At a much faster pace than demand shows, the Federal Capital and Greater Buenos Aires (GBA) continue to add new real estate projects. In some areas, the density of buildings under construction is surprising in such an economic environment doesn’t seem too auspicious consume that volume of sales.
However, the price of construction continues to be attractive to developers, who also cite other reasons behind the boom in new construction. But. Will there be enough demand in the short to medium term to absorb the number of square meters that keep adding to the market?
Entrepreneurs linked to the sector agree on the diagnosis: there is a lot of inventory, the level of activity in private jobs is very good, but the level of sales is not so good.
Statistics show that buying and selling transactions in 2022 were 17.1% higher than the records of 2021, with 33,753 transactions in the city of Buenos Aires. But they are still well below historical market levels (in 2017 there were 63,382 transactions).
For Damián Tabakman, president of the Business Chamber of Urban Developers (CEDU), there are several reasons that explain the phenomenon: first, the cost of construction “remains low in dollars”, as well as other goods in the economy. This encourages manufacturers to position themselves competitively. Currently, this value is between US$700 and US$800 per square metre, depending on the characteristics of the building.
Secondly, another stimulus for developers is the few alternatives that investors have today. “The strong stockpiles that exist mean those with trapped pesos can’t take it overseas, and many end up taking refuge in real estate so those pesos don’t depreciate,” he describes.
Another reason, according to Tabakman, is that some segments of the market have attractive income, for example, temporary lease projectsas well as the hotel sector. These are advantageous segments precisely because the country is cheap compared to other tourist destinations in the region. That is why there are people who buy new projects of this type off the shelf to rent them out to tourism.
Real Estate Report analyst Germán Gómez Picasso adds other reasons that explain the existing oversupply in the market, such as “developers who launched in 2020-2021 due to the sharp decline in dollar banknotes at that time,” he says .
Another point is “the large number of houses that are being built outside the cities at a slow pace decentralization that started in 2020 by a part of the population and companies they realized that teleworking was feasible,” explains the analyst.
Added to all this “the big cushion of dollars that the Argentines have, obviously in an atypical inflation scenario. “Purchasing power is lost every day which is why some choose to move them and construction has always been a good place for that,” adds Gomez Picasso.
In his view, “Construction is still cheaper than the peak we had in 2017 for dollar costs, but high inflation beats depreciations and costs are rapidly rising in dollars,” he says.
Rising costs with stagnant selling prices
According to Santiago Levrio, institutional director of Alianza Urbana, a civil association that brings together about 400 SME developers of the CABA, “the cost of construction measured in free dollars is still in the average of the last 20 years, which indicates that it could continue to rise. However , the decrease in land value, especially in the CABA, still allows the start of new businesses”, He says. Although he clarifies that “with the sales price stagnating and costs rising, chances are there will be A setback light ahead, since we are at a high level,” he commented.
When asked if there will be sufficient demand to sell all units under construction, Opinions span a broad spectrum. Tabakman believes that business people most involved in the business today are anticipating some sort of “end of cycle”.
In other words, by the end of 2023, Argentina could have less inflation, could be more expensive in dollars again and, therefore, property prices could rise. Those who are in line with this thought and also bet on the return of real estate credit «are now not so worried about not selling. He is more committed to positioning himself competitively,” he explains.
According to Levrio, there will be no shortage of buyers. “In fact, the production of housing does not cover the demand and that’s why we see stress in the rental market and in some segments of the sales market,” he says.
“Though they look like many buildings, Buenos Aires is a place that has many kinds of demand and it’s not just local. The houses are always occupied, what interests us is the rotation of capital so that the activity is maintained, if prices are flexible, even a less dynamic economy can support a construction sector with some activity”, he underlines.
Lots of stock, few buyers
Gustavo Weiss, president of the Argentine Chamber of Construction (CAMARCO), agrees that “there is plenty of inventory to sell over several years at this level of demand. Of course, the economic outlook can always change and demand can improve, but this is the reality it’s unclear whether there will be more demand because investors, who largely move the market, have pulled back because today there is no business in renting, and there is also no business in buying a well and selling the finished product because it can’t be sold. With which, it’s hard to know what’s going to happen in the future,” he says.
According to Gomez Picasso, if you look at listings for properties for sale, you see a big one “oversupply”but explains that, in many cases, “it has a low price, Dear. These are operations that will not end up being done at all », she clarifies. And he thinks: “What is in line with what is being sold will be sold. Sales shouldn’t take off.”
The segment that could react fastest, around 2025, Tabakman estimates, is that of prestigious houses which is smaller. By contrast, middle-class properties that depend on mortgage credit would take a little longer.
Source: Clarin
