Reuters: US Dollar Report: Dollar crackdown deadlocks Argentine housing market

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Dollar crackdown deadlocks Argentine housing market Jun 8th 2012, 15:59 Fri Jun 8, 2012 11:59am EDT * Curbs on dollar-buying wreak havoc for real estate deals * Argentines normally pay for homes in U.S. currency * Gridlock threatens to hurt key construction industry By Magdalena Morales BUENOS AIRES, June 8 (Reuters) - A government crackdown on dollar purchases has brought Argentina's housing market to a standstill and threatens to slow the construction industry that has fueled economic growth in recent years, property brokers say. Argentines, who normally pay for new homes with stacks of dollar bills, have been struggling to get their hands on the U.S. currency since President Cristina Fernandez imposed stringent controls on dollar-buying late last year. Her battle to slow capital flight and fatten the central bank reserves that she needs to pay the public debt has prompted even tighter controls in recent weeks and it has become almost impossible to buy dollars at the official rate. "The currency restrictions are totally paralyzing the sector, not just the property sector but private construction too," said Nestor Walenten of the Argentine Real Estate Chamber. Savers and homebuyers scarred by a deep economic crisis a decade ago and hyperinflation in the late 1980s see the U.S. currency as a safer bet than the peso currency for longer-term financial planning. Especially at times of heightened political uncertainty, many buy dollars as a perceived safe haven, some stashing them under the mattress or in safety deposit boxes. Home prices vary widely in Argentina according to the area, but in the capital they range from about $100,000 for a small apartment in a middle-class neighborhood to more than $1 million for a luxurious property in the most up-market locations. A small suitcase is often used to carry the greenbacks, when people can get their hands on them, and Argentines sometimes hire bodyguards when they go to close home-buying deals. HEFTY DISCOUNTS Real estate agents fear that the number of deals being completed could fall to levels not seen since the 2001/02 crisis when acute uncertainty battered the property market. In the capital Buenos Aires, a bellwether for the health of the housing market elsewhere in Latin America's No. 3 economy, the number of property deals sealed fell 30 percent year-on-year to 5,600 in May. In April, the number of contracts exchanged sank 22 percent. Property brokers think the slump will become much deeper in the coming months because many of the deals being completed now were started before the AFIP tax agency intensified restrictions on dollar purchases in mid-May. "This is bringing the construction industry to a halt and that has a direct impact on the rest of the economy," said Fernando Navajas, an economist at the Latin American Economic Investigations think-tank. Construction represents about 15 percent of Argentina's gross domestic product (GDP) and has been an engine of a long economic boom that has started to slow this year. Building activity is already contracting - falling 5.9 percent in April from March, according to the latest official statistics. Fernandez's administration estimates this year's growth at 5.1 percent compared with last year's 8.9 percent expansion, though independent analysts say government data is overly rosy. Nora Scherma, a broker at the Buenos Aires-based Latitud NS estate agent, said the market for new homes was "totally paralyzed" because buyers with dollars were seeking hefty discounts from developers unable to recover their investment. Most Argentines buy homes with savings and the mortgage market is undeveloped due to annual inflation estimated privately at about 25 percent that means high interest rates. The annual rate on a 20-year home loan exceeds 20 percent. The deadlock is persuading a few sellers to accept pesos for their properties. But they are demanding the black-market rate, which implies a much higher price for greenbacks. The spread between the official rate and the black market prices has widened to about 25 percent. A few weeks ago, the premium reached 38 percent as savers went to increasingly desperate lengths to dodge the tax agency controls. "I had a deal closed three days ago (but) the buyer can't get the dollars and doesn't want to pay the rate in the black market because he thinks it's excessive," said Horacio Benitez from real estate firm Inmobicred. "The buyer offered somewhere between the official and parallel rates, but the sellers would rather wait. There's a real paralysis in operations." Link this Share this Digg this Email Reprints

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