Following the January 2002 devaluation, Argentine real estate experienced a continued depreciation in U.S. dollar terms, which reached its low point in June-July 2002. At that point, residential properties had dropped by up to 50% in terms of closing values compared with December 2001 figures.
Today, the market has clearly bottomed out. We are currently experiencing closings approximately 15% to 30% down from December 2001 figures in the residential sector and the gap is steadily closing. We are still, though, far away from 1997 highs. Opportunities are seen in prime downtown apartments, which are ideally suited for short-term rentals to incoming tourists.
Tourism is flourishing in Argentina as a result of the 70% devaluation, which has made visiting Argentina very affordable. In addition, Argentines are no longer vacationing abroad because of increased costs in peso terms. This has led them to flock to classic locations in the country such as Bariloche, Villa la Angostura, and San Martin de los Andes in the Patagonia region. There is an increasing demand for full-time and seasonal housing to accommodate both of the noted markets and eastern beach locations.
The farming sector experienced somewhat lesser volatility with a 30% drop in values immediately following the January 2002 devaluation. However, favorable legislation for debtors allowing the pesification of U.S. dollar debts, accompanied by bumper crops and high international commodity prices, allowed owners to settle their financial woes and withdraw their properties from the market. Naturally, the latter lowered supply and led values to increase back to December 2001 figures and often higher. Given lower production costs and high commodity prices in U.S. dollar terms, farmland offers excellent investment opportunities. Returns are equally interesting in either production or simply renting out farms to larger producers.
Commercial properties led a direction similar to residential real estate values but somewhat less aggressive. Although current closing values are between 20% and 30% lower than in December 2001, there has not been as much sales activity as compared to the residential sector. Pricing is firm, probably the result of space being held by relatively fewer and powerful owners unwilling to let go of their properties at lower values. Naturally, this is not a rule, as we have found there are many commercial properties priced reflecting current lower rental values which are at approximately 40%, in dollar terms, of 2001 levels. Demand for office space is currently focused on high-end units.
Vacancy rates are down dramatically to 7.61% from 24.96% in 2003. Pricing is up from 2002 lows settling at an average $1 per square foot per month, for top areas such as Catalinas, Puerto Madero, Plaza San Martin, and Plaza Roma, all located within the downtown core.