Interview: Gonzalo Monarca
What are the key opportunities and challenges facing real estate in the medium term?
GONZALO MONARCA: After developers incorporated the pre-selling model, as is used in other regional economies, the sector has begun to properly develop. Access to supply-side housing credit has traditionally been challenging, but the new model allows us to use clients’ investments to finalise construction. Luckily, Argentines have relatively steady demand for property ownership, which has helped the sector remain dynamic even during economic turbulence.
While challenges persist, we find ourselves in more promising times, and the real estate model is quickly evolving: access to credit is increasing, and inflation-indexed mortgages will allow people to pay exactly what they can afford. Mortgages will, on average, have longer maturities, but more people will be able to access this kind of credit.
To what extent is currency volatility affecting real estate developments?
MONARCA: The currency situation is weighing on foreign investment in real estate development. The central bank has a very high key interest rate which is understandable, as their current priority is keeping inflation under control. However, earlier in 2018, when the central bank raised interest rates to 40%, the sector experienced a significant slowdown.
The currency issue affects not only consumers and their purchasing power, but also construction materials. With the continued appreciation of the dollar, I anticipate that there will be a bottleneck in these goods. Many projects are in development, and the acquisition of materials – particularly cement, and to a lesser degree steel and aluminium – might be a problem in the near future for those projects. If the dollar appreciates, prices will follow.
Such an environment would create a market with slowing production and climbing prices. This would increase dependence on public works opportunities and public-private partnerships.
How have mortgages and development credits progressed in Argentina?
MONARCA: We have witnessed some notable expansion in both of these credit facilities in recent times. On the development end, Banco Nación recently launched intermediary credits, which is new in Argentina. While the industry thought that the market would be prepared to take on such an increase in the number of credits granted, expectations exceeded results. Meanwhile, there are not enough financing options for developers. The rest of the public banks, such as Banco Provincia and Banco Ciudad, need to follow the example of Banco Nación and provide intermediary credits as well. The next natural step would be for private banks to also issue intermediary credits for developers.
With regards to mortgages, these have been promoted through loans that are adjusted by indexed units of purchasing power. This helps the interest rate remain fixed throughout the life of the loan. Before the introduction of this inflation-indexed structure, people couldn’t access these products.
What is the near-term outlook for the sector?
MONARCA: We’re seeing progress in a number of indicators – such as more access to credit and a new business model – but the situation remains worrisome due to currency volatility and relatively difficult access to finance. Numerous projects end up not being finished or remain suspended for long periods of time. Of course, there are segments, such as premium developments, in which profitability can remain somewhat higher in spite of financing issues and volatility. Indexed units of purchasing power are likely to play a very significant role in the development of the sector in the coming years.