Uruguay Housing Bubble Analysis

HTML clipboardContinued from the housing bubble in Uruguay article and is a continuation of our Uruguay housing bubble analysis

Laura, who attended the “draw” and had no luck, says that there is no government support beyond these unique opportunities. She is a 48 years old single mother of a 9 year old boy, and her income is not sufficient to access credit from BHU. Half of her salary goes towards rent and that prevents her from saving. In fact, she had to borrow 40,000 pesos to enter the drawing. “The middle class, especially mothers who are heads of households, do not get any help. We are going to die,” she said disconsolately. Twenty-eight year old Alexander, thinks the same. His salary and that of his partner is not enough to apply for a loan from BHU. He is fortunate to have the money from an inheritance and plans to buy a home with these resources. “Between my partner and I we earn 27,000 pesos a month. The two still live with their families. If we had to pay rent, I would have to allocate 30% of my salary to that,” he explains. “It is very difficult. If you want to buy, you have to deal with owners who put on sale and then back out at signing, and market conditions that make prices go up and down without much consistency,” he adds. The real estate sector in the second half of 2009 is undergoing a period of “instability” and not expecting a lot of sales. That’s what Alejandro Buysan says, of the real estate agency that bears his name. The variables, he says, are based on the falling dollar and national elections. “The decline in the dollar rattled builders and homeowners who were selling properties to the point that they adjusted their prices upwards to offset the fall in the dollar and the rise in construction costs as expressed in pesos. It is logical to adjust month by month because the costs of construction increase and that is adding to the problems of pricing properties in dollars with a falling dollar,” said the realtor. The elections, in turn, enhanced the market slow down. “People want to wait to see what happens, but it’s meaningless because no matter who wins the country will go forward”. One change that some are already feeling in the market comes straight from the nearby shore. Ananikian Wilder, an estate agent, believes that Argentine buyers may very well change the balance. “What we are noticing is an influx of buyers from Argentina who are taking their money and buying here. They know that the legal framework protects them and that properties tend to maintain their value and appreciate.” OWNERS AND DREAMERS. According to the Household Survey, 2008 (prepared by the INE), 52.1% of Montevideo are homeowners. In 2006 the National Household Survey concluded that this figure reached 58% and that, nationwide, the Uruguayans with home ownership amounted to 61.5% of the population. According to this latest study, the owners made up 70% of households in the highest quintile and only 46% of the lowest quintile. 75% acquired their home through their own resources, inheritances or gifts. Of the 18% who applied for a loan, the vast majority did so for the BHU. Economist Carlos Casacuberta is the author of the report. He says that housing for young households comes only with time, and increased income. The Household Survey of 2008 seems to still agree with him. Analyzing the profile of the owners in Montevideo, the study shows that people who own their homes and land are on average 59 years old (editor’s note: holy crap…59 years old AVERAGE!?!), while those who are owners of the apartment average 47 years old. In both cases, people living with partners, have nearly 10 years of education, are mostly active and are between 8 and 14 years of seniority. El Mirador Housing of ANV compares the level of purchases and sales of condominiums by neighborhood, between the first half of 2008 and 2009 and concludes that there was on average 3.8% growth in price per square meter this year. The area that the greatest increase was Capurro, Bella Vista at 65%. Carrasco followed East Arm in the vicinity of a32% increase. The centro neighborhood, associated with home ownership by young, grew by just 11%. At the other extreme, Punta Carretas and Palermo remained the same, Larrañaga decreased by 5% and the “commercial” was the most back, with a 25% decrease. As reported by several real estate agencies, properties in the range of 50,000 to $100,000 are in the highest demand. “Uruguay has three main pillars for housing choice: green, water and safety,” said Villamide. Although difficult, some believe a house is worth it. “It’s for life,” muses Viviana, 24, who, together with her partner decided to be entered in a call to the BHU. The perspective is long term, and she knows it, but if they kept paying rent, they would be losing “a lot of money,” she argued. In fact, according to INE data over 50% of Uruguayan households are living in the same house for at least 12 years. According to experts in the housing market, the average Uruguayan buys a house no more than twice in a lifetime. In the program that Viviana entered into the bank finances 85% of the home that the couple chooses. They estimate that, if they purchase a house of between 45,000 and $55,000, they will pay about 6,000 pesos per month. They will own the home outright in 25 years. (editor’s note: mortgages are so rare that they are explaining the basic mechanics of it for the average Uruguayan reader). She is one of the 571 people who benefited from the return of BHU to the mortgage market. According to the agency, the average age of borrowers is 40, and they borrow and average of $40,000 with mortgages of 20 years. In addition the bank is betting on further support from their savers. Currently a loan covers between 70 and 80% of home value, depending on whether the person is a public or private professional or not. With the new index-linked accounts (and not adjustable units historically used as a bank), the financing rate may increase up to 90% of home value. Index linked accounts avoid currency risk. Only a month ago, according to official figures, 530 paid for loan applications. For now, these high loan to values are only available at BHU. Private banking finances up to 70% of the house. The instruments may change with the Letters of Credit Mortgage, approved by law in this period, and Mortgage Insurance. Mortgage insurance is being developed by ANV and will be regulated and implemented by the next government. Moreover, since late 2008 there is the Capital Works Subsidy, a subsidy in which those with less capacity to save — like young people are given assistance. Mortgage Notes are securities that banks may issue, allowing them to have long term resources. The Mortgage Insurance subsidizes the risk taken by private banks allowing them to increase financing for up to 90% of the dwelling. The additional risk are to be covered by the insurance in case of default. “If you have a step which is the rental market with a good selection and reasonable prices, and a good supply of mortgage credit, a ladder to reach the shelter will be much easier for young people,” said Villamide. Despite all the possibilities of credit offered by the BHU and private banks, which are worrying about a mini housing bubble in uruguay, the credit has only allowed 15.2% of Uruguayans to buy a home. Many who are living in the houses of friends or family do not even have a plan to get their own house or apartment. It seems too far away to even wish for. The bubble burst For the U.S. citizen get a loan to buy your house, was normal — so was getting a second a mortgage on that house, then another, then another — until the housing bubble burst and the country was buried in a crisis comparable to 1929. The first symptom of a housing bubble in Uruguay forming is in the prices of uruguay real estate. When rising significantly above the increase of prices in general, there are problems in sight. But for the development of a bubble, the country should have a considerable extension of mortgage credit. Spain, for example, had reached an expansion of credit equivalent of its GDP. In Uruguay this situation, except in the 1970s, has not existed. Home ownership and coops According to the National Household Survey, just 1.9% of Uruguayans agreed to homeownership through the cooperative system. In Montevideo, moreover, the proportion is higher than inland rural and urban combined: 2.8% versus 1.3% of urban interior and 0.3% of the rural interior. Among the best known are cooperative and MEVIR FUCVAM. In both cases the cooperatives contribute money through fees and then participate in building their future homes. Also turn Fecovi, which gathers under the cooperative system prior savings. Currently, the National Statistics Institute is conducting a national census of cooperatives as the latest statistics are from 20 years ago. 61.5% – owned in Uruguay in 2006 according to INE. The figure was 52.1% in Montevideo in 2008. 59 -years have on average homeowners and land, 47 of which have only housing. 2,000 -purchases and sales were implemented in December 2008 in Montevideo, a record according to the ANV. 146 -million pesos per month provided the financial system for housing the first half of 2009. The most dynamic sector In the middle of the first impacts of the global financial crisis in Uruguay, there was a sector that stood out for its high levels of activity: construction — or so says the latest report from the National Housing Agency, called the Viewpoint Housing. Construction was the only sector that recorded growth in the first half of this year (0.8% approximately). According to the report, housing is showing a “very significant recovery in recent years” and attributes “largely due to the execution of great works of private investment.” Just be warned that growth occurs on activity levels “very modest” during the 2002 economic crisis.