House prices continue to rise in Montevideo; but demand is weakening
In Montevideo, Uruguay’s capital, the average price of newly built houses rose by 9.1% y-o-y to UYU 47,160 (US$ 1,334) per square metre (sq. m.) during 2018, according to the National Institute of Statistics (INE). However because of high inflation, real house prices only rose by a meagre 0.7% last year.
In 2018, real estate transactions in Uruguay fell by 4% to US$1.61 billion from a year earlier, based on figures from El Observador, in contrast to a 17.3% sales growth last year.
This can be mainly attributed to the declining purchasing power of Uruguayans. The Uruguay peso (UYU) has weakened by almost 19% against the US dollar, from an average monthly exchange rate of UYU 28.583 = USD 1 in January 2018 to UYU 35.124 = USD 1 in May 2019, stoking inflationary pressures.
By property type:
- For single-family homes, the average price was UYU 41,072 (US$1,162) per sq. m. in 2018, up 7.3% (-1% inflation-adjusted) from a year ago
- For duplexes, the average price was UYU 43,288 (US$1,224) per sq. m. in 2018, up 8% (-0.3% inflation-adjusted) from a year ago.
Data released by El Observador shows average house prices in Montevideo around US$ 2,700 per sq. m. in 2018 - about twice as much as government figures, not surprising given that El Observador´s data is based on classified ads in Uruguay´s main web portals.
Demand from foreign buyers remains weak. The real estate market in Uruguay, and particularly in its beach resorts, relies heavily on foreign buyers, around 75% of whom have traditionally been Argentines, followed by Brazilians (with about 20% share) while the remaining 5% were buyers from other countries. Some European retirees are also drawn to Montevideo, especially writers and artists. Argentina´s economic crises always have a big impact in Uruguay.
Real estate transactions in Uruguay are typically quoted in dollars because of a history of fluctuations in the value of the Uruguayan peso.
Among the eighteen Montevideo neighborhoods included in the El Observador survey, Parque Rodó posted the biggest house price increases - around 13% during the year to December 2018.
It was followed by Palermo, La Blanqueada, Punta Carretas, Centro, Carrasco, and Ciudad Vieja, with house price rises ranging from 4% to 6%.
Areas with modest to minimal house price increases (between 0% to 3% during 2018) include Cordón, Punta Gorda, Tres Cruces, Pocitos, Malvin, Parque Batlle, and Union. House prices fell in Buceo (-8%), Jacinto Vera (-6%), Prado (-2%) and Aguada (-2%).
In Carrasco, Montevideo´s most exclusive suburb, a typical 65 sq. m. residential property cost about US$ 230,000 in 2018.
In Punta Carretas, where the magnificent Rambla (seaside avenue) can be found, a similar sized unit has an average price of US$ 225,000.
In Punta Gorda, a beautifully restored historic district, a 65 sq. m. residential unit costs around US$ 220,000.
Uruguay’s house prices are expected to continue rising - at least in nominal terms - during the remainder of the year, particularly in Montevideo, given that Uruguay´s economy grew by 1.6% in 2018, following expansions of 2.6% in 2017, 1.7% in 2016 and 0.4% in 2015, according to the Banco Central del Uruguay. The economy is projected to grow by 1.9% this year before accelerating to 3% in 2020, based on projections released by the International Monetary Fund (IMF).
Montevideo´s massive housing boom
Montevideo saw a spectacular housing boom from 1995 to 2005, with prices of newly built houses surging by 198.6%, according to the INE.
House prices continued to rise in following years by an annual average of 11.9% from 2006 to 2015 (2.5% inflation-adjusted).
The housing market has slowed due to Uruguay’s economic slowdown and Argentina’s economic crisis. House prices have been almost unchanged during the past three years when adjusted for inflation.
Struggling Punta del Este
The fashionable beach resort of Punta del Este had been struggling. At least 55 real estate offices have closed in and around Punta del Este over the past three years. About 85% of Punta del Este property owners are now renting their units through "informal channels" in order to reduce costs and avoid paying real estate commissions and taxes, according to the Chamber of Tourism.
Residential prices have fallen by about 25% from 2011 to 2016, according to Carlos Garcia Arocena of Bado & Perazzo Sotheby´s International Realty.
Declining demand from Argentinians has been the main culprit. Argentina´s government has imposed tighter currency controls and has limited dollar purchases to stem capital flight. Also Punta del Este was hit by tax information exchange agreement between Uruguay and Argentina in 2012, believes Alberto Prandi, Former Deputy Tourism minister.
Punta del Este’s luxury property market is dominated by foreign buyers, particularly from Argentina and Brazil, as well as from the United States.
Luxury homes in Punta del Este typically cost from US$2 million to US$5 million. Beachfront luxury homes command even higher prices, ranging from US$7 million to US$10 million.
The highest property prices in Punta del Este reach almost US$ 7,000 per sq. m. (offered in the "Mouette" building), followed by Trump Tower´s US$ 6,000 per sq. m. apartments, according to Germán Gómez Picasso of Reporte Inmobiliario. The cheapest new apartments in the area range from US$ 2,389 to US$ 6,912.
More modest homes are available farther from the beach, starting at around US$200,000 for a small two-bedroom house, said Sandra Sofio, Engel & Völkers Punta del Este.
Rental yields in Montevideo are good; rents rising
Uruguay´s big city rental yields range from moderate to good, at around 5.5% to 7.5%, according to a Global Property Guide research conducted in January 2019. They are better on smaller houses and apartments, as is typical in most countries. Bear in mind that these yields are gross, i.e., before costs and taxes, and so realistically net rental returns would normally be a couple of percentage points lower.
In Montevideo, gross rental yields on 50 square metre (sq. m.) apartments are reasonable, at an average yield of 7.4%. Larger-sized apartments of around 245 sq. m. have lower yields averaging 5.5%.
Houses in Montevideo also offer good rental yields. A 200 sq. m. house has an average yield of around 7.45% while a 500 sq. m. house yielded about 5.4%.
Rental yields in Montevideo have not changed much in recent years, though they are slightly lower than they were 10 years ago.
In August 2018, rents rose by 5.6% from a year earlier, according to INE.
Housing loans rising, driven by falling interest rates
Banco Central del Uruguay´s (BCU) housing lending rate for indexed units (UI) stood at 6.3% in April 2019, down from 6.6% a year earlier and 6.9% two years ago.
The Indexed Unit, or Unidad Indexada (UI) in Uruguay, created in 2002, is like Chile´s Unidad de Formento, which is adjusted with the CPI, and replaced the previous Unidad Reajustable (UR) which was adjusted according to a wage index. The index is calculated by Instituto Nacional de Estadistica´s (INE), and is subject to daily changes to reflect changes in the CPI. The indexing to the price level does not incur inflation risk since the real value of payments remains constant.
Uruguay´s mortgage market is highly concentrated, and is dominated by Banco Hipotecario del Uruguay (BHU) which accounts for 80% of all housing mortgage credits.
Housing loans in local currency rose by about 3% to 154 million UI during the year to April 2019, mainly buoyed by falling interest rates, according to the BCU.
Uruguay´s economy grew by 1.6% in 2018, following expansions of 2.6% in 2017, 1.7% in 2016 and 0.4% in 2015, mainly driven by growth in telecommunications, according to the Banco Central del Uruguay.
Foreign trade registered a decline in both exports and imports, down by 4.8% and 2%, respectively.
The country registered strong economic growth averaging 5.3% annually from 2004 to 2014, before slowing to 0.4% in 2015, as commodity prices slumped and Uruguay’s trade partners slowed.
Uruguay´s economy is expected to grow by 1.9% this year before accelerating to 3% in 2020, based on IMF projections.
In May 2019, credit rating agency Standard and Poor´s maintained its rating on Uruguay at BBB. Accordingly, no abrupt changes are expected in the country’s policy making, given the current electoral context and the upcoming change in administration.
Uruguay is tagged as a "moderately free" and the world´s 40th freest economy in Heritage.org´s 2019 Index of Economic Freedom, down by two notches from the previous year. It ranks 6th out of 32 South and Central American countries. But in reality, the government´s continuing influence over economic activity hinders overall economic growth.
In May 2019, nationwide inflation stood at 7.73%, outside the central bank´s target of 3% to 7%, but down from the annual average of 8.7% from 2011 to 2016, according to the IMF.
The government´s fiscal deficit stood at around 3.9% of GDP in 2018, and Uruguay´s gross public debt widened to 68.3% of GDP last year, up from 65.7% of GDP in 2017 and 61.6% of GDP in 2016, according to Coface.
Uruguay´s unemployment rate was 8% in April 2019, slightly down from 8.1% a year earlier, according to Instituto Nacional de Estadística. In 2018, nationwide jobless rate was at 8%, higher than the 7.4% from 2007 to 2017 but far lower than the average jobless rate of 14% from 2000 to 2006.
General elections will take place on October 27, 2019.
- Compraventa de inmuebles por al menos US$1.612 millones en 2018 (El Observador): https://www.elobservador.com.uy/nota/compraventa-de-inmuebles-por-al-menos-us-1-612-millones-en-2018-2019121184344
- Índice de Volumen Físico de la Construcción de Viviendas (National Institute of Statistics): http://www.ine.gub.uy/web/guest/precios-de-construccion-de-viviendas
- Leve baja en el precio de inmuebles durante el ultimo trimester de 2018 (El Observador): http://www.observador.com.uy/nota/leve-baja-en-el-precio-de-inmuebles-durante-el-ultimo-trimestre-de-2018-20191281890
- House Hunting in…Uruguay (The New York Times): https://www.nytimes.com/2018/01/31/realestate/house-hunting-in-uruguay.html
- La suba del dolar frena la racha alcista de los inmuebles y precios se congelan (El Observador): http://www.observador.com.uy/nota/la-suba-del-dolar-frena-la-racha-alcista-de-los-inmuebles-y-precios-se-congelan-2018926183643
- World Economic Outlook Database (International Monetary Fund): https://www.imf.org/external/pubs/ft/weo/2019/01/weodata/index.aspx
- Statistical Series – Credits (Banco Central Del Uruguay): https://www.bcu.gub.uy/Servicios-Financieros-SSF/Paginas/Series-Estadisticas-Creditos.aspx
- Statistical Series – Interest rates (Banco Central Del Uruguay): https://www.bcu.gub.uy/Servicios-Financieros-SSF/Paginas/Series-Estadisticas-Tasas.aspx
- Gross rental yields on Montevideo apartments and houses are good (Global Property Guide): https://www.globalpropertyguide.com/Latin-America/Uruguay/Rental-Yields
- Uruguay´s economy grows 1.6 pct in 2018 (Xinhuanet): http://www.xinhuanet.com/english/2019-03/29/c_137933665.htm
- Credit rating agency ratifies Uruguay’s investment grade (Pittaluga): http://en.pittaluga.com/news/2019/05/credit-rating-agency-ratifies-uruguay-s-investment-grade-169
- 2019 Index of Economic Freedom – Uruguay (The Heritage Foundation): https://www.heritage.org/index/country/uruguay
- Uruguay Inflation Rate (Trading Economics): https://tradingeconomics.com/uruguay/inflation-cpi
- Uruguay Major Macroeconomic Indicators (Coface): https://www.cofacecentraleurope.com/Economic-analysis/Uruguay
- Actividad, Empleo y Desempleo Abril 2019 (National Institute of Statistics): http://www.ine.gub.uy/web/guest/inicio/-/asset_publisher/qCQOi0UnXKap/content/actividad-empleo-y-desempleo-abril-2019/maximized?_101_INSTANCE_qCQOi0UnXKap_redirect=%2F