Just over a decade ago Argentina spectacularly unraveled with the biggest default in history\u2014$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.<\/p>\n
That crisis created the biggest buying opportunity of a decade. During the \ufb01re sales you could have picked up a historic, high-end property in Buenos Aires or a vineyard in Mendoza for a song.<\/p>\n
Today,\u00a0Argentina\u00a0is back in a bind. There is a strong possibility of another crack-up within the next year. And then we\u2019ll 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.<\/p>\n
According to the of\ufb01cial 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. In\ufb02ation runs at 25%. The purchasing power of an Argentine\u2019s peso savings is going down by one-quarter each year.<\/p>\n
The government claims in\ufb02ation is 9.9% and has outlawed calculating or quoting any other in\ufb02ation 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 Forty percent of dollar deposits have been withdrawn from Argentina since last October.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.<\/p>\n
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.<\/p>\n
But a lot of Argentines\u2019 dollars and pesos don\u2019t reside in bank accounts. Property transactions typically take place in special rooms in lawyers\u2019 of\ufb01ces, and they\u2019re a cash deal. There\u2019s that much distrust of banks. They are \ufb01ne for day-to-day things like paying your electric bill. Not for your savings, though.<\/p>\n
And these transactions more often than not take place in dollars\u2026if 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 \ufb01nd their way around.<\/p>\n
By some reports, if an Argentine company complied with all the taxes and tariffs it faces, they would eat up more than the company\u2019s pretax pro\ufb01ts. So the shadow economy thrives. By necessity, it seems, rather than greed to pay less tax. Middle-class day-trippers take the ferry to\u00a0Uruguay\u00a0to put their savings in deposit boxes. The rich spend millions on condos in Punta del Este, Uruguay (see sidebar below).<\/p>\n
For Argentines, real estate is their bank. They understand in\ufb02ation and expropriation from bank and pension accounts. If they have some spare cash, they\u2019ll buy an apartment. Or a beach home across the R\u00edo de la Plata in Uruguay. Or a condo in Miami.<\/p>\n
Now fewer Argentines are using local real estate as a hedge against in\ufb02ation. New construction and permit applications have fallen off a cliff. They just want their cash out.<\/p>\n
The government claims that the rate of out\ufb02ow has slowed. But with every passing week, companies and individuals \ufb01gure out new ways to get their cash out. For instance, companies buy \ufb01nancial instruments locally in pesos that they immediately resell in New York for dollars.<\/p>\n
Argentines have seen it all before. When a government and a banking system take your life\u2019s work with the stroke of a pen, you don\u2019t forget. If you\u2019re 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\u2019ll be siphoned out.<\/p>\n
Meantime, Argentina is all but frozen out of international debt markets. The government hasn\u2019t 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 a\ufb02oat.<\/p>\n
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 in\ufb02ation rate, to new home buyers. A lottery will decide who gets the loans\u2014not capacity to repay.<\/p>\n
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.<\/p>\n
It\u2019s one crackpot idea after another. And the cycle repeats. Expropriating your citizens\u2019 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.<\/p>\n
In the last crisis, the trigger event was Argentina\u2019s massive default on its sovereign debt. This time around Argentina doesn\u2019t face that scenario. Government spending has to be funded from printing presses, taxes, and expropriation of personal or company assets. It\u2019s hard to see how the government can collect more taxes. The printing presses are already causing the in\ufb02ation and the rush to backstreet currency-exchange brokers. There\u2019s a limit to what you can expropriate.<\/p>\n
This time around the trigger event for a full-scale crisis will be the country\u2019s 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\u2019t get their hands on crucial imports. The factories will shut. Things will have to get really bad before we\u2019re in a \u201cbuy\u201d situation. Pay attention if you turn on your TV and see news \ufb02ashes of burning banks and of factories that don\u2019t 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 \ufb02ight. Your dollars will go a long way.<\/p>\n
Comparisons between the high-end neighborhoods of Paris and Buenos Aires are correct. It\u2019s a world-class capital with a wealth of cultural activities, \ufb01ne dining, and shopping. Buy when the Argentine capital is in turmoil and you\u2019ll be sitting on prime real estate in one of the world\u2019s \ufb01nest cities.<\/p>\n
If you\u2019ve ever dreamed of owning your own vineyard, I can think of no better place than Mendoza, Argentina\u2019s 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.<\/p>\n
Argentina long held promise. In 1900 it was the world\u2019s sixth-richest country\u2014richer than the U.S. Immigrants \ufb02ooded 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\u2019ll have a full-blown crisis. And an opportunity to pounce once more.<\/p>\n
How the Crisis in Argentina will Affect Real Estate in Uruguay<\/strong><\/p>\n 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\u2026but most just wanted a safe place to store their wealth. Multi-million dollar condo sales in Punta del Este were common.<\/p>\n 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.<\/p>\n But Uruguay is still the closest haven to store savings and wealth. Geographically and psychologically, it\u2019s close. Many Argentines will \ufb01gure 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.<\/p>\n 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\u2019s latest crisis in anticipation of what\u2019s 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 \ufb01nd a desperate seller, you\u2019ll get a good deal.<\/p>\n <\/p>\n <\/p>\n","protected":false},"excerpt":{"rendered":" Just over a decade ago Argentina spectacularly unraveled with the biggest default in history\u2014$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…<\/p>\n","protected":false},"author":6,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,4],"tags":[12,7,11,8,9,6,10,18],"class_list":["post-208","post","type-post","status-publish","format-standard","hentry","category-english","category-real-estate","tag-argentina","tag-attorney","tag-buenos-aires","tag-law-firm","tag-law-office","tag-lawyer","tag-legal","tag-real-estate-2"],"yoast_head":"\n