ARTICLE PUBLISHED BY THE NEWSPAPER “EL OBSERVADOR” ON TUESDAY AUGUST 30^TH, 2013

In recent years, the rise in property prices in dollars scared many and created expectations in others. However, during the last eight years, while the price in dollars soared, the Montevideans significantly increased their housing affordability, as wages offset this rise.

According to a study conducted by the Investments Department of the Real Estate Developer Sures – to which El Observador had access to – while a property’s average value measured in dollars more than doubled in the last eight years (124%), it reduced 42% if we take into consideration how many months of income are required by a Montevidean to purchase a home.

While in 2004, the average household required the equivalent to 66.9 months of income to be able to purchase a home, in 2012 was enough with 39.1 months, which implies an increase in the purchasing power of Uruguayans in the real estate market of 71%.

“In Uruguay, they currency used for most real estate transactions is the American dollar. However, the price formation in dollars is closely linked to the replacement cost, which is in Uruguayan pesos,” said the report.

This means that although the prices rose to a an average annual rate of 10.6% measured in foreign currency, when measured in constant pesos – excluding the effect of inflation – the rise was of just 0.25% per year based on the average of the last eight years.

“The increase in wages has allowed many people to have access to the housing market, keeping costs that have been able to be absorbed by the market,” which gives the market a major demand injection. At the same time, this demand was boosted by the entry of Argentines into the Montevidean market, drawn by a 6% annual return in dollars for the rental of a property and an additional 11% for the appreciation of the asset. “Although is not the same demand as a few years ago, especially since the lock down of foreign currency in Argentina, it is also true that it’s still current and converging towards a sustained demand of 20,000 sales per year,” says the report.

What will happen to prices?

Experts at Sures Real Estate evaluated the supply and demand conditions of the sector of the property market destined to housing in the coastal strip of Montevideo. This study, entitled “Real Estate Market, Data and Projections,” concluded that this is a segment that, contrary to what some market operators say, is far from stagnation and whose prices will continue to rise, albeit slower than in recent years.

According to the report, the area to the East of Boulevard Artigas and South of Avenida Italia shows no signs of saturation on the supply side, on the contrary, it shows the right conditions for a further price increase.

A survey carried out by Sures shows that the stock of property released between 2010 and 2013 still available is of 20%, while amongst the projects being built these amounts to 40%. According to it, these numbers “are within a natural and healthy sales cycle,” so “there isn’t an oversupply of property,” on the contrary, “the stock is relatively low with regards to the speed of sale of the projects.”

In this sense, the Act for Promotion of Social Housing has an important role to play. Since the authorities encouraged the development of housing projects in the middle segment, a number of investors moved from the coastal area to the North of Avenida Italia.

This reduces the number of projects under construction in the high-end segment. “The projects commenced today will enjoy an interesting demand since there isn’t going to be a huge offer of brand new projects in the next two to three years,” argues Sures Real Estate. “We believe this is a good time to buy, since rental levels are good and the prices will continue to rise, although these will probably be more moderate,” they said.

Source: El Observador