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.

As much as I could understand what I was reading, things seem to still be booming down here.

If local tourist traffic is any indication, that part of the local economy doesn’t seem to be suffering any either.

I spent January in the city like I pretty much every summer since I arrived.  I think I’m the only montevidean left in the city as the entire city empties and goes to their various summer retreats on the coastline.  For those not wealthy enough to own a plot of land or apartment or condo or  house along the coast, they simply rent from one of the few who is wealthy enough to own several

The model for the coastal landlord seems to be that they’d like to make the entire year’s expenses and profit on their investment back in the two months of January and February.  If they are lucky enough to get some sucker in there over Christmas or semana santa then it’s a total ‘home run’ year.

This weekend as January comes to a close it’s really weird.  It seems like all the people who opted to take January off aren’t back yet and the people who opted for February left early as the weekend bumps up against the beginning of the month.  Even the brasilians and argies who should be here on the way to the coast seem to be absent.

When I went into the office that is responsible for national identity cards, there were signs everywhere that they were short handed due to personnel shortages.  I imagine it was the unfortunate government employee who drew the short end of the straw and ended up in a beige government office in centro with no a/c, overhead fans spinning endlessly in an attempt to move around the heavy air, pregnant with 120% humidity.

The lines themselves, which as any line in Uruguay is paced by the distribution of the ubiquitous deli-counter (take a number and wait) method, seemed to be devoid of locals as well.  A few guys and gals that had the “stink” of the interior (or Uruguay) about them.  Some nuns and missionaries from peru or parts where ladies are expected to be 4′8” and of course the out of place expat or two, like myself, looking to secure residency or second passports in Uruguay.

Thankfully, the lines were relatively empty because even with the empty lines it took about 4 hours to go through the 8 lines that just got me to the point of setting an appointment, to be able to set an appointment to be able to start a process that would take a few more weeks.

I’ll be trying to get the rest of my residency issues together next week and the week thereafter, and I imagine by this time next week we’ll be back to ‘normal’ with the local joints filled with brazilians and the city completely devoid of uruguayans.

The first trip to El Pinar took place on an incredibly sunny day.  We went out way too close to midday and the sun was high overhead and the UV index had to have been out of this world.  A lot of the senior citizen set was out — you know the type — like the old gray haired, sun spotted, senior, tanning themselves with the aid of a silver reflective screen in order to intensify the color and size of their age spots and wrinkled, sagging sun damaged skin.  Sun spot removal is one of the staples of the large plastic surgery and dermatologist business in both Argentina and Brazil — not as much here.

I hid myself under a sun umbrella and copious amounts of sunblock.  My sunscreens were rated at 50 SPF, 60 SPF, and 80 SPF.  Sunscreens and tanning oils, etc are incredibly expensive in Uruguay for some reason, but I had to have it.  You see, apparently there is some ‘hole’ in the ozone layer here that makes the sun’s ultraviolet rays really, really, dangerous and the white skinned people of Uruguay have some of the highest incidences of skin cancer on the planet.

Since the outgoing president is an oncologist this has gotten a lot of play lately, with big public health campaigns to encourage the sun worshipping south americans to wear protective clothing, use sunblock and to stay out of the direct UV during the peak hours of the late morning to early afternoon.

To wit, just as we were leaving in sunburned shape for the shade and some rest, the beach started filling up with dozens of car loads of families and younger people arriving in time to enjoy the safer late-afternoon light.

A visitor I’m hosting in town wasn’t very impressed.

I think that a majority of the ‘beautiful people’ are probably in Punta del Este this time of year (the first half of January) as seemingly the entire country takes the month off to go sit on the beach, tan themselves in the sun, sleep in, and drink heavily and party until sunrise.

The central bank on Tuesday released the National Accounts Quarterly report for July-September. According to the data, the Gross Domestic Product (GDP) grew 2.5%.

The Uruguayan economy grew for the second consecutive quarter. The quarter on quarter growth is 2.5%, bringing the cumulative growth of GDP at 1.7% so far this year.

Uruguay’s year started poorly with a fall of 2.5% in the first quarter of 2009. However, Uruguay quickly recovered and helped to avert a recession, commonly defined as the fall of GDP for two consecutive quarters.

The third quarter growth exceeded forecasts last collected by the Commercial Bank of Uruguay and caused the economic team to revise upward the growth forecast for this year, which currently stands at 1.2%.

The economic team had already announced it would correct upwards the growth projections after knowing the figures for the third quarter.

Sectors

In seasonally adjusted terms (compared with same month of previous year), most sectors showed higher positive rates in the third quarter compared with the previous.

The growth sectors were: Agriculture (6.8%) and the Electricity, gas and water (96.3%).

The industry Electricity, gas and water presented a growth of 34.6% in the third quarter compared to the same quarter last year. This level of growth was mainly due to the production of electrical energy. This # was distorted due to drought which causes them to generate electricity differently.

The tourist season is already here. It begins on Tuesday at the beginning of December, although the elections and the flooding have stolen the headlines in recent days.

- How is the demand for rental properties in Punta del Este?

“From what we’re seeing, the demand for rentals is similar or better than last year.

- And rents?

“There’s more choice this year.  There are buildings with new units and new homes as well.

“They say from the outside that rents shot up 20% or more. Are you?

“We have not seen such an increase of 20% or more that you mention, we are closing operations at prices similar to last year.

- What affects the price drop in the dollar on vacation rental?

-The fall of the dollar affects the owners are more reluctant to lower prices because the dollars are worth less. Anyway, it’s still early as we are in peak season rents, supply and demand determine what happens to the rents.

- How is the market behaving in regards to Punta del Este real estate sales?

“The sales market remains active, and there is interest in properties, either as second homes or investment. The dollar’s decline makes them more reluctant owners when prices go down.

“Since the National Housing Agency we are marketing a set of existing homes, we are in a second phase. The houses are located in housing complexes, which in turn were financed by the Banco Hipotecario del Uruguay (BHU). We took over across the portfolio of debt and housing complexes, “said Mendive to El Espectador.

The agency policy is aimed at restructuring the debt and arrange housing complexes so they can pay common expenses. Another aim is to achieve legal and occupational adjustment.

The agency president said the plan includes 500 homes that are being marketed throughout the country. “We are investing to leave them in very good condition,” explained Mendive.

It estimated that each housing unit costs 25,000 and requires prior savings of 5% in order to access them.

Interested parties can register until 30 October. After that date, applications will be considered and will be one month after the draw.

Mendive 15 years explained that the balance due will be recalculated based on the value of housing. If the price rises, the balance is maintained and if the house costs less, the balance will be recalculated.

Applicants must have a minimum net income of 8,500 pesos and a maximum of 32,000. And they should not be property owners, can not be in the clering and should verify that they have half the required prior savings.

Stately Home in Nuevo Pocitos, Montevideo Uruguay

This is an old photo that I took of a home that was for rent YEARS ago.  Who knows, maybe it still is.  It was for rent for *months* and the owners didn’t seem all that excited to ‘make a deal’ when i contacted them to ask about it.

But first, some preliminaries…The year was 2007.  Rental rates for nicer places (priced in dollars) have since been hit with inflation, a rising real estate market, falling us dollar versus the peso, and a 15 percent landlord tax.  The result has been a 30-50% rise in asking rents for nicer places.

Nuevo pocitos is the equivalent of “pocitos adjacent”

Pocitos is one of the top two or three expat/urban neighborhoods in Montevideo.  It is filled with shops, restaurants, highrises and fronts onto Pocitos beach, a large crescent shaped beach that has most of the action along the water during the summer months (in the city)

Nuevo pocitos is a neighborhood between Pocitos and Buceo (a neighborhood to the east of pocitos).  There is less commercialization, and while relatively dense, there is actually room for homes and sunlight (and parking!)

This houses *asking* was 3800/mo — back in 2007.

With this asking price they seemed to be clearly targeting a diplomat family or other governmental arrangement.  It’s not laid out in a way that would be conducive to hosting a company and it’s so far outside the average salary of anyone who would want to live in nuevo pocitos it would be a bad fit for anyone else.

As you can see, while this is a nice house, the price is distinctly North american for my tastes and gives you an idea of what some of the more ‘proud’ Uruguayans want for their homes.  This home sat for MONTHS empty waiting for the right tenant.  Since they typically have no debt, zero to no insurance costs, and very low property taxes, the impetus to fill a vacant rental is quite low.

“The deposits now exceed by far the largest claims in the Uruguayan banking system, as reported by the BCU. What reasons attributed the restriction of bank credit?

“The requirements of banks to lend to their customers are much more demanding than those of non-bank financial institutions in regard to the income of applicants. The credit manager working with a market segment, comprising 75% of the workforce, or about 1.9 million people, with monthly incomes that are below 15,000 pesos liquids. As willingness to pay rests with the customer in the credit market, banking on this type seeks to provide customers with higher incomes. This policy causes the bank credit to Streamline consumption in the segments between A and C1 (high-class households, medium high and medium), although in some cases, applicants also supports C2 segment (N.del R. : Households who have to cover their needs for food, clothing, housing and only a few amenities). However, Uruguayan consumers with medium high and high emotions are not culturally into debt.

- What explains the behavior of the more affluent sectors of the population?

“His strong resistance to debt is attributed to the legacy left by successive economic crises, especially those generated by several massive devaluations suffered by the country in recent decades. These people prefer to defer the purchase of a new motor vehicle or repair a home to take a bank loan or finance the balance with your credit card. In late May 2009, all private banks in Uruguay on their balance sheets were added about $ 8 million of loans for the purchase of vehicles, which is a lower figure. Something similar happened with home loans and loans with credit cards. For example, the public with greater purchasing power using the “plastic” like almost half pay in cash because in 90% of cases is a credit lasts only until the expiration of the statement.

- Why is not attractive to consumers with good incomes to buy a home through a bank loan?

“We all know stories about debtors Banco Hipotecario del Uruguay (BHU) have paid several times the price of housing from the phase shift in the value of the Unit Reajustable in long-term debt. Those experiences, among other things, discourage the demand for loans to purchase homes. Therefore, all banks combined had paid only $ 165 million under the heading mortgages for the purchase of real estate on their balance sheets in late May of 2009, which represents roughly the value of ten towers built in Pocitos.

- Is not this relationship could be attributed to higher volume of deposits that credit conditions required by the BCU for banks to grant loans on the local market?

“That’s not an inconvenience for the consumer credit market to develop. The obstacle lies clearly in operating costs. A loan product is just beginning to be profitable for banks when the transaction has a minimum volume to which a person can not access or low-income. In Uruguay, banks can only point to a very small market of 500,000 individuals theoretically eligible, but even a proportion of that segment does not meet the conditions required to obtain consumer credit.

Strategies

- What these high operating costs due to severely limit the levels of banking in Uruguay?

“Surely human capital is one of the higher costs that have the banking business, but also affect other factors. For example, the rigidity of working hours of banks will not provide access to process a credit to the people who work in conditions of dependency. In contrast, non-bank financial institutions are very broad and schedules also fail to engage through its call center services a cordial link to any interested in obtaining credit at lower amount. While some banks also use this tool, the actual training of bank employees, generally aged over 40 years as cumbersome bank processing, it facilitates operation with lower middle income consumers.

- Can call centers make a difference in the supply of consumer credit?

“Yes. In the case of call center soon!, Whose plant has two hundred positions and where some 130 people working simultaneously, are processed between 500,000 and 600,000 monthly incoming and outgoing communications. The traffic is very intense, especially early morning and late evening when you can connect the potential customer. This is a very dynamic service is provided by people, usually students from twenty years old on average, those working in shifts of four to six hours, and whose profile is completely different to the banker.

- What otherwise treat non-banking credit institutions to differentiate themselves from banks?

“Any careful observer easily noticed differences in the presentation of local banking and the non-banking finance companies. While the banks maintain a formality in its style of architecture that can overwhelm a person of limited resources, financial offices meet all the basic standards of neatness and cleanliness, but have developed very ambitious in what is refers to the quality of equipment and decoration. This approach yields a rapprochement with the reality experienced by customers in the mainstream segments of the Uruguayan population.

Risks

-One and a half ago the then president of the Central Bank of Uruguay, EC Walter Cancela, cautioned against over-indebtedness of firms and households by greater aggressiveness of banking credit in their placements in the domestic market. However, the union leadership said the sheer AEBU risk lay in the financial institutions not controlled by the BCU. Do you think that warning is justified?

“There is a danger from that standpoint. When comparing the ratio of debt, excluding housing and automobiles, the GDP of Uruguay to the rest of Latin America, is easily seen that our country has much to grow in the credit market. The same is true when checked the share of private consumption versus the volume of purchases made with “plastic”. Yes I agree that lack of instruments to be more accurate at the time of analysis on this variable because there are no reports on a positive basis in Uruguay, as there are in many countries that provide insight into whether the applicant is or has open credit cards and what amounts financial institutions are exposed. This absence takes away important information when considering the possibility of granting a credit.

For that reason, companies reporting-as, for example, the Clearing-Reports are attempting to obtain official approval for all financial actors can provide them with details identifying the debt situation of individuals. To have that information, the risk of debt distress that Cancela said economist could be controlled more effectively. However, in that sense, there are still cultural barriers, operational and possibly related regulatory banking secrecy.

Growth

- How many management companies operating in non-bank credits the local market?

“In the formal market, they work a hundred firms contributing to the Fund Banking, which is mostly regulated by the Central Bank. This monitor only the companies involved in the financing of goods and services, such as issuers of credit cards and certain types of cooperatives. Where the financing of the loans in cash, the law requires that these managers do not necessarily need to be controlled. The BCU also oversees the activities of credit unions.

- What is the current status of non-bank credit market in Uruguay?

“The market is in a time of marked growth, especially after some fears that there were a retraction, which fortunately did not materialize, due to the outbreak of the international financial crisis. From July this year, it became clear a change in customer expectations, which returned to borrow the usual pace.

- What other reasons attributed the sustained growth of consumer loans granted by non-banks?

“In that sense, the most important factors are impacting on the public-in particular the lower middle income people and low-to borrow given the good prospects of maintaining the current level of real wages, which grew significantly in recent years and declining unemployment. The sector’s growth has been helped by the achievements of successive governments to formalize relations, from the creation of the mechanism of Labor History at the BPS, as the official receipt of salary is the main element that provides for non-banking financial company to establish the risk to which you are exposed to a loan. The financial lending market is an extremely competitive at the high number of companies operating in the local market, which benefits users to achieve better conditions in the products they consume.

Terms

- What are the characteristics of consumer credits granted by non-banks?

“In the case of Pronto!, The average amount of credit extended is about 8,500 pesos, with a period of fourteen months. The maximum amount awarded reaches $ 100,000, which may be payable in the best case, even in twenty-four shares.

- What age are placed in interest rates effective administrators who handle credit?

“Interest rates for personal loans from nonbank financial institutions generally fall in the threshold for the BCU, which today is at the heart of 70% annually. The levels are quite similar across companies. In contrast 90% of personal loans of the bank has the possibility of deductions from wages or debit the current accounts of the applicant, which, among other factors already identified, to enable the claim are larger amounts. The lower risk associated with this type of loan, and the highest capital involved in such loans, determine that the interest rate is considerably lower, reaching about 40% annually.
Amount not given formal banking sector more transparent

- What is the volume of consumer loans in Uruguay?

He estimated that the consumer credit market and nonbank bank moved about $ 1,510 million in 2008, according to a study by Deloitte. That figure was derived from the sum of the loans made by nonbank financial companies, both those covered by the BCU as unregulated voluntarily reporting data, which totaled $ 422 million, BROU which contributed U.S. $ 688 million credit cards $ 127 million, loans from private banks on automatic discount redeemable at salaries that were $ 207 million and other loans totaling about $ 66 million.

- Could you estimate how big a informalism credit laws?

“That data is extremely difficult to calculate because there is a wide range of informal loans. A sector is the commonly called “Cock Bank, whose trading volume is virtually invisible because they operate outside the regulated market. The other sector comprises retail commercial enterprises to finance their own credit sales. Usually we try to have some idea of the dimensions of the informal market so diffuse through the survey technique. Some results indicate that the amount of such loans could represent between 50% and 100% of the volume traded by the formal non-bank financial institutions, so it would total between $ 200 and $ 400 million.

- How does this informal operational development financial institutions regulated?

“The non-banking financial activity often is challenged by business practices drawbacks. But these operations are generally undesirable carried out by non-formal. Fortunately, the formal sector is becoming more mainstream and therefore more understood by the very government regulation, which previously threatened the profitability of companies with formal credit. This has allowed the public to demand consumer credit more transparent operating in environments with greater certainty as to their rights. Perhaps the growth that this sector has recently obey that customers have seen that can handle their debt in an orderly and safe manner through these companies. It is hoped that the seriousness exhibited by the formal banking financial sector leads to a greater number of users to transfer their debt progressively from the informal to formal.
Rate of default in repayment of personal loans is between 3.5% and 8%

- How do you decide the authority to grant a loan application to a new client?

“As the financial loans granted to one firm, the granting of a loan is based on a combination of risk models, called” credit scorings, which are related to behavior, the ability to pay and the reports required the applicant, plus the information that the person brings to the company at the time of application. The entire process is done automatically via intelligent rules that provides the company’s computer system and determines the granting or otherwise of credit and its conditions. Its duration does not exceed four minutes. If the application is approved, the system also sets the ceiling to the amount paid and the maximum term to which the customer can expect. Then the process of signing documents is completed in about fifteen minutes.

- How do you ensure the non-bank financial institution credits the payment of whose beneficiaries do not provide collateral?

“One of the myths of this activity is that the risk is at the time of granting credit. While the company has sufficient information based on established rules, the determining factor for the customer to pay or not is the relationship established the day after you received the loan. That requires designing strategies for customer contact and set up different actions depending on their consumption behavior or pay. For example, when customers are late in paying the fee, you are notified immediately and the call was reiterated many times as necessary based on the promises you make.

- How many people does soon!?

“Soon! manages a portfolio of $ 65 million and employs four people. When comparing the volume of assets with the banking institutions, our business would seem inefficient because most banks operating in the local market is several billion dollars in their portfolios that are managed by a roughly similar number of employees, depending on each bank. What happens is that the type of transactions in non-banking financial market requires very intensive in all strategies to approach the customer, which is reflected in the very high cost level for this business given all the human capital involved in the operation.

- What are the recovery rates of consumer credits granted by non-bank financial institutions?

-The rate of failure to repay loans on the personal credit managers is in the range from 3.5% to 8%. In the case of Pronto!, The percentage of uncollected loans is currently 5.5%, a figure very similar to that registered in the banking institutions in the consumer loan segment. The difference is that transactions in non-bank credit market are much more risky because any major problem that may arise in the labor market or wage levels have a much stronger impact among people with lower incomes.
Factsheet

Martin Guerra, Uruguayan, 45, is general manager of Pronto! since its inception in 1997. He founded this personal loans manager along with his previous venture partners, BGV Servicios Financieros SA, which was director and founding partner with 20 years of age.

He has developed his career as an entrepreneur and manager of various non-banking financial companies, such as changing Cologne, among others.

translated from an editorial in el pais by jorge rebella