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Low construction price: opportunity or “summer”?

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Despite the incessant peso inflation, the cost of construction in dollars (blue) has decreased with the last run. Between April and May, this fall was 8.57%, and brought the values ​​to US$519.57 per square meter (m2) of the entire building including common meters and US$701.92 per salable m2according to data from Real Estate Report, which measures costs on the basis of the construction of an eight-story residential building model consisting of two semi-floor rooms.

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Although the decrease in costs leads to thinking about new opportunities for developers, they explain that the current decline is the “picture” of the moment and insist on watching “the movie”.

They therefore argue that the construction cost arrived on a slight upward curve, which has now “settled down a bit”, setting a more competitive price, but they doubt how long it will last.

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“It is always encouraging that the price remains competitive but It should be like this in the medium and long term”, explains Christian Leupold, commercial director of the developer Avilis Real Estate. It happens that «the work lasts 34 or 38 months and goes through a long series of different situations. For the developer it is encouraging with a long term vision. And certainly also for the investor who pays installments in pesos and disburses fewer dollars with each one. The problem is how long this advantage is maintained.” poses.

According to Germán Gomez Picasso, an analyst at Reporte Inmobiliario, the drop in costs it is temporary” because soon the increases in pesos liquefy that benefit. Above all, bearing in mind that the ruling party will do everything in its power to support the dollar,” he says.

The analyst points out that “today the stimulus is for who has a surplus in pesos and allocates them to construction because he knows that what he buys today will cost more in a short time. But developers usually don’t use equity capital: they pre-sell, ask the buyer for an advance and then adjust the installments based on the construction index (CAC),” he says. “That is, the client receives the updated installments in pesos. But his problem is inflation because people get scared and so on the lawsuit is withdrawn“.

How does it affect the small saver?

Instead, lowering the cost of construction is a central issue for the retail investor today it builds more meters for less dollars. But this is today’s photo. Because then things will escalate due to rising dollar costs.

The individual who wants to build a house can see the opportunity if they have the money to build it. But building the house can take a year and a half and end up costing an extra dollar. “If you are a dollar saver, today it is better for you to buy landdo the project, approve the plans and prepare to do it see what happens after the election”, advises the analyst.

“According to information from the Real Estate Report, the average dollar cost for the past three years (May 2020-May 2023) was USD 620 per m2, 32% less to that of the previous three years (April 2017 – April 2020) when it averaged US$884.

Compared to the first month of the last three years (May 2020), the current cost has increased by 72%, from US$409 to US$702 in May 2023, although the period in which construction was closed and then limited is to be considered into consideration due to the confinement in 2020 and during which the sharp drop in cost due to devaluation could not be effectively transferred to the works.

Santiago Levrioinstitutional director of Alianza Urbana, a body that brings together real estate developers, also states that the drop in construction prices is “only part of the picture” and a change of cycle

According to his view, “today the cost is at the average levels of the last 20 years with upward trend of the dollarWhy inflation beats devaluation. This is already structural,” he says.

In this context, the business margin for developers was strongly squeezed by the decline in urban property prices which, in his opinion, hit a floor. “Today it is cheaper to buy a used house than to start doing it. In that sense, there is still a lack of land value appreciation to compensate for that,” he says. And he estimates that the number of new ventures will decrease” because sales numbers versus costs are negative”he opined.

The latest data from the Construya Index, which tracks sales of construction inputs, showed, accumulated in the first quarter a drop of 8.1% compared to the same period of the previous year.

Source: Clarin

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