Construction Costs Rising in Uruguay and Argentina

Alfredo Sainz from THE NATION

After a year with no change in prices for new homes in Buenos Aires, experts are predicting prices rises in 2010.

Real estate professionals and developers are predicting further increases in the values of the apartments and houses, caused general inflation and increases in the costs of construction.

According to projections made by entrepreneurs, fully finished price per square meter property costs should be about 10% higher this year as compared to 2009 prices. There is also a suspicion that the higher construction costs will lead to general inflation in the cost of older finished properties as well.

“What we’re envisioning is a scenario of an increase in construction costs of around 10 or 15 percent, which inevitably will have an effect on the price per square meter of new construction,” said Eduardo Gutierrez, President Farallon developer group who is developing projects in Pilar and in Uruguay.

“At the end of 2009, we noticed a change in the market and an upturn in demand, which are making the prospects for 2010 look very good. Under the new scenario, we projected that, without a further decline in the dollar, there may be a further adjustment in prices, around 10 percent, especially among new build properties, “said Nestor Walenta, president of the Cámara Inmobiliaria Argentina.

According to numbers from the National Institute of Statistics and Census (INDEC), in 2009 construction costs rose 10.8 percent, caused primarily by increases in material costs.

In most cases, this rise could not be passed on to the retail consumer, and therefore squeezing the margins of developers while at the same time sales slumped with sales declining 21.8% in Buenos Aires y/o/y.

This year, managers expect further price inflation of materials and are worried about labor costs following the general trend upward in prices.

The soybean effect

The market also includes the potential role of soy in the revival of property sales by brand in Rosario and in some districts of the Federal Capital, which are the most sought after by employers in the field.

“When the farmer is doing well, one of its first investment options are the buildings, because in general they are very conservative investors.

Similarly, we must not forget that these funds will only be used to buy in well established areas. So in general they would have a positive impact in Recoleta or Puerto Madero, but hardly sit on newer options as Parque Patricio, “said Jose Rozados, director of consultancy Reporte Inmobiliario.

“With summer on the coast, so good, all buying decisions moved to March, which is still difficult to anticipate what will happen in 2010. What is clear is that it will be difficult to maintain prices in the face of further increases to construction costs.

However, any slump in demand will also make it very difficult to raise prices to offset the increased costs of construction.
explained the Director of Property Report.