Inflation remains another key risk, as the government's official figures continue to underreport the true rate. Recent announcements by the government that they were improving relations with the IMF may help anchor investor confidence going forward. Argentina's infrastructure is well-developed by comparison with other Latin American nations.
The country has more than 200,000km of roads, around 30% of which are paved, and there is an extensive public transportation system, including subways and busses.
Buenos Aires boasts an extensive commuter rail system, but most smaller cities and towns in Argentina have limited transportation resources, as transport infrastructure, construction and maintenance have been transferred to the private sector, and as such, the modernisation of infrastructure has been concentrated in the most populous and profitable areas.
Transport infrastructure is improving, though, and included in the government's recent infrastructural projects are plans for the construction of an international highway and an investment of about US$600mn for the construction of road projects.
There have been a number of positive developments in Argentina in recent months. The loss of the presidential couple's congressional majority, and the improved prospects for a smooth transition to a new, more moderate administration over the medium term, have been major positives (urging us to take a bullish stance on the Argentine five-year CDS in late June).
Recent suggestions that Argentina is seeking to restore relations with the IMF have also helped improve investor sentiment towards the country. However, we believe that the strength of the global equity market rally has been the main driver, and the Merval remains highly dependent on global sentiment.
Clearly, the fate of Argentina’s real estate market is, to some extent, at the mercy of the country’s difficult economic position, particularly with respect to reduced private investment spending.
The real estate market, however, stands to gain from new sources of funding entering the economy, such as the stimulus measures and the characteristic ‘bounce’ that they deliver if well targeted. So far, it is fair to say, the real estate market has fared surprisingly well. A recent report by global property consultancy giant Knight Frank notes that the average vacancy rate in Buenos Aires is below 2% in certain parts of the city, a figure on a par with Santiago, and well below vacancy rates for Mexico City and Sao Paulo.
Over the coming months, the key issues to watch will likely be the coming online of a significant amount of new space, which will have the effect of driving up vacancy rates. This will be observed across all of Latin America, not just Argentina. Knight Frank predicts that this will lift vacancy rates across Latin America to about 15% over the next two years from the 2008 figure of 6%. Second, the efficacy of government stimulus measures will be watched eagerly over coming months.
As the year progresses it should become clearer just how the real estate market has been affected by the measures. The third issue to watch is whether the broader economic conditions cause developers to delay projects, as is currently expected.
