Considering the uncertain outlook for buy-to-let property investments in the UK, it's no wonder that investors with a taste for bricks-and-mortar are looking to farther flung places. These could potentially yield much higher returns, the flipside of which is much higher risk.
Argentina can best be described as an emerging market with a capital 'E'. The peculiarities of its property market present a compelling – if risky – proposition for would-be investors.
Argentina, the world's eighth largest country, is becoming an increasingly popular tourist destination due to its stunning scenery, which boasts everything from beaches to mountainous ski resorts and picturesque wine regions.
In 2005, the National Institute of Statistics and Census reported that tourism from abroad grew by 12 per cent, making that industry Argentina's third-largest source of income. Last year, more than 3.7m people visited the country – for the first time, the number of foreign visitors to Argentina exceeded the number of Argentinians travelling overseas.
While foreign tourist numbers are increasing impressively, the market is well supported from within. According to Ben Mason of London-based property investment company Someplace Else, it is locals who are driving the property market.
"Argentina is an increasingly wealthy country and local people are buying second homes for use at the weekend, or as holiday homes," he says. He claims that prices are rising at 15-20 per cent a year in some areas.
A huge variety of property is potentially available. Around one-third of Argentina's 41m citizens live in or around the capital Buenos Aires, and a thriving buy-to-let market has developed as workers seek long-term rentals close to their offices. The minimum rental period in Argentina is two years.
Many areas of Argentina are experiencing an increase in short-term rentals for foreigners, who are exempt from this rule. Four-bedroom houses in Patagonia and the wine-producing regions typically cost between £177,000 and £200,000. However, the absence of mortgage finance presents a major difficulty, both for locals and foreigners.
Financing
Following the financial crisis of 2000-01, when the Argentinian peso lost 75 per cent of its value virtually overnight, many locals still have a deep distrust of banks. They prefer to invest their savings in tangible assets such as land and buildings, a factor that has contributed to the boom in new developments across the country.
Most locals buy property in cash. Considering that prices of a one-bed apartment in Buenos Aires start at £33,000, this is within the reach of wealthier Argentinians. Mortgages are slowly becoming available, albeit at interest rates north of 12 per cent. However, these are rarely on offer to foreigners. Securing finance in the UK to purchase an Argentinian property is likely to be extremely difficult, so the only option is to follow the locals and pay 100 per cent cash in advance.
For many investors, this would not represent a suitable use of their equity, and also raises the level of risk when it comes to selling the property. On the other hand, given the paralysing effect the credit crunch has had in the western world, a property market that can function without recourse to debt is something of a rarity.
Argentina's stunning scenery is attracting more and more tourists
Landing a property deal
For this reason, many investment companies are satisfying people's desire to own property with the comparatively easier and cheaper ambition of purchasing a plot of land.
"Argentina was previously seen as extremely risky, but there is no lending here anyway, so the credit crunch hasn't had an effect on the local market. And the market is not being driven by speculative investment," says Mr Mason.
Someplace Else is marketing 120 plots of land surrounding the established Dos Lunas boutique hotel, which it purchased last year along with 5,500 acres of surrounding land. Situated in the picturesque region of Estancia Catalina, the hills, rivers and lakes make the area popular with horseriders, anglers and trekkers, who are also drawn by the hotel's spa facilities and two nearby golf courses.
Land is available at the seemingly knock-down price of $15 per square metre (sq m), meaning that a 5,000 sq m plot will set you back £75,000. However, Someplace Else has pre-arranged financing on half the amount, repayable interest-free over 10 years. So, investors can get exposure to the Argentinian land market for the relatively modest sum of £37,500.
The logic to this is that investors will be able to sell on the plots to locals who want to design and build their own houses in a few years' time. However, investors should be aware that they are taking on planning risk. The hotel and its facilities are operational, but it is expected to be 12 months before planning permission is granted for the residential plots.
Assuming permission is granted, investors can hope to sell out to local purchasers at a premium price, currently estimated at £120,000. This would make a very attractive return on your original investment of £37,500. Of course, the projections are the work of Someplace Else and prospective foreign buyers should do number crunching of their own to make sure things stack up for them.
Investors could take a further gamble that in two years' time development finance will be available to non-Argentines. This would enable them to design and build a villa of up to 500 sq m on the plot, which could be sold on, or leased as a holiday let, or retained as a second home. At the time of writing, it is not possible to estimate the construction costs of such an enterprise.
A further fact to consider is that Someplace Else will undertake all remarketing and selling of properties, as opposed to a sale on the open market. Mr Mason is confident that if Argentinian interest rates fall over the next few years, the property market will benefit.
"One of our most successful investment destinations in the past has been Latvia, where interest rates dropped from 15 per cent to 4 per cent in the space of a few years," he says.
"Local affordability drastically increased, as did demand for property, culminating in Latvia having the highest capital growth in Europe in 2006. If financing becomes more readily available in Argentina, demand and prices for property should soar."
Again, the rewards come with substantial risks, which include negotiating the complicated Argentinian property laws. Assuming a holiday-let model is sought, rental income is subject to local income tax of 21 per cent. The property has to be registered by means of a completion document called an escritura, meaning that buyers from the UK will have to pay annual and quarterly taxes to the Argentine authorities for the property to remain in good standing.
Argentina's Casa Contra Tapa
Cost of living
For those looking to spend time relaxing in their property, the attractions don’t stop at the scenery and wine tasting. Argentina is one of the cheapest places to live in the world, with the Mercer Cost of Living Index ranking Buenos Aires 142 out of 144 cities worldwide in terms of expense. Although inflation is at 11 per cent, a litre of petrol at current exchange rates costs a Briton just 53p, a bottle of beer a mere 46p, and a loaf of bread just 9p.
While a good value-for-money offering awaits visitors to Argentina, getting there is not always easy. Despite Argentina's growing popularity as a tourist destination, there are no budget flights. It is possible to fly direct from London to Buenos Aires on one of four weekly flights, but other routes usually require a stopover.
Argentina offers a lot of scope for adventurous investors with high appetites for risk. But more conservative types may wish to limit their involvement in the country to enjoying its excellent steak and Malbec wine.
