Tag Archives: argentina

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

 

Argentina: Ralph Lauren Outed Its Subsidiary’s Bribery and Set an Example for All

Forbes.com – by Jonathan Green & James L. Athas

In 2010, while working to enhance its worldwide internal controls and compliance program, Ralph Lauren Corporation discovered evidence that its Argentine subsidiary had been paying bribes to government officials in Argentina. The bribes, paid through customs brokers, facilitated the entry of RL’s products into the country without necessary paperwork and avoidance of inspections of prohibited products. The bribes were disguised, along with other legitimate charges, as “loading and delivery expenses” and “stamp tax/label tax” on invoices submitted by a local customs broker to RL’s general manager in Argentina.

Between 2005 and 2009 RL paid approximately $568,000 in bribes to Argentine officials.  Its general manager also provided or authorized gifts to three different government officials, including perfume, dresses, and handbags valued at $400 to $14,000 each, to secure the importation of RL’s products into Argentina.

The challenges RL encountered in Argentina are similar to those encountered by many companies operating internationally, as general counsel and compliance officers everywhere well know. The Justice Department and the Securities and Exchange Commission have not hesitated in pursuing Foreign Corrupt Practices Act cases against companies involved in such conduct.

RL didn’t act perfectly (it had, for example, little anti-corruption training or oversight in Argentina before 2010), but once under investigation it served as a model for any other company that faces such challenges in the future. It addressed the issues head on, by:

(1) Terminating its customs broker,
(2) revising its anti-corruption policy and translating the policy into eight languages,
(3) increasing its due diligence procedures for third parties,
(4) implementing more stringent commission and gifts policies,
(5) conducting in-person anticorruption training for certain employees, and, most significantly,
(6) ceasing retail sales in Argentina and winding down all of its operations there.

In addition, upon learning of the misconduct RL promptly—within two weeks—reported the violations to the SEC and the Justice Department, voluntarily and expeditiously produced documents and transcripts from interviews (translated into English), and otherwise cooperated in investigations by both. RL even made its overseas witnesses available for SEC interviews and brought them to the U.S.

According to the SEC’s acting director of enforcement, RL’s timely and thorough cooperation resulted in “substantial and tangible benefits” for the company, including non-prosecution agreements with both the SEC and the Justice Department. In sum, RL agreed to pay more than $700,000 in disgorgement and interest to the SEC, and $882,000 in penalties to the DOJ. These amounts are not insignificant, but they are significantly better than the company might otherwise have faced for a five-year bribery scheme involving hundreds of thousands of dollars. Most important, the company will not face charges and can now put the matter behind it.

This is not the first time the government has gone out of its way to encourage cooperation and praise robust compliance programs. In 2012 the SEC and the Justice Department publicly declined to bring enforcement actions against Morgan Stanley MS +0.64% after one of its employees bribed a Chinese government official in violation of the FCPA. That decision was the result, in large part, of the fact that “Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials.” Government officials similarly lauded Morgan Stanley’s cooperation and thorough internal investigation in the case.

The lesson to be learned from RL’s recent experience is that a vigilant (re)assessment of one’s anticorruption policies and swift action and cooperation when any misconduct is discovered will continue to be the height of fashion—and function—regarding the FCPA.

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

Argentina Just Might Get Its Act Together

Forbes.com – by Lawrence Goodman

Argentina seems to be on a collision course of its own making.  Inflation is soaring and investment is on the wane.  Despite being the third largest economy in Latin America with abundant resources, Argentina no longer has access to voluntary capital inflows and the growth that funding affords.

The republic faces the threat of a currency crisis that could readily spiral to high double-digit inflation.  In years past, excessive inflation eroded incomes and wiped out the savings of individuals.  Despite intentions to benefit the poor, an unsustainable macro mix, difficult dealings with the private sector, and increasing international isolation promises to again diminish living standards.

Argentina’s foreign exchange policy and breach of international contracts represent obstacles to attracting financing for many worthy projects.  Currency is now rationed by the government.  So, an insufficient supply of available dollars threatens to stymie economic activity in the private and public sectors.  These barriers also incent foreign and local participants to move funds from Buenos Aires toMiami, Zurich or London rather than putting them to work in Argentina.

To circumvent currency limits, the private sector deftly employs a shadow exchange rate called the “blue chip swap.”  Yet, the costs of doing business via the Blue chip exchange rate are high – as securities priced in U.S. dollars must be purchased and exchanged to obtain scarce foreign currency.  In other words, there are two separate exchange rates in Argentina.

Memories of dual or multi-tiered exchange systems are limited, as they are fortunately relics of the distant past.  However, previous experiments – stretching from Argentina (1978-81 and 2001-02),Jamaica (1970-78 and 1987-94), Mexico (1982-85), and Venezuela (1984-89) – all ended poorly with a surge of inflation and shortages of basic goods and necessities.

At present, the “blue chip swap” strongly signals the risk of a roughly 40% devaluation of the peso.  So, this cumbersome and costly exchange rate management system either keeps investors sidelined or requires them to attach a hefty premium to any new undertaking.

Investment confidence is also vitally linked to adherence to the rule of law.  Unfortunately, Argentina has racked up lawsuits by individuals and institutions, and many settlements remain outstanding.  For instance, Argentina has not complied with any judgments brought by ICSID, the World Bank’s arbitral body for settling disputes.  Similarly, Argentina has refused to comply with more than 100 judgments in New York State alone ordering it to pay its creditors – including a high profile dispute with holdout creditors.

Fortunately, the government possesses the power to engineer a dramatic turnaround.

Argentina is rich in human and natural resource. Moreover, it has nurtured human resources by implementing policies dedicated to social inclusion.   It is the sixth most literate nation among the top 24 emerging markets in the world today.  On the financial front, the nation sports a strong balance sheet.  Debt is a scant 40% of GDP, well below the safe threshold of 60%.  Similarly, Argentina has grown the economy by an average 7.7% per year since the 2001/02 crisis, while widening its social safety net.

A reversal of rogue behavior on the legal front would free access to capital and help Argentina lower borrowing costs.  For instance, if Argentina’s perceived adherence to the rule of law converged with Brazil’s, as measured by theCenter for Financial Stability’s Rule of Law Index, Argentina could reduce future borrowing costs by a minimum of 735 basis points per year over ten years and open the nation to new sources of funding and growth.

Given the political will, Argentina can engineer a recovery and regain its prominence as a leading G-20 nation by fortifying its social programs through sound fiscal management; moving away from distortionary exchange rate policies; and honoring contracts.  How the Kirchner administration develops the nation’s human and natural resources will either accelerate its downward descent or set the stage for prosperity.

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