In recent years, rental prices have soared beyond reasonable, according to tenants' experience. However, for owners, it is still unattractive to buy a property to be turned over to the rental market.
In part, this reality is reflected in the scarce supply of properties available for rent, something that was enhanced after the implementation of the Rental Law. But, on the other hand, when assessing only the income aspect, it becomes clear that there is little incentive for investors. According to different measurements, it takes between 18 and 23 years to recover the investment in the purchase of a used apartment in the area of the City of Buenos Aires.
According to the records of the ZonaProp platform, real estate profitability, i.e. the relationship between the rental value and the price of the property, is currently at 5.56% per year. Although this ratio has improved in recent months at the pace of the increase in rents (so far this year they have accumulated an increase of 204%, well above inflation, of 140%), it takes 17.8 years of rent to recover the investment of the purchase.
Profitability varies from neighborhood to neighborhood. Saavedra, Villa Luro and Balvanera are the best areas for investors looking for rent, with an average return of 6.6%, 6.6% and 6.3%, respectively. While Barracas (4.1%), Monserrat (5.1%) and Liniers (5.2%) are the ones that generate the lowest profitability.
According to another study published by the specialized site Reporte Inmobiliario, the effort to recover the investment may be greater.
Based on a study carried out by the Swiss bank UBS (UBS Real Global Estate Bubble Index), RI analysts estimated the situation of the Argentine rental market. Two variables were analysed in the global report. On the one hand, the effort measured in wages to buy a property and also the number of years of rent needed to amortize the purchase of a home.
Thus, "resorting to the average rental value of a used apartment of 60 m2 in Buenos Aires and comparing it with the sale value, the number of rental years needed to amortize the purchase would be 23 years. This is 11 less than the 34 years he demanded according to last year's average rent, which reflects the sharp increase in the rental price experienced last year," the site said.
On the other hand, the effort to recover the investment is lower than that needed in six other cities and greater than that required in the remaining 19 cities that make up the ranking of the Swiss banking entity, including Paris, London, New York and Madrid.
The level of wage effort to buy the property
The Swiss Bank does not include Buenos Aires in the ranking, but based on the transparency of its Real Estate Report methodology, it annually incorporated the data on prices and salaries that allow Buenos Aires to be included in the list and compare its results with the other 25 cities in the world.
In this case, UBS measured the relationship between the income of a service sector worker and the values of a 60 m2 apartment near the city center.
In this September 2023 edition published by UBS, as in the last three years, Hong Kong was the city where the wage effort for home purchase is the highest at 22 years, but with 2 years less than in 2022.
Meanwhile, at the opposite pole where the relationship between income and house prices is more favorable, Miami, Madrid and San Francisco are located, where 5 full years of salary are needed to buy a typical unit of 60 m2.
How would Buenos Aires rank if it were to be included in the ranking?
At a value of US$1,744 per m2 corresponding to the average price per m2 "effectively paid" registered by the REMAX/UCEMA/REAL ESTATE REPORT Index during last August for 3-room units, a 60 m2 apartment would reach US$ 104,560.
Cross-referencing this data with the average remuneration of registered workers in the private sector for the same month of last August, it appears that the wage effort would be located in the 19 years of income.
Buenos Aires would thus occupy the second place in the Ranking of the most expensive cities in relation to the average income of its inhabitants, despite the drop in house prices experienced in recent years. This, according to analysts, reveals the even greater fall suffered by real wages.