Sunday, June 22, 2008

Uruguay Real Estate

Uruguay Real Estate

It's been said before, but I'll say it again -- Uruguay will probably not see the kind of declines being seen in the US -- at least not right away.

The reason?

Mortgage Debt in Uruguay

While not unheard of, it's pretty rare. Only very recently have banks started to dip their toes back in the water. And, most famously, it is the bank 'Banco de la Republica Oriental de Uruguay' (BROU) that has the explicit (i believe) backing of the central bank of Uruguay that has begun offering loans in particular situations.

However, these are not the kind of high-risk loans that we saw in other parts of the world in the first part of this decade. They don't have to. There is little to no competition. The LTV, or loan to value, scores are pretty conservative and they are being made primarily to people who have nearly guaranteed lifetime employment through government and quasi-governmental agencies here. Could these peoples' employment and income prospects change? Of course. But one has to rate the risk as "low" compared with the turbulent employment markets up least for now :)

Price of Homes in Uruguay

All that said, buying a house in the city of Montevideo or nicer parts of Punta del Este is still much much too expensive for the average Uruguayan to afford -- even on dual incomes. That is a problem. Because either the price of homes must be supported by an outside source -- foreign incomes, governement money, multi-nationals, expats, and foreign government money -- or they must revert to an affordable level as well.

Buying a House in Uruguay

Because of this divergence in where the "average" Uruguay Real Estate buyer derives his income or wealth, it's pretty difficult to talk about "one market" in Uruguay -- even in a country this small with only 3.5 million inhabitants.

The Interior

The Interior of Uruguay is anyplace away from the coastline. The drivers are much less reliant on expat, foreign influx, multinational buyers and domestic government and much more reliant on farming.

The price of homes in the interior will probably be driven primarily by the availability of borrorwed money and the price of Uruguayan beef (and other ranching and farming exports) and availability of open and available markets for what it is the interior produces. Since lots of Uruguayan campos feed their cattle primarily grass, they've been spared some of the incredible inflation in feed costs. However, all of the other inputs are apparently skyrocketing and Uruguay still has to ship its cattle a long ways to reach the North American, European, or Asian markets.

Montevideo Real Estate

As I said earlier, montevideo real estate is out of reach of the "average" Uruguayan's income level. However, many of the inhabitants of Montevideo live comfortably OVER the average income of the typical Uruguayan. In addition, a much larger percentage of the higher paid governament and large multinational employees work, earn, spend, invest and live in the Uruguayan capitol.

Punta del Este Real Estate

Punta del Este Real Estate -- I have to admit to being no expert on Punta del Este. However, here is my general take. It's become a very large beach resort community. Very few (actually) off season inhabitants live in punta del este year around relative to the size of it's January visitors.

That said, a large large number of visitors there have vacation homes either in the form of apartments, or entire houses. Many of the residences owned by your "typical" Uruguayan are also investment properties for at least part of the holiday (summer) season. Rates for "nice" rentals are in extremely high demand, not just from Uruguayans, but also many Brasilians, and Argentinians come from southern Brasil and Buenos Aires to enjoy Uruguay's beaches, casinos, nonstop night life, and relative safety. Rental rates for the two busiest months of high season can nearly cover the entire cost of maintaining the property for the year....Which is good because after summer ends, demand and asking prices nosedive and vacancies soar.

At this point Punta del Este is in the process of reaching critical mass, where a good portion of its visitors are from somewhere else in the summer. Financial problems impacting European's willingness to take winter vacations, or international tensions with brasil or argentina effecting travel across the Uruguayan border can slow Punta del Este's momentum, but probably only slightly for now.

Uruguay Real Estate Agents

As an expat, or foreigner looking at Uruguay real estate most experienced players will tell you that it is "caveat emptor". Real Estate agents have no formal licensing process and so honesty and disclosure and moral compasses will run the gamut among the agents you are likely to run across.

The transaction costs will run you in the neighborhood of 10%, and the fact that there is no real "MLS", (multiple listing service), and no central repository of closing prices available to the public (that I'm aware of) it can make price discovery a bit challenging.

Unfortunately, if you are newbie here, you are going to have to work with *someone* so pick your poison. It's probably wise though to follow the advice of people that have gone before you and "never trust anything your realtor says". That is not to say that they are intentionally lying to you, but when it gets into more complicated matters like easements and land use restrictions it may be that they just don't know.

For instance I've noticed some lovely stately homes in the neighborhood I live in bordered by 10 story apartment buildings. And, when I say, 'bordered", I mean sharing a wall. How would you like to move in right before that two years of constructions, not to mention sayin "good bye' to the sun. Zoning, for one thing, is a lot more liberal here....just one thing that you're probably not contemplating when you find your new home.

Uruguay Guy

1 comment:

Anonymous said...

I think there may be one little known factor being overlooked here.
Many Uruguayos (est. 40%)owe debt from being sued by someone who worked for them. The gov can put a levy on your home and when you sell it, you must pay the debt. People sue for General Purposes here because they always ( that's ALWAYS) win and they may get some money down the road. Maybe this accounts for some of the more outrageous asking prices of homes.
Something to consider.