Forecasting what will happen to the value of the properties in the short and medium term, requires entering a truly steep terrain.
by Mariano García Malbrán*
The volatility of macroeconomic variables, the deficient rental law and the lack of specific promotion policies for the sector, inevitably results in the increase in the stock of properties for sale and the consequent collapse in the value of m2.
During the past year alone, property prices fell 6.4% and the number of units re-evaluated downwards is getting bigger. According to data from Real Estate Report, the fall in publication prices has already reached 34% since 2019.
During the last half of 2021, one in three apartments that went on sale, were reappraisaled in their publication price, on average 8.1% in U$D, with the sole purpose of finding the market value and achieving the sale of the good. According to data released by Zonaprop, the properties that best resisted depreciation were apartments sold as well units that only decreased by 3.9% in the year.
If we try to make an analysis as objective as possible, based on data, it would seem that there are no good expectations for 2022, with an economy that in macroeconomic terms is stagnant with pre-pandemic indices and inflation that shows no signs of slowing down. Access to housing for the middle class is practically nil, due to the lack of affordable mortgage loans and a high dollar, therefore, the number of transactions inevitably decreases. Let's not forget that it is a market that moves fundamentally by macroeconomic variables and expectations indicate that volatility will continue to be a common currency, which implies a direct blow to the sector.
There are not too many certainties regarding the fate of macroeconomic variables, the demand for real estate is at truly low levels, with an increasing stock for sale. If we look at the year 2018 when the end of mortgage loans occurs, from that moment the prices of the properties began to fall between 35% and 40% in dollars.
Now, it's not all uncertainty, inflation and volatility. As industry players we prefer to be optimistic, beyond the unfavorable context referenced.
We see the opportunity in the crisis, the situation is discouraging for owners who have a property for sale and warn that if they want to sell they must accept the current market price, but it brings an unbeatable opportunity for those who have savings and seek to invest them immediately in a property, since we believe that we are in the floor values of the properties.
It is true that the stagnation of the activity reflected during 2020, with the subsequent sincerity of real estate prices due to the devaluation, could also generate, as a collateral effect, that those who had saved a saving finally are encouraged to move or make the investment that they had been postponing. As a result of the collapse of 20% of the value of the square meter during 2021, many owners chose to resign price and sell their unit, rather than give it a rental destination or keep it waiting for an improvement in conditions or a rebound of the market.
But beware, the owner who sells and with what is produced makes a new real estate investment (builds, buys in a well or new) or buys a movable property anchored to the official dollar, will be doing a better business than if he had done it before the pandemic.
The real estate market for four years is sincere prices, for a simple reason, properties that are out of market price, are NOT sold. It happens many times that, due to the dispersion between the publication values and the real market values, the owners do not know if they are selling cheap or not, so it will be essential to have real estate appraisals that have the detailed market studies of each segment and according to their location. Due to this large gap, operations have been closed with decreases in values of 25% average with respect to the publication price.
In practice there are two markets, one outside the actual selling price and one adjusted to the market price. Of course, this last competitive segmentation is where the greatest concentration of operations occurs. Little by little owners and investors are realizing that the historical values with which the properties were quoted will not be able to recover, at least in the immediate and immediate term, then they decide to enter the real market and the properties in that market are sold in the short term, and the owners are more permeable to listen to their real estate broker and establish real values, competitive and market. Only properties that are adjusted to what buyers today are willing to pay are sold, therefore, today only owners determined to sell their property sell their property.
Values will continue to accommodate slowly and progressively, while slowing their fall. The cycle of retraction of the real estate market could have reached the lowest point after three years of fall in the value of the square meter. We see a 2022 of rearrangements, with a number of operations that has not increased considerably and even in some months was lower than 2021, but we are sure that it will improve from the month of August of this year.
On the other hand, from Real Estate Report it was also reported that the percentage of reappraisal of properties is falling, currently at 27%. While we are not close to an explosive recovery, it could be glimpsed based on this that the rebound and the slow but progressive rise, would be imminent.
The outlook, although it does not look encouraging, the lack of investment options can mobilize the construction and with it the supply of units in well, which as we said before are the ones that best resist the cyclical onslaughts of the macro. Faced with a context of high inflation and exchange rate restrictions, construction will remain a refuge of value. Although we are witnessing a certain slowdown in the construction industry in the hands of the public sector on the occasion of a non-electoral year, the impulse of the activity will be in the hands of private construction.
One of the many reasons that precipitated the fall in real estate prices was the expectation of default and the possibility of an economic explosion. As that did not happen, there is a better market outlook, although uncertainties persist at the political and macroeconomic level. According to this, a rebound effect of the industry may occur in the short term, not based on the improvement of market conditions, but by a situation of absolute sale need or force majeure. It is too much waiting time because of the sustained price retraction in the last 3 years, there are many buying and selling decisions contained.
Currently we find some exchange rate stability that seduces those who were waiting for prices to fall more or for their dollars to have more value to understand that it is time to apply them to real estate purchase operations.
Finally, the treatment of a new rule that replaces the current rental law and proposes improvements to the existing regime, could generate that property owners remove their units from the sales stock and allocate them again to rent in search of a good monthly profitability without getting rid of the property. That would decrease the high supply that pushes prices down and also help the rental market increase supply and lower rental costs.
We reiterate that we prefer to be optimistic, there are signs to see the light at the end of the tunnel. A precept that will not go out of fashion, despite any crisis, will be that buying real estate since it is and has always been the best defense or safeguard of purchasing value, investing in bricks will always be a viable option to face the economic vicissitudes and the lack of investment opportunities.
* Mariano García Malbrán, President of CAMESI (Chamber of Real Estate Services Companies), President of Keymex Argentina, hammer and public broker.