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World's worst currency shattering home buyers' dreams in Argentina
HOMES in Argentina are priced in US dollars, even though buyers can only take out mortgages in pesos, the world's worst-performing currency against the greenback - and this is only where the pain begins.
Argentina's once thriving housing market, an example of its pro-business turnaround under President Mauricio Macri, has fallen victim to both the peso's 50 per cent plunge this year and soaring interest rates, which exposed a convoluted property-buying process.
Decades of economic booms and busts have given rise to a housing market priced in dollars, which means financing a purchase in pesos is now out of reach for many.
Nation-wide, the value of mortgages sold was down 75 per cent to 3.36 billion pesos (S$170.6 million) in September compared to April, central bank data shows.
In the capital Buenos Aires, the number of homes bought with a mortgage dropped to 639 in August from a peak of 2,200 in April, according to a city organisation that tracks data.
The city's real estate slowdown has become broad-based. Total homes sales - with or without a mortgage - had dropped 42 per cent in August from a peak last December.
Marcia Williamson, a real estate agent at Gateway to South America in the city, said: "The phone just stopped ringing." She now gets 10 calls a week at best, down from 60. "When Argentina gets into uncertain times, people don't sell or buy."
The country's mortgage market collapse is among the consequences of a currency crisis spurred by policy missteps, a drought and growing deficits that spooked investors, eventually prompting the government to commit to austerity in a deal with the International Monetary Fund.
For Argentines like Sergio Traetta, this all came as he was looking to buy his first home. The 34-year old salesman at a construction firm was set on moving out of his rental apartment in a working-class suburb south of Buenos Aires.
He and his wife Laurena looked for homes priced between US$80,000 and US$100,000 which would need to be paid in US dollars. With a joint annual income of 1,080,000 pesos (US$29,230), they had no choice but to get into a mortgage denominated in the country's rapidly weakening currency.
After Mr Macri took office in 2015, he slashed regulations to create a generation of first-time home-owners.
Meanwhile, to protect banks from runaway inflation, the government allows them to adjust monthly payments on floating-rate mortgages. On top of the adjusted amount each month, there is also interest.
Individuals like Mr Traetta have sought fixed-rate mortgages to avoid inflation-adjusted payments. Even then, the best rate he was offered was 19 per cent for the entire 20-year mortgage, an amount he said was prohibitively high.
"You end up paying four or five times the value of the property," he said. The dollar-denominated real estate market "is a cultural problem. After so many crises, we know the peso is going to go down."
But taking out mortgages in dollars is off limits for the vast majority of Argentines. The central bank largely outlawed that practice in 2002, after the country defaulted. Only citizens who earn dollars may take out dollar loans.
Mr Macri is trying to shield home buyers from the pain. His administration recently implemented caps on monthly mortgage payments, and the government is trying to make it easier for buyers waiting on the sidelines to rent in the meantime.
For Maria Castiglioni, an economist at consultancy C&T Asesores in Buenos Aires, there is still no light at the end of the tunnel. The housing market's recovery depends on whether the macroeconomic situation stabilises, she said. "The economic uncertainty right now makes a lot of people not want to take on this debt." BLOOMBERG