The real estate market in Uruguay is facing a big uphill struggle as the southern hemisphere summer season approaches, on top of the economy's general deterioration and the Uruguay Central Bank's decision to try to combat inflation by increasing the reference interest rate to 9%.
According to iprofesional.com, the amount of real estate transactions in Punta del Este, one of South America's major beach destinations, fell 30% in 2012 compared to the previous year, reflecting what one commentator has described as potentially the worst market scenario "in a decade." Aside from the dramatic drop in deals, it was also noted that, due to worries about potential demand, investments in new ventures have dropped 25% year over year. The drop in Argentine demand is expected to have an impact on Montevideo, Uruguay's largest real estate market. qatar sale
Rather than a dramatic drop in domestic interest, the main explanation for the drop in transaction volume has been a substantial drop in demand from buyers from Argentina, which is collectively one of the most powerful forces in the Uruguay real estate market. The Argentine government's strict currency controls, the general economic condition in Argentina, and a tax information sharing arrangement between Argentina and Uruguay have all contributed to this decline.
Aside from real estate sales, another major concern is the prospect of a sharp drop in Argentine purchases in Uruguay during the lucrative tourist season. To overcome this, the Uruguayan government has implemented a variety of policies, including a 22.5 percent exemption from the Value Added Tax and a 10.5 percent refund on real estate rentals. However, for a variety of reasons, it is expected that these interventions will have little effect on Argentine spending, and that local hospitality establishments will be forced to drastically reduce their rates in order to keep hotels full.
Faced with this scenario, the Uruguayan Chamber of Tourism and Hotel Industry has proposed that hotel operators reduce their rates by at least 15%. This measure has been proposed to offset the Argentine government's recent announcement of a 15% charge on credit card transactions made abroad by Argentines, in addition to increasing demand. Another proposal being considered by Uruguay hoteliers is accepting Argentine pesos as payment.
The economic downturn in Brazil, a key Uruguayan trading partner and investor, would most likely have a negative impact on the real estate market in Uruguay. Inflation is putting upward pressure on construction costs in Uruguay.
Despite the drop in demand, Punta del Este real estate prices remain extremely high. The current value of real estate is approximately US $4,080 per square meter, according to data collected by Reporte Inmobiliario, reflecting a yearly increase of over 15%.