In five years the value of properties for sale in Uruguay almost doubled, while properties for rent also faced major increases, two facts attracting more investors looking to buy properties and engage with local property management firms to get profits from renting them.
Even some might think about a "Price bubble" in properties for sale, recent studies seeking to shed light on the rationale behind the rise of property prices, based on figures from National Statistics Institute (INE), found Uruguay doesn't seem to be far away from such effect.
Since 2006, the price per square meter in the capital of Uruguay rose 90.6% in dollar terms, but in the same period the cost of food, education and even electricity increased in equal proportion in the same currency.
A property price bubble occurs in a context in which the evolution of the value of an asset deviates from its foundations. Prices rise, and yet the genuine demand for the good remains constant or even backwards. The speculative desire becomes the engine of a price increase to get rid condemned by the very nature of the phenomenon.
If generalized trust in rising prices, which encourages the increase, a slight change in market conditions, barely a breeze at the right time, can turn and click 'expectations of a bubble at any moment.
However, the Uruguayan real estate market does not account for these signals. A good indicator is one that arises from comparing the prices of purchases with the rents. Both decisions follow the same rationale. The purchasing power, the higher level of employment and consumer confidence empowers decisions of both purchase but also rent.
But unlike the tenant, the real estate investor may have an additional interest: speculation about property price.
With a risk of a price bubble, buying a property for management and lease would be a less profitable business as property price would increase more than property rentals.
That is not the case in Uruguay.
During 2006, the purchase of one square meter equivalent to four months' rent. Today, the same area pays off in three months, which accounts to buy a property for management and rent is now a better deal.
Most consumption capacity of the Uruguayan population in a context of historically low unemployment drives the value of the property, which are in current pesos to lower values in mid-2007.
Study concludes that properties for sale prices in Uruguay do not have a price inflated by speculative factors, by the desire to buy and then sell at a higher price.
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