An undersized financial service sector is hampering the growth of real estate markets in Argentina with developers waiting so long for finance that the demand is gone by the time they launch projects, it is claimed.
Lack of access to funding is proving a serious problem and has resulted in a situation where the supply of new properties does not match demand and the situation is not expected to improve going into 2011.
A report from Companies and Markets suggests the problem is occurring in the main cities including Buenos Aires, Cardoba and La Plata. In the first few months of 2010 the markets looked more positive with rental rates in double digits.
‘Yields had fallen, as capital values had gained by even more than rents. The commercial real estate sector had been benefiting from the growth in global investors’ appetite for emerging markets assets through calendar 2009. Further increases in rents were expected,’ says the report.
‘The only cloud on the horizon was that a number of development projects were under way with the result that supply of new space would be increased during 2010. This was at a time that vacancy rates were well in excess of 10% in most sub-sectors. Our sources reported, for instance, that vacancy rates in the Buenos Aires retail sub-sector were running at around 50%,’ it adds.
But by the middle of 2010, a lot of the optimism had gone. ‘The numbers cited to us by our sources indicated that rents and yields had moved sideways. Ominously, our sources suggested that they were not looking for any improvement in rental rates in 2011, either,’ it points out.
‘Worse, this is at a time that the limitations to Argentina’s recovery in the wake of the global financial crisis of late 2008 are becoming apparent. Overall investment is too low, while fiscal policy has been perhaps unsustainably lax. Exporters have already benefited from the softness of the ARS. Conditions in many of the markets into which they are selling appear to be deteriorating. The growth rates, which were the norm prior to 2008 are not going to be regained any time soon,’ it adds.
‘For the time being, we are looking for general stability in Argentina’s Real Estate sector with yields rising slightly in Buenos Aires, but moving sideways in the other two cities, over the forecast period. However, we note that there is scope for economic conditions to deteriorate, even relative to our forecasts. Further, the market will have to absorb significant supply of new property over the coming three years,’ it continues.
‘There are some countries where commercial Real Estate protagonists have easy access to the funding that they need and, given the general challenges of doing business in that country, are usually able to match supply of new property with new demand. Argentina is not such a country.
One legacy of long term economic volatility and an undersized local financial services sector is that Argentina’s developers often face the real possibility that they will bring new projects to the market at precisely the time that demand for new space is turning down,’ it concludes.
