The market
growth challenge
in Argentina

In an extremely fragile macroeconomic and social environment, reactivating the productive activity has proved to be a point of union among Argentines.

September 07, 2020

We face the challenge of growth in an extremely fragile macroeconomic and social environment. Reactivating productive activity has proved to be a point of union among Argentines around to a common cause. "We have some right to hope," Borges said, highlighting our culture and milestones in our history.

We Argentines, have the unfortunate world record of being the country that has been mostly hit by the crises in the last 60 years. Through fighting, we became experts in turbulence and resilience. Perhaps it explains our attachment to tangible investment alternatives: “dollars under the mattress” way of saving and “bricks”. "You can't lose what you can touch" seems to be our investor leitmotiv, despite being aware of the opportunities we have lost with these strategies.

The experience of the countries of the region, the changes promoted by technology, and the consolidation of some public initiatives can be a path that brings some optimism and facilitates the processes of growth.

Beyond our border

Investment vehicles have been consolidated to strengthen the real estate market in different countries of the world, based on the so-called “REIT” (“Real Estate Investment Trust”). Their purpose is to connect large-scale real estate businesses with investors, both small and large, through a public offering with open quotation and transparent markets.

In essence, these vehicles reduce transaction costs, provide tax efficiency, and provide more liquidity to real estate investment. They become an attractive alternative for investors looking to reduce their volatility in financial markets, position themselves in assets less correlated with market risks, and have efficient hedging against inflation and exchange rate risks.

These vehicles first appeared in the US about 50 years ago where they are very developed tools. More than 2 trillion dollars are estimated to be invested, headed by more than 87 million different investors.

The vehicles have also been successfully implemented in Latin America. They were launched in Mexico in 2011. Thus, today 19,000 million dollars have been invested in real estate projects. Brazil accounts for 16 billion dollars in these assets. And in Chile, the investments in these vehicles are estimated to amount to 9 billion dollars. In Peru, the regulation has been consolidated only in 2018. Since then, they have accumulated funds of about 500 million dollars.

New saving habits

Technology is an integral part of our everyday life and transforms our habits before we even realize it. The world of investment is no exception. In the last four years, 1.5 million new investors joined the Capital Markets. A large amount, if you compare it to around 400,000 investors that existed then. They have fast access to detailed information on their KPIs with the possibility of disclosing them whenever they want to.

With increasingly powerful and secure tools, we will not only be able to add new investors but also offer more agile and efficient alternatives to traditional market investors.

Opportunities in Argentina

In Argentina in 2018, the Law on Productive Financing was approved, granting fiscal transparency to investment trusts and funds that are placed by public offering.  We know that the National Securities Commission is dedicated to give greater precision and certainty about these tools, to bring more efficiency and market penetration.

The consolidation of closed investment funds or financial trusts will offer investors a much broader menu of business alternatives in the real economy, with offers in line with the different risk profiles. In the real estate sector, the range of proposals will surely include the possibility of investing in corporate assets that have been reserved for very exclusive investors.

Continuing with Borges, he used to say that when facing a new proposal, the first thing the Argentines ask ourselves is whether it is profitable, beyond the enthusiasm these initiatives bring, we must look at them through the sieve of past experiences.  Just like "not all that glitters is gold," it is worth clarifying that not every proposal is 100% safe, nor necessarily profitable.

Regulatory adjustments are followed by the process of understanding the market, which helps analyze the business risks and the relevant criteria for assembling the most appropriate investment portfolios. In a context as complex as ours, a maximum consistency between the strategy sought, its risk analysis, the appropriate weighting of the underlying assets, and the commitment of the work teams are required.

Across all latitudes and different economic ecosystems, it has been proved that the capital market can become a major catalyst for investments with a high impact on economic activity and job creation.

The challenge of growth is to make it with order and consistency within the medium and long term. Let us not, this time, be seduced by the shortcuts to immediate results that end up plotting our authentic growth. Based on these trends and learning, I believe that in the real estate market: "We have some right to hope."