Argentina Real Estate Report Q4 2012

This Argentina Real Estate report examines the commercial office, retail, industrial and constructionsectors throughout the country amid a deteriorating business environment. The investment landscaperemains uneasy and we expect the Latin American nation to continue to be plagued by economicpressures.

With a focus on the principal cities of Buenos Aires, Cordoba and La Plata, the report covers the rentalmarket performance in terms of rates and yields over the past 18 months and examines how best tomaximise returns in the commercial real estate market, while minimising investment risk and exploringthe impact of the government financing restrictions on a market already expected to slow over the year. InJuly 2012 we conducted our most recent round of in-country interviews, which found the commercial realestate sector to be holding up relatively well. Nevertheless, initial signs of weakness are beginning toemerge – particularly in the retail sector – and the impressive growth in the real estate segment over thelast decade does look set to grind to an imminent halt.

Key Points:

Popular opinion has turned against President Cristina Fernández de Kirchner, her governmentand their policies, leading us to believe that the Peronist-led coalition will lose seats in the 2013legislative election. The magnitude of the loss will depend on just how effectively the oppositioncan blame Fernández for a deteriorating economy – a large loss has the potential to hobble thePeronists until the 2015 election, when the centre-right opposition could make a strong campaignfor the presidency.

The Argentine government's increasingly aggressive interventionist policies have caused us torevise down our 2012 real GDP growth forecast from 4.0% to 3.0%. Additionally, we nowbelieve that persistent economic imbalances in the Argentine economy will lead to a sharpreduction in economic growth and a significant devaluation of the peso in 2013. We are alsorevising down our 2013 real GDP growth forecast from 3.7% to 0.9%, after which point webelieve the effects of a 25% devaluation in 2013 will pave the way for stronger growth for theremainder of the decade.

We are maintaining our expectation for a sharp downturn in Argentine construction industryvalue growth in 2012 – a view led by indications that a slowdown is starting to take hold.Growth in 2011 came largely in line with expectations, at 9.1%; however, we believe thedeterioration of the business environment, coupled with economic mismanagement, is beginningto unravel growth across strategic industries. Thus, we forecast 2.8% growth in 2012, withdownside risks.