ABSOLUTE gUIDE sERIES to Investment Property
Argentina
A BSO LUT E G UI DE SE R IES - A R G EN T IN A
Date of Publication: October 2008 © Obelisk 2
ABSOLUTE G UIDE SERIES - AR G ENTINA
Contents 5. Welcome to Argentina
Dedicated to providing impartial information.
6. Economic Growth & Stability
Government intervention on the foreign exchange has stabilised the currency.
North America rates Argentina
16. Mortgage Market international need.
The banking system is currently under reform.
15th
High demand for both resale and rental properties.
Scope for huge development to meet domestic and
7. Currency & Banking 8. Foreign Investment
14 - 15. Secondary Market
17. Market Risks
Significant risk although balanced with good investment as an investment
destination.
9. Political Situation & Stability
potential.
18. Purchase Process
Argentina has an open market with no restrictions on
Democracy restored to the country in 1983.
foreign ownership.
10. Tourism
19. Investment Costs
Argentina is a developing, year-round holiday destination.
11. Infrastructure
Large-scale projects underway in transportation and energy.
12 - 13. Property Market
A stable market with no sign of decline in demand.
Fees and taxes are not prohibitive.
20. Summary
Investors are regaining confidence in the country.
21. Verdict
Argentina remains resilient against the credit crunch.
22. Obelisk Advantage
Obelisk approaches its projects purely from an investment perspective.
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A BSO LUT E G UI DE SE R IES - A R G EN T IN A
Salta Corrientes
San Juan Mendoza
Cordoba
Santa Fe Rosario
Viedma San Carlos de Bariloche Comodoro Rivadavia Puerto Santa Cruz Ushuaia
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Posadas
Buenos Aires
ABSOLUTE G UIDE SERIES - AR G ENTINA
Argentina forms part of the Obelisk Absolute Guide Series, dedicated to providing impartial information to numerous property investment destinations worldwide.
Welcome
to Argentina
As the market leader for overseas investment property,
provide you with in-depth, clear-cut knowledge on the
we are committed to providing cutting edge information
most important factors influencing your property
for property investors, one aspect that has earned us the
investment decision in Argentina.
award of International Property Specialist 2008 by Business Britain magazine.
In this guide you will find recent economic performance and predicted growth, a profile of the current property
We are therefore pleased to present our latest Property
market and its future potential, along with tourism trends
Investment Guide to Argentina, an essential tool for the
and infrastructure improvements. The guide also includes
investor planning to buy property in this country. This
information about Argentina’s mortgage market, the
guide forms part of the Obelisk Absolute Guide Series,
buying process and buying costs.
dedicated to providing impartial information about numerous investment destinations worldwide.
Obelisk’s Absolute Guide to Argentina offers investors objective and authoritative information to facilitate an
At Obelisk, we are only too aware of the importance
informed decision about investing in Argentina. We trust
of extensive research into an investment destination and,
that you, as an investor, will find this guide indispensable.
as part of our policy to offer investors the definitive service, this guide has been rigorously researched to
Here’s to Successful Investing!
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GDP Growth (2008 predicted): 6% GDP Per Capita (2007): US$13,305 Unemployment (Q2 2008): 8% Inflation (2007): 8.8%
Economic Growth
& Stability Argentina has experienced a strong rebound from the
the government, particularly in terms of state
deep recession of 2001 to 2002 and subsequent years
intervention. Inflation was at 8.8% in 2007 and it
have seen GDP rise steadily to the level of 8.7% in
is currently forecast to rise to 9.3% in 2008.
2007. The GDP forecast for 2008 is 6% and despite Argentina being affected by the US economic downturn,
The export market has experienced considerable
this figure is still higher than many European Union
growth in the last 5 years, reaching US$65,838
countries.
million in 2007 with a projected level of US$ 75,000 million in 2008. The key factors
The government has achieved huge success in terms
behind this performance are rising international
of reducing unemployment since May 2002 when it
prices, an expanding export capacity and a
peaked at 21.5%. Unemployment in Q2 of 2008 was
competitive exchange rate. It is not only primary
at 8% with forecasts of 7.8% for Q3 which is a historic
commodities leading this boom but also manufacturing
low for the country.
and value added services, such as professional consultancy and tourism, which are expanding at
Consistent economic policies are required to control rising inflation and this is an area being addressed by
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accelerated rates.
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Currency
& Banking Argentina’s currency is the peso (AR$). From 1992 to 2002, the peso was pegged to the US dollar (1 to 1) until being devalued by 30% in 2002 which led to recession in the country. The peso has since recovered considerably due to state intervention on the foreign exchange to maintain competitive rates. The banking sector is supervised by the Republic of Argentina Central Bank and has maintained stability since the economic crisis of 2002. There still exists reluctance from the banks to lend to the private sector and lending represents just 13% of Argentina’s GDP, compared to Brazil with over 36%, and the majority of loans are short term. Government policy prefers to keep interest rates on savings low to encourage spending and rates on borrowing high and this is reflected in high interest rates on borrowing of 10.7% and a mortgage rate of 11.63% (January 2008 figures).
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Foreign Companies Investing in Argentina Bayer CropScience, IBM, Mercedes, Nestlé, Oracle, Renault, Toyota, TNT Express.
Foreign Investment Foreign direct investment (FDI) reached US$4.8 billion in
legal framework for FDI, equal opportunities for both
2006, but fell to US$2.9 billion in 2007. This is mainly
international and domestic investors and no restriction
due to a stalling confidence in Argentina’s investment
on sector involvement. A number of tax incentives are in
potential in recent years and the country has not ranked
place and in addition, Argentina holds 19 bilateral
in the FDI Confidence Index’s top 25 countries since
treaties for the avoidance of double taxation and 55
2002. However, Argentina’s reputation as an investment
bilateral investment treaties for the protection and
destination appears to be recovering and North American
promotion of investments.
investors rate it
15th
in the world. More than 1,000 overseas companies operate in
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To encourage foreign investment, the official National
Argentina, including half of Fortune 100 firms (the
Investment Development Agency, ProsperAr, was
list of companies that lead the US economy), many of
created to optimise the investment environment in
whom have over half a century of presence in the
Argentina. Measures adopted include a non-restrictive
country.
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Member of Mercosur: Since 1991 Political System: Presidential Democracy Ruling Party: Partido Justicialista (PJ) Next Election: October 2011
Political Situation
& Stability Democracy was restored to Argentina in 1983 after 50 years of instability and military regimes. A strong presidencial regime is supported by a bicameral congress, comprising a 257-member Chamber of Deputies and a 72-member, directly elected Senate. The current president is Cristina Fernández de Kirchner who won 45% of the vote in October 2007. The presidential term is 4 years with a mid-term election taking place in October 2009. The political situation in Argentina has been destabilised by the government’s moves to generate revenue by increasing export taxes. Intermittent industrial action has been taken by farmers who already face a worsening situation due to rising costs linked to oil price increases and the global financial crisis. Argentina is the world’s largest exporter of wheat, corn, beef and soya beans and the general feeling is that agriculture should be supported rather than penalised through taxation at this current time.
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Visitor Numbers (Q1 2007-latest available): 1.3 million Tourism Expected Contribution to GDP (2008): 8.8%
Tourism The government of Argentina has a programme in place with the double aim of transforming the country into a quality tourist destination whilst protecting the environment. The ‘Federal Plan for Sustainable Tourism 2016’ has a budget of US$190 million, mainly allocated to improving the tourism infrastructure with particular emphasis on the country’s many national parks. Ezeiza International Airport serves as the primary gateway to Argentina with many visitors arriving via cruise liners docking in Buenos Aires. There are a number of year-round holiday options available to tourists including beaches, ski resorts and natural parks, and with projects in place to improve the tourism infrastructure, it is anticipated that visitor numbers will increase. Visitor numbers continue to increase year-on-year and Q1 2007 figures improved by 6% for the same period of 2006. Close to half the tourists are from other South American countries, especially Chile and Brazil. In Q1 2008, tourist spending was up 41.5% on the same period of 2007.
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Tourism Expected Contribution to Employment (2008): 10.5%
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Infrastructure US$286 million investment allocated to upgrading the provincial road system.
US$400 million expansion of Ezeiza International Airport. County Assistance Strategy Funds totalling US$4,000 million for infrastructure improvements.
US$4 billion investment for improving and upgrading energy supply. The World Bank and other sources are funding US$286
increased car parking facilities. Also included in this
million of investment in Argentina (2006-2012)
project is the construction of a fourth runway and im-
principally to upgrade and expand provincial roads.
provements to the existing third runway.
Additional improvements to the transport infrastructure include construction of an international highway.
Infrastructural development is clearly the prime focus
Funding has also been allocated to flood protection for
area in Argentina and projects include improving and
Buenos Aires involving the construction of two collection
upgrading energy supply. More than US$4 billion will
tunnels in the Maldonado basin.
be invested for the construction of gas pipelines and large scale construction of power plants and
A US$400 million project is underway to expand Ezeiza
diversification of energy sources. The government plans
International Airport and completion is anticipated to be
to continue with the emphasis on improving energy and
by 2010. Improvements include a new passenger
export infrastructure during 2009 to 2011.
terminal, a control tower, platforms for aircraft and
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“The construction sector grew by 9% in the first 7 months of 2008 compared to the same period in 2007. New-builds in the residential market have seen a year-onyear increase of between 10% and 15% as at July 2008.� Average Price Growth: 10% - 20% Average Annual Rental Yield: 4% to 6% (subject to regional variation) 12
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Property
Market
Since the 2002 economic crisis in Argentina and the
The property market in Buenos Aires is currently
subsequent crash of the property market, the market has
buoyant with price increases of 18.7% in resale property
regained growth and reached maximum activity towards
and 21.6% in new build for the first 6 months of 2008.
the end of 2005/early 2006. At the height of activity,
However, demand for properties by foreign investors
around 10,000 properties were sold a month. During
has dropped in the capital which is largely due to the
the second half of 2006 and 2007, activity stabilised to
credit crunch and falling prices in other countries.
around 9,000 a month and experts believe this stability is
Sales of high-end properties remain buoyant with
likely to exist for the foreseeable future.
competitive property prices in comparison with other markets.
The construction sector grew by 9% in the first 7 months of 2008 compared to the same period in 2007. New-
The focus for new development in Buenos Aires is Puerto
builds in the residential market have seen a year-on-year
Madero and San Telmo with a number of residential
increase of between 10% and 15% as at July 2008. The
projects underway. Innovative architecture is a feature
first half of 2008 has also seen an increase of 20% in
of new construction in the capital and includes a project
sales and demand compared to Q2 of 2007 and there
designed by Norman Foster.
are no signs of demand or prices falling.
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Secondary
Market
As a result of previous currency instability, Argentinians
Another effect of the caution resulting from past and
prefer to exercise caution and invest in property rather
present economic instability is that Argentinians
than savings. Taking into account the shift in the
generally prefer to let properties rather than sell them.
concentration of construction to infrastructural rather
Rental supply in Buenos Aires has seen a year-on-year
than residential projects, demand for resale property as
increase of 14.5% from January to July 2008. The
an investment option continues to be attractive.
rapid increase in house prices has left the market out of reach to many Argentinians, creating a high demand
Buenos Aires saw a fall of 23% in the number of
for rental properties and attractive opportunities for
properties for sale during the first half of 2008 compared
property investors. In parts of the capital, rental
to the same period of 2007. This will ensure that demand
property owners can expect rental income worth
for resale properties will remain high and underpin
4% to 6% of the original purchase price per year.
security of investment in the property market.
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“Argentinians generally prefer to let properties rather than sell them. Rental supply in Buenos Aires has seen a year-on-year increase of 14.5% from January to July 2008.”
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Mortgage
Market Banks in Argentina have exercised caution since the recession of 2002 and are generally reluctant to lend for mortgages. The number of mortgages taken out every month has averaged around 600 for 2008, a figure which has not altered greatly since 2002. Due to weakened confidence in the banking system, Argentina’s cash economy has grown considerably and as a result, many Argentinians fail to meet mortgage lending criteria. The uncertainty that has affected the banking sector, economy and currency means that foreigners rarely take out mortgages in Argentina. Equity release on an existing property is considered the most popular option for financing a property purchase in the country. Property analysts believe that it is essential to develop the mortgage market in Argentina to offer more variety of products to a wider client base. The demographics of Argentina point towards an increasing demand for housing and mortgage finance as the majority of the population have low incomes and require creative solutions for home purchase. Ken Thorkildson, Director of Obelisk Finance recommends that ‘until the Argentinian mortgage market develops and stabilises, foreign property investors are advised to consider other financing options such as equity release’.
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“Investors should exercise caution in this market, although there is plenty of scope for promising investment returns.�
Market
Risks
Argentina has a history of economic instability. The
There is a degree of political instability in Argentina
government needs to address the issues of rising inflation
mostly due to the government policy of increasing
and low credit availability to increase revenues from
revenues with export tax hikes. This has led to
public expenditure. Because of the lack of confidence in
government unpopularity, particularly amongst agricultural
the banking system, many Argentinians exist within a cash
workers who contribute the largest proportion of GDP
economy and so a clear picture of the country’s economic
and are hardest hit by export taxation policies. However,
circumstances is difficult to obtain. The Economist
Argentina has now had more than 25 years of
forecasts lower GDP growth for the next 2 years although
democracy and experts believe there is no danger of
still much higher than many other countries. Investors
a return to a military regime.
should exercise caution in this market, although there is plenty of scope for promising investment returns.
Since the peso was devalued in 2002, the currency has a history of ups and downs. Intervention on the foreign
It is broadly recognised that the government manipulates
exchange has largely maintained strong exchange rates,
the consumer price index in order to keep official inflation
which combined with budget surpluses from 2004 to
statistics at low levels. Unofficial high inflation has led
2007, brought about economic recovery to Argentina.
to reluctance to save money in the banking system and
Property purchases in the country are made in US dollars,
Argentinians prefer to invest in property rather than
which has more stability than the peso.
savings. This has a positive effect on the secondary market in terms of resale.
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Purchase Process Argentinian laws and legal processes may be very different to what you are used to and Obelisk strongly recommends that independent legal advice be taken during a property purchase. Below is the standard purchase process in Argentina and issues that may affect a property purchase: There are no restrictions on foreign ownership in Argentina, except for Argentine land near a foreign border, which requires additional paperwork and time to complete. Foreigners are required to have a tax number (CDI), which can be obtained through a legal representative or in person at an Argentinian Police station. The seller must obtain a domain certificate from the Real Property Register stating that the property is free of liens and encumbrances. A “certificado catastral� must be obtained, detailing the footprint, boundaries and fiscal valuation of the property. A certificate from the notaries’ association is required stating there are no local taxes on the property. Both parties sign title deeds in the presence of a notary at which point notary fees, transfer tax and stamp tax are payable. The notary then files the property transfer for registration with the Real Property Register when additional stamp tax is payable.
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Investment Costs Argentina has several double taxation treaties in place, including the UK. Taxation is complex and subject to change, and expert advice is always recommended for purchase and ownership of Argentinian property. The costs of a standard property purchase in Argentina may include the following: Stamp duty is set at 3% of the purchase price and is usually paid jointly by both parties. Transfer tax is also set at 3% of the purchase price and is paid by the seller. Notary fees are 1% to 1.5% of the purchase price and are paid by the buyer. Additional stamp duty is payable upon registration of the property transfer and is 0.2% of the property price. Capital gains tax is not levied, but is called Real Estate Transfer Tax which is payable only if the transaction is not subject to income tax. This tax is set at 1.5% of the sale price. It should be noted that exemption is granted if the profit from the sale is used to buy another property or build another property in Argentina within a year of sale. New builds must be completed within 4 years of sale in order to be eligible for tax exemption. Residential individuals are subject to an annual tax on assets (personal property tax) of between 0.5% and 0.75%. Non-resident individuals are only taxed on their assets located in the country.
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Summary The following summary provides key highlights to consider when investing in Argentina’s property market: Argentina is a steadily growing economy
Demand for property remains high with
with predicted GDP growth of 6% for
little prospect of declining.
2008. Rental demand is high particularly due to Foreign investment in Argentina is
the cash economy that exists in the country.
increasing and North American investors rate it 15th as an investment destination.
The mortgage market is under pressure to be developed to meet the demand for
There are currently over 1,000 foreign
housing from a population largely on low
companies in Argentina, many with over
incomes.
half a century’s presence. Fluctuations in the peso do not affect Substantial investment is being allocated to
investors as all purchases are required to
improving tourism infrastructure.
be made in US dollars.
Argentina is a year-round holiday resort with both beach and ski locations along with several national parks. The property market is buoyant due to the Argentinian preference for purchasing property as an investment rather than saving with banks.
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The Absolute Guide Series Rating
Based on our extensive research, Obelisk has introduced a 5 star rating system to summarise the investment potential of a country. The availability of finance, economic stability, political stability, the strength of the local market to provide an exit strategy and the potential to earn from investment are the key criteria that determine the investment grade of each country.
Verdict A major problem in Argentina is the country’s lack of political and economic maturity, and the current lack of stability means that property investment should be approached with caution. The banking sector is reluctant to lend and there is also currency instability. However, once Argentina addresses these problems and its range of tourist attractions is expanded, the country’s investment potential should improve. Furthermore, as the property markets in Brazil and Uruguay expand and attract more foreign investor interest, the Argentinian property market should also receive a boost. Based on thorough research we have carried out on Argentina, we at Obelisk believe that Argentina is currently an option to approach cautiously for overseas property investment, but it should be more worthwhile exploring in a few years time.
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Obelisk
Awards Obelisk ‘International Property Specialist 2008’
Advantage
Voted International Property Specialist of the Year 2008 by Business Britain magazine, Obelisk has been recognised as the authoritative voice within the industry and its clients benefit from the company’s uncompromising high standards and professionalism. Obelisk has identified a simple and transparant purchase process for its clients as a simple, four step process: 1.
The client chooses and reserves the unit that best suits their investment requirements, and Obelisk takes the client through a compliance procedure.
2.
An independent lawyer, sourced and appointed for the client by Obelisk, will have already carried out full due diligence on the project. They will issue all purchase contracts and paperwork to the client.
3.
On receipt of this contract, the client will sign and make the first payment. The lawyer will notify the client of all further payments when required.
4.
The appointed lawyer will also represent the client in all aspects legally required within the country of purchase, ensuring that clients of Obelisk enjoy the benefits of simple and hassle-free real estate investment.
For more information about Obelisk’s investment opportunities in Argentina, contact us now on info@obeliskinternational.com, visit our website at www.obeliskinternational.com or call us FREE on 0808 160 0670 (UK) or 1800 932 514 (IRE).
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Disclaimer The material contained within this document has been prepared for information purposes only. Information contained herein is not to be relied upon as a basis of any contract or commitment. The information is not to be construed as an offer, invitation or solicitation to invest and opinions expressed are based on market conditions at the time of print and may be subject to change without prior notice. Information contained herein is believed to be correct, but cannot be guaranteed. In case of queries or doubt you should consult an independent investment adviser. No personal recommendation is being made to you and the past is not necessarily a guide to the future. The brochure in its entirety – text, images, marks, graphics, logos, buttons, combinations of colours, and the structure, selection, ordering and presentation of its content – is protected by the legislation on intellectual and industrial property, it being forbidden to reproduce, distribute, publicly disseminate or transform it, except for personal private use. It is also forbidden to reproduce, relay, copy, assign or broadcast, in whole or in part, the information contained in this brochure, for whatever purpose and by whatever means, without written consent.
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Call us free from UK: Tel. 0808 160 0670 Call us free from Eire: Tel. 1800 932 514 For general and international enquiries contact us at: Tel: (0034) 952 820 319 Fax: (0034) 952 825 790 Alternatively you can email: info@obeliskinternational.com or visit: www.obeliskinternational.com