The Real Estate Boom in Argentina from Universia Knowledge @ Wharton
After the crash in Argentina in 2002, construction experienced a boom that has yet to abate. According to an article entitled “The Real Estate Boom in Argentina,” from Universia Knowledge @ Wharton, Argentina experienced 14 consecutive quarters of meaningful growth in the construction sector as of October, 2006. At the beginning of 2006, real estate growth had reached a peak of 21.2 percent growth. Ricardo Theller, at the Center for Advanced Studies, says that this growth could be attributed to low interest rates, high liquidity, and exchange rate stability. The eventual post-crisis improvement in public sector investment and the fast pace of macroeconomic growth were also contributing factors.
When the 2002 crash occurred and the Argentine government defaulted on its debts, the banking system of Argentina essentially collapsed, leaving people mistrustful of banks and desirous of investing their money somewhere else. Real estate was an appealing option for people looking to rebuild their finances without putting their savings in the bank because land was available at low prices and there was a good balance between construction costs and sales prices.
As of when the article was written, the real estate boom was continuing unabated. Specialists argued that this boom was not a bubble but a real reflection of the demand for real estate development in the country. One specialist, Luis Martinez de Virgilio, argued that because the boom had no effect on the financial sector, it was simply independent investors taking advantage of good opportunities.
As of 2006, the real estate boom was in the phase where demand was exerting upward pressure on prices. There were many factors causing the rise in prices, one being the improvement in construction quality. There were also many Argentines reaching the age where they were old enough to marry and move out of their parents’ homes, increasing the demand for more housing. This demand was being felt not just in Buenos Aires, where 240 million euros was invested in real estate purchases in 2006, but also in the interior. In the largest 42 cities in the nation, the number of square meters currently under construction had grown 19.8 percent.
As various factors kept the real estate sector booming, specialists still warned that such an upward surge could not last at its current rate forever.
Of course, not only Argentines were involved in this real estate boom. Foreigners from all over Latin America, the United States, and Europe were also playing a major role. The price of a square meter of land in Argentina was on par with other Latin American countries but was still quite cheap for buyers coming from the U.S. or Europe. Real estate was also a business sector that had become more closed in some more developed, northern hemisphere nations, whereas Buenos Aires was a booming city with a wide open future, making it appealing to investors. Puerto Madero was and still is an area of Buenos Aires that has been of particular interest to investors; land there sells for more than 2,000 euros per square meter.
The average working Argentine, however, was still mostly unable to acquire property. Rent prices were high for the working class and despite government programs designed to help these renters and potential buyers, people still struggled to produce the capital needed for such investments.
As of October, 2006, predictions for the future of Argentine real estate were positive, with one consulting firm estimating that growth for 2007 would be 15 percent. The only factor that was currently a concern was the growth in construction prices. Both materials and labor costs had increased in the second half of 2006.
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