Inflation is already a habitual fact of the economic scenario. But it is a phenomenon with several layers, whose most superficial part is the most notorious change in prices, reflected in the consumer price index (CPI) published each month by the INDEC. Although this indicator has shown in recent months an indomitable passion for speed that is dangerously close to the three-digit annual threshold (100%), it is not the only distortion that has spilled over the rest of the economy.
time element. Of all the sectors involved, few like real estate have to deal with inflation for various reasons. The first is that the maturation times of an investment are not measured in months but in years, with the difficulties of making an approximate calculation, in addition to any undertaking. In addition to having spent the last three-quarters of a century with 7 out of 8 years with double-digit annual inflation (a world record, surpassing Lebanon, Israel, Zimbabwe and Venezuela, which have or had even higher rates, but of shorter duration in the time).
This persistent rise in prices and even the unpredictability (the line looks more like a saw than a curve with the same inclination) had as a direct consequence two characteristics that have marked the sector in recent decades: dollarization and volatility..
The first has to do with the search for a mechanism to defend the capital of savers, especially after the first inflationary blow (the “rodrigazo”, in 1975) and deepened by years of rising and hyperinflationary prices in the 1980s. The “brick” became a refuge of value and as the national currency disappeared from that role, it was supplanted by the dollar for sales transactions and even for commercial rentals. The dollarization of the real estate stock, far from giving a counterweight to the increasingly accentuated and frequent cycles of the Argentine economy, exaggerated them. That is why, especially since the 2019 devaluation, the big cities have been filled with rusting for sale signs. “Today there are no buyers, due to mental, economic, financial and future depression and that is why only 2,400 sales transactions were made in bundles in the City of Buenos Aires”Explain Armando Pepedirector of Federal Council of Real Estate Colleges and one of the operators in the sector with the most flight hours. In particular, Pepe points out that the other factor that was vulnerable was the difficulty of dealing with a system that prohibited indexation until 2020 (a legacy of convertibility), so the contracting parties began to look for formulas to agree on rent updates in staggered manner and that was not always related to wage increases. Law No. 27,551, promoted by the then deputy Daniel Lipovitzky (Pro-Buenos Aires) proposed a minimum lease term of three years and an annual adjustment with a combined index (salaries and CPI). With inflation running above 50% per year, this intervention detonated the market: supply was reduced, prices for renovations increased and, finally, investment in the sector was affected. Pepe maintains that about 92% of what was built in CABA in the last decade were apartments with one and two rooms., they just oriented their activity towards other more profitable segments. “The fundamental problem here is inflation. Democracy could not win that battle, except for the decade of convertibility. We want to be like Germany, but there they have the annual inflation that there is in 15 days here, ”she says.
SOS credit. The other factor that accentuated the ups and downs was credit, or rather its non-existence. In March of this year, only 112 purchase deeds were made by bank mortgage loan in the City of Buenos Aires, when four years earlier that figure was 19 times higher (2,219).
for the economist Federico Gonzalez Roucoauthor of the book “Owners or Tenants”, inflation is also behind the financial bottleneck that the sector faces, a planetary rarity: in all countries with high or medium development, a savings and investment market was created to finance long-term loans, which is usual in this type of property. In his opinion, inflation puts a higher floor on the renewal of rental contracts; In addition, it rises more than wages and it is more difficult to pay rent, which ends up putting a ceiling on the profitability of the “business” for the investor. “In addition, with these inflation rates, the only way is with an update system like the UVA system, which turned out to be a good mechanism for there to be credit, but a political decision is required to institutionalize it.”, he adds.
The other determining factor is the volatility of the cost of construction in dollars, a savings vehicle while there is no credit, which slows down the cycle. When it is devalued and there is distrust, it becomes cheaper to build and more expensive when there is optimism with a low dollar.
Finally, it highlights that, in addition, what ends up affecting the “market ecosystem” are the economic perspectives, which lead banks to be able to fund themselves to lend.
“Not everything can depend on a tax incentive, you have to be more creative. Because if there is something that distinguishes construction, it is that there will always be a demand for housing, so it should work alone in a normal context”, he concludes.
Safe. Despite the difficulties or thanks to them, the identity of the real estate market and its driving force, construction, has been forged over the years. For Sebastian Menescaldi, chief economist of the consultancy EcoGo, taking into account the stocks and the safe-haven characteristic, inflation ends up having less of an effect because the activity continues to be sustained mainly by the lack of other assets that have these characteristics. “The lower risk manages to sustain the level of activity, particularly for the industrial segments (they do not know where to put the profits) and those with greater purchasing power. But as against, credit is reduced and demand is lower, negatively affecting real estate prices”, analyzes.
It is another of the consequences of the vertigo in prices with little predictability. Menescaldi points out that since inflation reduces demand and its growth potential, it ends up putting a ceiling on activity, since any undertaking with a certain margin of risk does not find entrepreneurs who dare to carry it out due to lack of financing and high uncertainty. in the context of a volatile economy. “That is why successful business models are all aimed at classes with higher purchasing power that do not need credit, and there are no developments for the lower-income population,” he underlines.
Thus, the vicious inflationary circle, almost always started to finance a fiscal red whose effectiveness is unlikely to be verified, ends up slowing down a sector that used to be an urban locomotive, a key factor in low-skilled employment in the cities, a channel for the savings of middle classes and urban promoter. The good news is that it is not paralyzed and is only waiting for rationality to win a game in the battle for growth.
