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.
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