In Argentina, real estate agents have one key piece of advice for potential home buyers: bring money, big bags.
Pro free market president Javier Milei is trying to fix the South American country’s economy after years of crisis and high inflation. Part of the solution is encouraging banks to revive the moribund local mortgage market.
But buyers and real estate agents say it won’t be easy. Argentina’s mortgage market is small, less than 1% of the country’s GDP versus about 30% in Chile, 10-15% in Brazil and Mexico, and 15% in the US. Regular cycles of economic uncertainty mean that borrowers – and lenders – fear risk. . long term credit.
“People who buy property in Argentina come with cash, in backpacks or bags,” said Juan Verzero, owner of Buenos Aires brokerage Succeso Propiedades.
Juan Verzero, owner of Buenos Aires brokerage Succeso Propiedades sits in his office in Buenos Aires, Argentina on July 12, 2024. | Photo credit: Reuters
Usually, he said, sellers and buyers gather in a location such as a store or office to sign a contract, exchange keys, and hand over cash, usually in dollars to ease fears of inflation and devaluation — counting live.
“Now and in recent years everything we’ve sold has been done without a mortgage,” he said. “People come with cash and leave with cash.”
Paying this way locks most people out of the market. “Only those with very high incomes, around the top 9% to 10%, can afford to buy a house. The rest must rent,” said Cynthia Goytia, director of the Center for Urban and Housing Research at Torcuato Di Tella University.
In an effort to achieve the middle class dream of home ownership, there have been new mortgage launches this year. Local banks Banco Nacion and Banco Galicia filed billions of dollars in mortgage loans, adding interest of 4.5%-8% above the official index linked to inflation.
Fabian Kon, General Manager of Banco Galicia, said Reuters The bank has received tens of thousands of initial questions, but said in the end most chose not to take the financial risk.
“The problem is inflation, not mortgages. If you have 200% inflation, people will be scared,” he said.
Cash appears at the Buenos Aires broker Succeso Propiedades in Buenos Aires, Argentina on July 12, 2024. | Photo credit: Reuters
“(The market) can recover. Does it depend? That really there will be no inflation in Argentina for many years, so that we will not have an explosive situation where the debtors are afraid of what can happen to people- that person.”
In May, only 141 homes were sold with a mortgage in the capital Buenos Aires, up from 134 the previous year, the college of notaries said in a report. In the first five months of the year it was 509, down from 515 in the same period in 2023.
A Reuters journalists went to almost a dozen real estate companies in June and July. No one is saying they have helped local buyers get a home with a new loan this year.
‘I don’t trust banks’
Argentina’s economic record doesn’t help. The country has registered nine sovereign debt defaults, the latest in 2020, which is largely cut off from foreign capital markets. In 2001, the government refused to bail out banks after the world’s record-breaking loan defaults, leaving many to watch the value of their savings evaporate as the peso depreciated and spark violent protests.
In addition, inflation is among the highest in the world. Although it has cooled down in recent months, in June it was still 4.6%, more than 270% year-on-year.
Strangely, perhaps, many Argentines prefer to keep their money in safes or stuffed under their beds.
“I don’t trust banks,” said Feli Fernandez, 31, a fintech sector worker who wants to buy a house but sees a mortgage as too risky. Even though she was a child, she remembers the 2001 protests.
“I remember that day clearly… My brother tried to explain why people were burning on the street,” he said.
Limited access to credit has forced people to be creative.
Sandra Kattan, a 61-year-old teacher, managed to get on the property ladder with a credit card and a few dollars in savings.
Sandra Kattan, a 61-year-old teacher who managed to get on the property ladder with a credit card and a few dollar savings shares her property plan during an interview in Buenos Aires, Argentina on June 28, 2024. | Photo credit: Reuters
With her husband, she bought land in Moreno, a neighborhood of Buenos Aires, paying about $30,000 in dollar savings, increasing the money by selling cars and trucks. In 2017, he used a credit card to pay for materials to start building and paid workers with Kattan’s teaching salary.
“The existing mortgage is too expensive for us, it’s unaffordable,” he said. “We’re a bit afraid of bank debt… We’re afraid of inflation.”
The Argentine government cited the return of mortgage products as a signal of support for Milei’s pro-market reforms. They want to deregulate the economy, reduce state intervention and reduce public spending to reduce inflation.
“We went from being headed for almost certain hyperinflation to having mortgage loans,” Economy Minister Luis Caputo said in a speech in June.
Despite admitting they are starting from a low base, the banks are cautiously optimistic.
Manuel Herrera, general manager of Banco Hipotecario, said in June the bank had received more than 60,000 inquiries since launching its mortgage product on April 20.
“We have nine loans in the process. That’s a lot,” he said. “So far no mortgage debt at all.”
