Real Estate and Urban Development in South America

Understanding Local Regulations and Investment Methods in a Highly Urbanised Continent

Claudia Murray, Eliane Monetti, Camilla Ween

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781138185517
• eBook ISBN: 9781317289050
• Edition: 1
• Topic: Business
• Subtopic: Real Estate
• Index: Business

Real Estate and Urban Development in South America uncovers how investors are navigating South American real estate markets in commercial, residential and infrastructure development. A preferred location for real estate development during the colonial era, in recent decades South America has been seen as high-risk for global real estate investors. This book explores the strengths and weaknesses of real estate markets in the region, concluding that with careful implementation of the correct development strategies, the region can once again take its place at the centre stage of global real estate investment.

Comparing the economics and market maturity of South American countries in turn, the authors draw out the particular contexts in which investors and developers operate in mature and emerging markets. Bridging the gap between theory and practice, analysis of local development policies, legislation, valuation methods and taxation is supplemented with case studies from key players in the region's major cities. The first full overview of real estate markets in South America, this book will be an essential guide for investors, policy makers, academics and students with an interest in this this rapidly evolving region.

1
Comparative overview of key real estate drivers

1.0 Introduction

Research and thought process for this book were developed between 2015 and the first quarter of 2017. At the time of writing, the global economy remains in transition since the Global Financial Crisis (GFC) of 2008, and political changes are happening in key countries that can have a direct influence on South America. Indeed, there are certain aspects of the global economy that have always influenced the economies of the countries under study here, namely the state of the US economy and the commodities market. Additionally, the increased integration of China to the global scene is a relatively new added factor as the slowdown in manufacturing in China means a reduction in the demand for the region’s raw materials. Furthermore, many South American governments are building large debts to the Asian giant (Table 1.1), which adds to the region’s vulnerability to the latter’s current slower but more sustainable pace of growth.

High levels of debt do not bode well with this new reality of slow growth, particularly since many South American countries enjoyed the windfalls of the regional boom of 2009–2011. The good years were spent in building and implementing large social programmes funded by the states (Murray and Clapham, 2015), but little was set aside to create a buffer for the bad years. The new wave of more liberal governments are therefore trapped in unsustainable programmes which are very unpopular to dismantle and very difficult to approve through the respective congresses. As this chapter will demonstrate, the regional economic hierarchy of countries is also undergoing a reshuffle in alignment with political changes briefly described earlier in the introduction, and the winners are those whose policymakers are most quick to respond to the new world’s reality of slow growth and low commodity demand.

In South America as in the rest of the world, the state of the economy and key market fundamentals have a significant impact on real estate. However, the peaks and troughs of an economic cycle can be balanced out over the lifetime of a long-term investment such as property, while other short-term investments such as equities can carry greater volatility in South America than in more stable developed economies.

Looking at key social and economic indicators, this chapter provides the basis of the present volume and defines the economic and real estate market framework that will be used to explain the particularities of South America. The framework presented will enable the reader to understand real estate market analysis as a whole and its application to each country under study. In order to build this analytical framework, internal and external indicators affecting the property market have been used and explained. Thus, the indicators will include a combination of macro and microeconomic factors as well as fundamental real estate market variables. Using the latest data from reliable open source databanks (World Bank, United Nations, IMF, etc.), Section 1.1 starts by presenting the comparative statistics in relation to demographics, population growth and migration for each country, placing them in context with two advanced economies: UK and the US.

Table 1.1 South America’s debt to China

Country	Amount
Venezuela	USD 62.2 billion
Brazil	USD 36.8 billion
Argentina	USD 15.3 billion
Bolivia	USD 3.5 billion
Peru	USD 50 million

Source: The Dialogue database, www.thedialogue.org/map_list

Data: Total debt in USD since 2005

The next section (1.2) presents the economic drivers of the region including: GDP, unemployment data, and urban growth. This will help to complete the wider picture of the level of development and urbanisation of countries. After a selection of the most important economies, the following section (1.3) brings crucial market data such as interest rates, inflation, wages, consumer spending as well as general supply and demand statistics. Section 1.4 looks at the planning system and legal framework while the final section (1.5) brings the conclusion and evaluates and divides the countries according to the importance of their real estate markets in a global context (mature South American markets) and according to their possibilities (emerging South American markets).

1.1 Key real estate drivers

1.1.1 Demographics

Demographics represent an important piece of data that provides information on the state of the population, its growth and composition. Analysts can infer many aspects of the state of real estate markets through such information; for example, they can tell if the demand for smaller houses is higher due to a rise in new families; or measure the impact that migration can have in property prices as the number of homes needed increases.

The 12 sovereign states that comprise South America have a total population of just over 418 million, which represents nearly two-thirds of the 637 million of Latin Americans that inhabit the region (Population Reference Bureau, 2016). Brazil alone contributes to nearly a thir...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of figures
• List of graphics
• List of tables
• List of boxes
• List of case study
• Notes on contributors
• Introduction: South America’s institutions and culture affecting real estate investment: can path dependency be broken?
• 1 Comparative overview of key real estate drivers
• 2 Commercial real estate in South America
• 3 Residential real estate in South America
• 4 Real estate funding in South America
• 5 Delivery and finance of infrastructure in South America
• 6 Barriers to cross-border investment in South America
• 7 Guiding improved urban development: UN Sustainable Development Goals and the New Urban Agenda – how is South America faring in the world scene?
• Appendix 1: The UN Sustainable Development Agenda’s Sustainable Development Goals
• Appendix 2: INDCs data, World Resources Institute’s CAIT Climate Data Explorer, http://cait.wri.org/pledges/
• Appendix 3: New Urban Agenda
• Index