reduction in mortgage lending means that the vast majority of real estate transactions will most likely continue to be done in cash.

The proven Buenos Aires – Argentina lawyer professionals at the Kier Joffe law firm have experience working with foreign clients involved in all kind of cases in Argentina. Buenos Aires Argentina attorney professionals are knowledgeable in almost all the practice areas of law, to service its international cases in Buenos Aires Argentina. International clients will have the confidence of knowing that the case is being handled by an experienced and knowledgeable Buenos Aires  lawyer in Argentina.

www.kierjoffe.com

 

Real Estate: Why Now is the Time to Buy Property in Argentina

Just over a decade ago Argentina spectacularly unraveled with the biggest default in history—$100 billion. Dollar deposits were converted to pesos. Then, overnight, the peg of one-to-one with the dollar was broken. The unpegged currency immediately devalued. Savings were wiped out. Banks were set alight and locals took to the streets in protest.

That crisis created the biggest buying opportunity of a decade. During the fire sales you could have picked up a historic, high-end property in Buenos Aires or a vineyard in Mendoza for a song.

Today, Argentina is back in a bind. There is a strong possibility of another crack-up within the next year. And then we’ll have the same opportunity we had a decade ago. The signs are all there. The streets of Buenos Aires have recently seen the return of the backstreet currency exchange.

According to the official exchange rate, which is subject to capital controls, 4.4 pesos buys you a dollar. But on the street people are happy to pay up to 6.7. Inflation runs at 25%. The purchasing power of an Argentine’s peso savings is going down by one-quarter each year.

The government claims inflation is 9.9% and has outlawed calculating or quoting any other inflation rate. Forty percent of dollar deposits have been withdrawn from Argentina since last October. Now there are capital controls. You need special permission to move your dollars overseas.

To take a foreign vacation, Argentines have to apply to a bureaucrat for permission and explain where they got the money for the trip. And there are rumors that it will be made illegal to talk about the existence of the shadow market exchange rate for dollars.

But a lot of Argentines’ dollars and pesos don’t reside in bank accounts. Property transactions typically take place in special rooms in lawyers’ offices, and they’re a cash deal. There’s that much distrust of banks. They are fine for day-to-day things like paying your electric bill. Not for your savings, though.

And these transactions more often than not take place in dollars…if you pay in dollars you could get 25% off the price of property. The government has outlawed this, making the buying and selling of real estate in dollars illegal. Just one more rule Argentines will find their way around.

By some reports, if an Argentine company complied with all the taxes and tariffs it faces, they would eat up more than the company’s pretax profits. So the shadow economy thrives. By necessity, it seems, rather than greed to pay less tax. Middle-class day-trippers take the ferry to Uruguay to put their savings in deposit boxes. The rich spend millions on condos in Punta del Este, Uruguay (see sidebar below).

For Argentines, real estate is their bank. They understand inflation and expropriation from bank and pension accounts. If they have some spare cash, they’ll buy an apartment. Or a beach home across the Río de la Plata in Uruguay. Or a condo in Miami.

Now fewer Argentines are using local real estate as a hedge against inflation. New construction and permit applications have fallen off a cliff. They just want their cash out.

The government claims that the rate of outflow has slowed. But with every passing week, companies and individuals figure out new ways to get their cash out. For instance, companies buy financial instruments locally in pesos that they immediately resell in New York for dollars.

Argentines have seen it all before. When a government and a banking system take your life’s work with the stroke of a pen, you don’t forget. If you’re lucky enough to rebuild your savings, the next time you will be ready. And the harder the Argentine president, Cristina Kirchner, tries to keep assets in the country, the more they’ll be siphoned out.

Meantime, Argentina is all but frozen out of international debt markets. The government hasn’t reached a settlement with the group of creditors (known as the Paris Club) since its last default. So the country and the banking system desperately need these deposits to stay afloat.

But they continue to do incredibly dumb things. Two years ago President Kirchner seized private pension accounts. Now she is going to lend $4.4 billion of this money, at a rate of one-tenth the inflation rate, to new home buyers. A lottery will decide who gets the loans—not capacity to repay.

Argentina has major competitive advantages in beef production. But land under beef farming is contracting. Beef producers face large and complicated export tariffs and are forced to sell cheaply to the domestic market. Many have moved operations to Uruguay or switched to soya.

It’s one crackpot idea after another. And the cycle repeats. Expropriating your citizens’ savings or international companies like YPF (a subsidiary of Spanish oil company Repsol), which President Kirchner nationalized last April might buy you some time. But not much. The writing is on the wall.

In the last crisis, the trigger event was Argentina’s massive default on its sovereign debt. This time around Argentina doesn’t face that scenario. Government spending has to be funded from printing presses, taxes, and expropriation of personal or company assets. It’s hard to see how the government can collect more taxes. The printing presses are already causing the inflation and the rush to backstreet currency-exchange brokers. There’s a limit to what you can expropriate.

This time around the trigger event for a full-scale crisis will be the country’s running out of hard currency. There will be no money to pay for imports. Argentina can make do without more Porsches and Gucci handbags, but the country will grind to a halt if industry and energy-producers can’t get their hands on crucial imports. The factories will shut. Things will have to get really bad before we’re in a “buy” situation. Pay attention if you turn on your TV and see news flashes of burning banks and of factories that don’t have hard currency to buy raw materials, locking out their workers. If you turn on your TV a second day and see similar reports, then book your flight. Your dollars will go a long way.

Comparisons between the high-end neighborhoods of Paris and Buenos Aires are correct. It’s a world-class capital with a wealth of cultural activities, fine dining, and shopping. Buy when the Argentine capital is in turmoil and you’ll be sitting on prime real estate in one of the world’s finest cities.

If you’ve ever dreamed of owning your own vineyard, I can think of no better place than Mendoza, Argentina’s most famous wine-producing region. Mendoza sits at the foot of the Andes, 600 miles west of Buenos Aires. Soil and climate are perfect here for wine production.

Argentina long held promise. In 1900 it was the world’s sixth-richest country—richer than the U.S. Immigrants flooded from Europe. The British came to build the railways. They brought along Irish and Italians. The Spanish came. What followed is text-book mismanagement. When it comes to a head again, we’ll have a full-blown crisis. And an opportunity to pounce once more.

How the Crisis in Argentina will Affect Real Estate in Uruguay

Real estate prices in Uruguay have raced ahead over the past three years, and Argentines are driving this market. Some have been looking for a beach home…but most just wanted a safe place to store their wealth. Multi-million dollar condo sales in Punta del Este were common.

Argentines are banking on another crack-up. They have seen it all before. Now the Argentine government has bullied Uruguay into agreeing to pass on information about Argentines who bank in Uruguay.

But Uruguay is still the closest haven to store savings and wealth. Geographically and psychologically, it’s close. Many Argentines will figure out a way to get around this. I expect to see a major jump in Panamanian corporations buying real estate there. My legal contacts are already reporting a six-fold increase in inquiries from Argentine clients interested in setting up Panamanian corporations that would circumvent the reporting requirements.

Even so, sales volumes in Uruguay are falling. In Punta I hear they are off by more than half. Transactions and volume were at record levels in the lead-up to Argentina’s latest crisis in anticipation of what’s now happening. Now demand will soften. Few sellers are desperate. They bought here to store wealth. But because buyers will be thin on the ground, if you can find a desperate seller, you’ll get a good deal.