Undervalued Property with Upside Potential in Uruguay

Saturday, August 06, 2011

Dear Reader,

Credit rating agencies aren't doing much for my home country, Ireland, lately - other than downgrading us. Moody's cut Ireland's credit rating to junk in recent weeks. But some countries are faring much better.

Moody's and Fitch recently upgraded Uruguay's credit rating to BB+, only one notch below investment grade. And S&P, the other major credit rating agency, just ranked Uruguay as BB+. The agencies like the country's "prudent and consistent economic policies". Fitch, pushing Uruguay one notch up to BB+ on July 14, said that Uruguay's high GDP per capita income, strong social indicators and solid institutional framework underpinned the country's creditworthiness. Of course, it helps that Uruguay's economy is growing strongly, too.

In fact, it grew by 6.8% in the first quarter of 2011. This follows on from economic growth of 8.5% in 2010. Manufacturing (pulp paper and dairy), construction, and commerce (car sales and restaurant services) were the most dynamic sectors of the economy. Exports of goods and services expanded 14.7% in the first quarter of 2011, mainly auto parts and tourism. Analysts forecast growth for 2011 to reach 6.3%, up from their prediction of 5.9% in May, based on quarter one's strong performance. Interestingly, domestic demand in the first quarter rose by 8.3%.

Canadian bank Scotiabank wants to target those domestic consumers. They just concluded the purchase of Uruguay's fourth-largest private bank in terms of loans and deposits, NBC. NBC has 47 branches throughout Uruguay and a three-branch subsidiary in Brazil. The purchase of NBC is not Scotiabank's first foray into Uruguay. Earlier this year, they bought Pronto!, Uruguay's third-largest consumer finance company. That gives Scotiabank a strong presence in the Uruguayan market.

Foreign direct investment hit a new high in 2010 according to a report released this week, reaching $2.35 billion. That's 47.8% higher than in 2009.

The construction sector posted significant growth in the first quarter, with most growth in the private sector. That isn't surprising when you look at Uruguay's real estate market. In Montevideo, the capital, apartment prices rose 22% in 2010. House prices increased by 17%. In Punta del Este, real estate transactions reached $2.25 billion in the 12 months to April 2011.

Around 45% of the properties purchased in Punta were in the town itself. The remaining 55% splits between farms and developments around the town. Chacras, larger lots in private communities, are popular. These large lots, sometimes up to five acres in size, are usually set in a tranquil country landscape of grassland, artificial lakes, and stands of trees. Most offer minimal on-site amenities--a clubhouse and swimming pool, perhaps tennis courts. Pricing ranged from $40-$135 per square meter ($162,000 to over $500,000 per acre) when I checked them out late last year on a scouting trip.

But if you leave Punta del Este behind, and head east to the province of Rocha, you'll notice two things. First, the beaches are better...wide, unspoiled carpets of white sand, with dunes and white-capped breakers...and empty. Second, real estate prices are much lower. The half-acre lot in a private community that could cost up to $250,000 in Punta del Este...well, here you'll pay a fraction of that...$31,900.

This private community overlooks the ocean. It will have a 9-hole golf course, seven lakes, a putting green and tennis courts. More than half the 225 acres will stay as green space. The community is 400 meters from a beautiful beach, a kilometer from a large lake and four kilometers from a nice beach town. Lot sizes in the community range from a half-acre to three-quarters of an acre.

And the start price is only $31,900.

You can contact developer Daniel Oks here for a pricelist and availability.

The Rocha market is overlooked and undervalued right now. Buyers tend to focus on Punta del Este if they want a property close to the beach in Uruguay. They simply don't consider other options. But Punta's pricing is pushing many buyers out of the Punta market. They'll start to look elsewhere. Once they do, they'll realize that not only will their real estate dollars go further in Rocha, but that this area also offers more upside potential.

Now is the time to buy here.

Contact Daniel today to find out more.

Margaret Summerfield