BA apartments - how are prices kept so high?

[Sham Bo]

Here I make my grovelling apology for starting a new thread. I did a search but didn't find anything that was specific to this matter, so if I have accidentally resposted something, don't kill my dog, please!

I saw an interesting report somewhere claiming that the Argentine gov't and the banks were and are conspiring to keep real estate prices artificially high.

Now, I'm no genius when it comes to this, but real estate is supposed to reflect a certain multiple of monthly rents, historically 100 to 120.

Elsewhere BundaLover said that a 2 or 3 bed apartment can be had for US$500 of BA. More for the really desirable areas, I suppose, but you could probably get one for less.

Assuming that's true, how come so many places, in boring or downright dangerous areas of BA, like the southern barrios, are asking for such high multiples? Like US$90,000 for a 2 bed walk-up in Boca that I looked at last year (just for ha-has, I asked him if he´d accept and offer of 80K and the guy refused).

As Argentine (real, not official) inflation is still rising much faster than income, surely prices should be falling, not rising. Is the market being tampered with?

How can BA apartment landlords manage to keep solvent when the monthly return is so low compared to what they paid for it? Or am I misinformed?

[Argento]

How can BA apartment landlords manage to keep solvent when the monthly return is so low compared to what they paid for it? Or am I misinformed?There is a couple of steps in logic that the Argentinos cannot make. First they have an abiding resentment toward the USA and to USA citizens. If that is accepted (and take it from my 20 odd years experience that it is generally true) it is also true that they cannot accept the reality that their economy, for all intentive purposes is a U$ defined economy. Very few of them are sophisticated investors and only see wealth in 2 forms. Cash in U$ dollars and real estate. If they could overcome their anti USA sentiment, they would have the options of all the USA investment choices. Since they can't or won't make that leap, they would rather hoard their dough in cash or buy a property that over the long haul will not return anything on the current capital worth or even worse, be a negative return. Hence their dilemma. I posted a related post regarding the lack of maintainance on rental properties a year or so back which is directly related to these negative returns.

Since a lot of the more successful business people here have hundreds and some thousands of rental properties, when the economy is good, they sweat their tenants so badly they eventually go broke or leave. But that's when the landlords make money. Rarely trade and even rarer maintain them. Just accumulate. I have one aquaintance whose monthly taxes and charges are in excess of U$100,000. I don't know how many properties he has but it is a shitload. Not buying at the moment though. Other investments? Nil! They look at the return on cost price not current capital worth. And they have powerful businesses supplying the cashflow without being taxed on the primary income, a situation not possible in the 1st world economies. And they buy when the economy and prices of property collapse. The great advantage of a corrupt and black economy to those who have the means.

Not sophisticated but works very well for them.

Argento

[Daddy Rulz]

A lot of the owners don't pay their taxes, sometimes for years and years. In order to transfer title to the property those taxes have to be brought up to date. In true Argentine fashion, they didn't pay them and expect the buyer to do so.

[Sham Bo]

Muchas gracias, Argento! Very informative, if depressing.


Since a lot of the more successful business people here have hundreds and some thousands of rental properties, when the economy is good, they sweat their tenants so badly they eventually go broke or leave. But that's when the landlords make money. Rarely trade and even rarer maintain them. Just accumulate. I have one aquaintance whose monthly taxes and charges are in excess of U$100,000. I don't know how many properties he has but it is a shitload. Not buying at the moment though. Other investments? Nil! They look at the return on cost price not current capital worth.

***And they have powerful businesses supplying the cashflow without being taxed on the primary income, a situation not possible in the 1st world economies. ***

And they buy when the economy and prices of property collapse. The great advantage of a corrupt and black economy to those who have the means.Who are these powerful businesses you refer to? I don't need names, but some clues would be nice! Are we talking about legit operations or mafia style ops?

[Argento]

Muchas gracias, Argento! Very informative, if depressing.

Who are these powerful businesses you refer to? I don't need names, but some clues would be nice! Are we talking about legit operations or mafia style ops?My aquaintaince is an antique dealer, building on a base set up by his father and funded, post Second World War, which is when they arrived from central Europe, by a clothing manufacturing business. The others have very simple businesses that tick over in ordinary times and boom when it is a hot economy. One makes shoes, another has a few pizza parlours.

The secret is of course the black economy a thick skin, and a disregard for normal western business ethics. And no enforcible law. Money talks very, very loudly here. And as Warren Buffet has proved, the power of compound returns with few outgoings is a very powerful tool.

Argento