17 May 2007

Not a place to drop dead

This just out — though not news for anyone who has looked for a place to dwell: rents are sky-high! According to a survey by an independent organization led by Rosario councilmember Nire Roldán, renting an apartment or a house is on average 35% more expensive than last year. If you have to renew a 2-year contract you signed in 2005, you should expect paying 87% more. And if what you're looking for is a commercial spot, you can expect to pay 3 times what you paid in 2006.

As I said, this is not news. That's partly why I'm paying for my own apartment. I'll have to wait at least a year and a half to move out, but the installments I'll have to pay will be much below any rent. In fact, the monthly cost of renting a 1-bedroom apartment like the one I'm buying, in a comparable location (20–25 minutes from downtown), would be enough for me to buy a fancier, 3-bedroom apartment in the city center's busiest area.

Back in March, this same organization conducted a study that showed that 7 out of 10 businesses in the downtown area which were renting a shop space said they wouldn't be able to renew their contracts. A premium space in a commercial corner in Rosario (for example, the intersection of the pedestrian-only Córdoba St. and San Martín St.) can be worth more 12,000 pesos a month. If this goes on, some say, by mid-year the commercial downtown will begin to look empty.

7 comments:

  1. Hey Pablo - Great blog! This might seem like a ridiculous question, but you say that 7 out of 10 downtown businesses say they won't be able to pay the increased rent rates and this will lead to an empty downtown. Well, if businesses start moving out and no one moves in, won't this mean that rents will have to readjust?

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  2. It's a perfectly logical question, but remember logic is void in Argentina. Are you familiar with the expression "real estate bubble"? Well, this is one huge bubble. Construction firms are actually building apartments that will never be sold as they are.

    Yes, rents will readjust... when the next economic crisis hits and the owners of those places need money fast.

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  3. I have also noticed that for some reason people here tend to hold out much longer for that higher rent. Or at least it´s my impression. It never made too much sense to me. Maybe they just think that at least they are not loosing anything but I am sure they have to keep in mind the opportunity cost. Anyway just rambling...I see it a lot in my neighborhood which is a very trendy area in Buenos Aires.

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  4. the 1000m2 ground floor of my old apartment building next to congreso in BA has stood empty for about 8 years. Talking to the caretaker of the building, the owner apparently wanted us$25,000 a month rent during the 1-1. After the crisis he was asking for 35,000 pesos. 8 years without rent is an enormous sum of money to have lost. Yet the owner is still holding out for that 35,00 peso rent cheque. A quick calculation shows he's lost...a blinking fortune in rent and also expensas. The owner apparently turns up now and again in his bmw and doesn't seem to worry too much...

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  5. My impression of the rental situation in BsAs is the same as described by Frank and Matt: landlords holding out for higher prices and letting units remain vacant - at least in my neighborhood in Palermo (Las Cañitas).

    I was over in Frank’s neighborhood today, and there is construction everywhere. It’s just like the area around my own apartment.

    Five years ago when I walked around the area, there had been essentially no new residential construction for several decades. Now there are new apartment buildings on most streets, with many having been completed recently, or will be soon.

    There are also a couple of towers (of 24 and 26 stories) within five blocks of my apartment that are being rushed to completion. If you think Rosario prices are high, the asking prices in one of these towers is in nose bleed territory:

    Floor 8 (no view), 176 square meters (covered), US$482,900.
    Floor 17 (with a view, hopefully of the Campo de Polo) US$586,700.
    And that doesn’t including parking, which is an extra US$17,500!

    You can check it out here (an interesting site that has threads discussing new high rise constructions around the world):

    http://www.skyscrapercity.com/showthread.php?t=396573

    I just can’t image who’s going to buy all these new apartments. If people are buying them for investment purposes I think they’re going to be disappointed, because nobody will be able to afford the rents that will be demanded.

    Even my small, dark, one bedroom apartment that I used to rent in La Imprenta (in a building of cheap construction probably from the 1950’s), went from a rent of AR$340 in 2003 to AR$900 at the beginning of 2006. It’s apparently vacant. Of course many of the realtors in my neighborhood haven’t bothered to change the properties listed in their windows for several years now, so everything seems to be so cheap!

    John

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  6. I've heard so many times the expression "there is always an idiot willing to pay".
    If you don't really need the money you can wait for such a candidate.

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  7. Mike19:44

    The worldwide housing/ asset bubble will blow up. It is already happening in some markets. Following is a link to the best blog about this. It is monitored and often gets 700+ intelligent posts a day. Asset prices have greatly outstripped incomes. An old investor rule was that property on an annual lease should rent for 1-1.2% of sales price. This seems to have been replaced by new valuation schemes. The blog:
    http://thehousingbubbleblog.com/

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