Last Tuesday, August 21, 2007, the "Segunda Conferencia de Real Estate" (Second Real Estate Conference) took place in the Conference room of the "Circulo Italiano" (Italian Circle). It was organized by the directors of the "Club Europeo" (European Club) and backed by the division of the Corporate Finance of Deloitte Argentina.
"Analysis of the conjuncture and perspectives. Financing of Real Estate projects" was the name of the gathering that uncovered a more than interesting debate about the larger real estate investments and their counter face, the lack of living quarters for the middle class. The invited speakers were Miguel Pesce, Vicepresident of the Banco Central, Roberto Ledo, Director of Bullrich S.A., Eduardo De Bonis, Partner in charge of Corporate Finance of Deloitte, and Issel Kiperszmid, President of Dypsa International.
Doctor Roberty Ledo was in charge of the first exposition, and illustrated the conjuncture of the argentine real estate market and offered a few experiences that he has had during his time leading Bullrich as examples.
The specialist focused the analysis on the situation in Argentina, and emphasized the recuperation of volumes of investments after the "internal saving, the liberation of capital after the devaluation [of the argentine peso in 2001] and the arrival of foreign investors that saw that Argentina offered relatively low prices compared to their countries of origin." This way neighborhoods like " Palermo Hollywood and Soho, and Puerto Madero" were able to witness a unheard of transformation, while "the square metres have reached values that have managed to triple the value previous of the crisis."
On the other hand, the crisis produced a very great office vacancy, but that has today changed to the point that "there are no more vacancies." The demand of workplaces has allowed for important office building projects to surge, and the Barracas neighborhood has turned out at a great advantage with the recycling of its old buildings and factories, and Bullrich has started construction on "300.000 square metres."
At the same time, even though these days "the market seems more calm," to Ledo there are still places that continue in expansion for the same "location, location, location."
As long as "400 hectares of water mirror are sold for six dollars per square metre," Argentina will not stop being "a great opportunity, with a more sane system than many other countries."
None the less, the expert was critical when he declared that what really should be done is "to allow the access to credit to certain sectors of the population to get their own home," and change the actual scenery, where "there are no politics in this sense and the relationship quota does not allow the possibility."
Even more optimistic was the evaluation of the Vice president of the Banco Central, in charge of bringing the audience closer to the macro economical situation and its impact on the real estate market.
With the chaos that includes The United States of America, we would today be living the consequences of the process that started to take place in the beginning of the year 2006, when this northern country decided to change their policies concerning international context raising their interest rates. This measure lowered the rise of the mortgage rates, and affected the entire real estate market.
Nevertheless, Miguel Pesce believed that Argentina was outside the reach of this chaos, since it has different interest rates, with few credit operations and a population that has a different relation to loans than the people of the USA, "where they consider it an element of internal leverage."
Our country seems more to belong to the other extreme, in the middle of "an extraordinary growth context, with high prices of the products that we export" and some "correct decisions" taken from the minister of economy after 2001. A climate that responds to different factors: "the high level of international reserves the stability of the currency, the acceptable situation of public debt after the exchange, the solidity of the financial system, and the fact that Argentina finds itself in its fifth year of continued growth."
In this case, the internal motors of the surge would be the "fiscal surplus" and the "reduction of the unemployment rate, that in the crisis reached 26 %, and that maybe this week will have only one digit."
The construction has also played an important role, "that after three years of recession, and a fall of 53 %, was one of the sectors best recovered that managed to be 24 % above the height in the 90:s." This year, the growth levels have stayed even, although "it's not the same level as before."
On an external level, the phenomenon of substituting the fossil fuels for bio combustibles would have been favorable, together with the sustained growth of the countries with large populations like China and India.
In the middle of such a hopeful atmosphere, the only stumbling block to overcome is "guaranteeing a level of minimum savings in the family" and reducing "the breech between the average income of the population and the quota level." A problem that would force those still integrated to work "11 years with an average salary" to be able to access a used apartment.
As something new, from the Banco Central they have started to work on the possible integrated exists, to propose "the encouragement of the development of the hypothecating market changing regulations, minimal exigencies on capital when granting a loan with guarantee and allowing mechanisms of evaluation of income not directly related to the justification of income," and inviting without luck the state to share "a public policy with support for loans."
But beyond these failed attempts, the key is "to diversify solutions for the middle- and lower-class," and starting to value the first layer as a fundamental leverage.
Issel Kiperszmid, the President of Dypsa International, livened the exposition with his very different tone, naming himself as "crisologist by profession."
First of all, the economist advised looking at the national market as an oscillating path of abnormalities, where "each crisis should be considered an endogenous factor." From here that, before thinking about the product to develop, you should always "study the risk and necessity of the population."
Unlike the other colleagues of the panel, Kiperszmid went beyond animating himself to unravel the threats and declarations that would be showing some basic Real Estate indicators.
For example, the Indicador Sintético de la Actividad de la Construcción (ISAC) (Synthetic indicator of the Activity of the Construction), would be realizing the rise of the lands for the expectations of the developers. The costs would surpass the promised rates, and adding on the tax burden, would exceed the gain of the final product, causing that the "developer would make less money."
In addition, the maintained rise of the real estate values would produce a "great sensitivity" to lower or raise, strongly conditioned by the weak dollar.
None the less, it would result in a very positive participation of the foreign capitalists that would keep betting on investments when they find solid projects, even if they are for living quarters or rented properties. Because of this, the lawyer encouraged the audience: "with very little you can do," you should only "take a active policy to sell to the exterior," think serious short term solutions to help the demand of the middle sectors and take measures in regards to the maintained rise of the real estate activity.
It is about turning over the scale, "finding a margin of public-private dialogue" that struggles to give the middle-class, that today has to work 140 months to buy their property, the opportunity to access, even by a salary adjustment, "his living quarters, in the locality and way that seems to them most beneficiary."
Lastly, Eduardy De Bonis, academic and partner of Deloitte and Touch, interrupted who cleared some myths of the real estate sector and offered alternatives to finding financing.
First of all, he advised every developer to know well the risks that they would run, to be in the condition to execute alternative mitigation and reach successful results.
The first step would be to know the promoters and partners, indicating their history and financial solidness. Determine the financial structure, the participants, the investment to be realized, and the time that it is going to take to complete each stage. Then, study the constructions weaknesses, like "deflections of terms, legal solidity of the company contractor and contracts."
Third, analyze the commercial aspect, where it is necessary to realize a good "equation of timing and price" and investigate the operator of the deal. Define "the number of pre contracts, commercial informs and see to where the capital is going and to where the debt."
But beyond the existing weaknesses, the premise that needs to be fulfilled is "that there is always better to do part of something than to not do it." Because of this, one should take some time to "look for the partners, audit the construction companies and show solidity." Be very careful and work with investigations and information "to give a proposal with quality and try to anticipate solutions before commercial risk."
With respect to the financial path, he believes that "there are difficulties of long term and inconvenient anchorage to secure mortgages" threatened by the future of the North American currency.
Nevertheless, "it is not sure that in the market there are no bank credits for real estate projects," even though he recognized that it is quite limited. "It is little but there is something," and before usual "little bankable plans" you can obtain the approval through the detailed route of the indicated steps.
And it is the fact that "the institutional investors don't invest in projects of the real economy" is also relative, because they would have presented themselves as "eager actors like the AFJP" very interested in developing products focused on the area.
Thus, even though there are certain elements of growth that still lack innumerable strengths of the moment, because "the great step that is needed to go to the larger market has not been taken, there are few antecedents and a high tendency of failed projects."
And a good start for De Boins would be rethinking the use of a tax that "conditions the entire structure and prevents numerous projects," the famous burden of the transfer of properties.