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ECONOMY | 01-10-2019 08:56

Capital controls, sky-high rates crush local housing market

The world’s highest interest rates and a currency that has lost 68 percent of its value since the start of 2018 has led to paralysis in Argentina’s real estate market. Home sales with a mortgage have plunged 87 percent in the province and city of Buenos Aires so far this year.

Ezequiel Amaro was about to buy the house of his dreams in the suburbs of Buenos Aires, when the latest currency crisis cancelled his plans.

With properties priced in US dollars but mortgages offered only in pesos, buying property in Argentina has never been easy. Add the government’s recently introduced capital controls into the mix and it’s become even harder.

Now, with no one wanting to buy Amaro’s old home, he doesn’t have the money to purchase the new one.

“The first feeling is anxiety, then helplessness,” the 32-year old IT consultant said. “I mean, when am I going to sell my house?”

The world’s highest interest rates and a currency that has lost 68 percent of its value since the start of 2018 has led to paralysis in Argentina’s real-estate market. Home sales with a mortgage have plunged 87 percent in the province and city of Buenos Aires so far this year. Total home sales – all cash deals and mortgage-backed purchases – are down 41 percent, according to the organisations that track the data.

New limits on dollar purchases implemented in the wake of President Mauricio Macri’s stunning defeat by Alberto Fernández in a primary vote make it even harder to buy and sell, as most transactions are done in cash and without a mortgage.

Boom to bust

As of September 1, Argentines were only allowed to buy US$10,000 a month, a sum far too small to complete a purchase in dollars. Banks disburse mortgages in pesos, but then buyers must exchange the pesos for dollars because most home owners only accept greenbacks after living through Argentina’s many currency crises. Given decades of volatility, real estate is one of Argentines’ few sure bets for savings.

Last week the Central Bank lifted the dollar limit to US$100,000 only for home buyers who already had a pending mortgage application, but that won’t help Amaro. The measure doesn’t apply to current and future house hunters, who still face the US$10,000 ceiling.

“This year is going to be one of the worst in history,” said Silvio Guaita, an agent at real-estate firm Deinmobiliarios in Buenos Aires. Capital controls “are going to hurt sales because they create uncertainty.”

Home sales, most of which are all-cash deals, boomed during President Mauricio Macri’s second year in office as Argentina’s pro-business turnaround seemed to become a reality with cooling prices and stronger growth. After the government regained access to foreign capital markets, mortgage sales soared.

But the economy nosedived last year, forcing the Central Bank to jack up its benchmark rate, now at around 80 percent, in an effort to cut off inflation climbing above 50 percent this year. As rates have climbed, the bar to qualify for a mortgage has too, cutting out middle-class buyers who previously qualified, industry experts say.

Mortgage rates and inflation-adjusted payments have also climbed into the double digits as the peso fell to new lows.

“When the peso falls, it paralyzes the market,” said Alejandro Bennazur, president of the Argentine Real Estate Chamber. Capital controls “created more complications because of the inability to get dollars.”

by Patrick Gillespie, Bloomberg

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