Uruguay: Montevideo’s house prices up; Punta del Este down
Last Updated: September 30, 2015
During 2014, house prices in the capital city Montevideo rose by 4.6%, to an average of US$159,522, based on data compiled by El Observador from a database of 20,000 condominiums.
Among the eighteen Montevideo neighborhoods included in the survey, Centro recorded the biggest house price increase of 10.3% during 2014, followed by Carrasco (8.4%), Buceo (8%), Punta Gorda (5.7%) and Ciudad Vieja (5.7%).
Carrasco, Montevideo’s most exclusive suburb, had the most expensive housing in the capital city. Currently, a 65 sq. m. residential property in the area was priced at about US$224,997, according to InvestBA.
In Punta Gorda, a beautifully restored historic district, a 65 sq. m. residential unit costs around US$214,699. In Punta Carretas, where the magnificent Rambla (seaside avenue) can be found, the same unit has an average price of US$209,535.
In the districts of Malvin, Pocitos, and Buceo, the selling price of a 65 sq. m. residential property ranged from US$180,172 to US$188,767. On the other hand, the same property costs between US$158,551 and US$161,672 in the areas of Parque Batlle, Tres Cruces, and Parque Rodo.
Centro has the most affordable housing in the capital city, with an average price of US$126,174 for a 65 sq. m. residential property.
Despite the overall decline in property sales, demand remains healthy for apartments and newer townhouses with amenities like swimming pools, private patios and round-the-clock security, especially among retirees. Apartments and newer townhomes in the more desirable parts of Carrasco are priced from US$372 to US$418 per square foot (sq. ft.), more than high-end single-family homes, which are offered for US$232 to US$279 per sq. ft.
Foreign demand still weak
Demand from foreign buyers remains weak. In Montevideo, “purchases by foreigners have decreased in 2014,” said Juan Federico Fischer of the law firm Fischer and Schickendantz. Foreign homebuyers make up more than a third of the total property transactions every year.
The real estate market in Uruguay, and particularly its beach resorts, heavily rely on Argentina’s high-end buyers. Around 75% of foreign buyers in Uruguay are Argentines, followed by Brazilian buyers, making up around 20%, while the remaining 5% are buyers from other countries. Some European retirees are also drawn to Montevideo, especially writers and artists.
Real estate transactions in Uruguay are typically quoted in dollars because of a history of fluctuations in the value of the Uruguay peso.
Foreign buyers are not restricted when buying properties in Uruguay. However, in November 2013, the Uruguayan government filed a new bill in Congress, which prohibits ownership of productive land by corporations in which foreign countries are direct or indirect shareholders. The bill does not affect individual foreign buyers, who can still purchase land in Uruguay.
The bill, which is proposed and signed by President Jose Mujica, was made for "the preservation and defense of the full sovereignty of the Uruguayan state, in relation to natural resources in general, and land in particular."
Uruguay’s economic growth slowed to 3.3% in 2014, the lowest level in five years, mainly due to a slump in commodity prices and the economic slowdown in the country’s trade partners, based on figures from the International Monetary Fund (IMF). Uruguay enjoyed high economic growth in 2010 and 2011 at around 8.4% and 7.3%, respectively, and avoided recession in 2009 with a 2.4% GDP increase. The IMF’s forecasts a growth rate of around 2.8% in 2015.
Uruguay: prices reasonable, yields moderate to good
Montevideo property price have continued firm over the past year, appreciating visibly in terms of US$, due to the appreciation of the Uruguyan peso.
Apartments in Montevideo cost around US$2,100 to US$2,500 per square metre (sq. m.) or around US$200 to US$235 per square foot.
Houses in Montevideo cost around US$1,500 to US$1,770 per sq. m., or around US$150 to US$165 per square foot.
Gross rental yields are moderate to good, at around 6% to 7.6%
Income is now taxed in Uruguay
Rental Income: Net rental income from leasing property is taxed at 12%.
Individuals who obtain income derived from renting properties shall pay a monthly payment in advance of the abovementioned tax. The amount of withholding tax arises to 10.5% of the total amount of income received each month. In case the only income obtained by individuals is derived from renting properties, advance payments can be considered as definitive tax payments.
Capital Gains: Capital gains realized by individuals are taxed at 12%. Taxable capital gains are the difference between the sales price and acquisition costs.
Inheritance: There are no inheritance or gift taxes in Uruguay.
Residents: Resident individuals pay tax on their Uruguayan-sourced income. Labor or earned income is taxed at progressive rates, from 0% up to 25%, while income from capital and capital gains are taxed at 12%.
Total transaction costs are moderate in Uruguay
The total roundtrip transaction cost, i.e. the cost of buying and selling a property, is 14% This includes the real estate agent's fee of 6%, which is paid equally by both buyer and seller.
Property registration takes about 66 days, and involves eight separate procedures.
Freedom to contract, limited rent control in Uruguay
Uruguay's landlord and tenant law is pro-landlord.
Rents: Rents can be freely agreed between landlord and tenant, except for properties constructed before June 2, 1968.
In the free sector rent increases may be freely mutually agreed between landlord and tenant.
For rent-controlled properties, rent increases are indexed to the Unidad reajustable de alquileres URA or (Re-adjustable Unit for rent), published by the government.
Tenant Security: The duration of a rental contract can be freely agreed. The court system works adequately to enforce evictions and lease agreements, but is quite slow.
Slowing economy, rising inflationDuring the second quarter of 2015, Uruguay’s economy shrank for the first time in more than a decade, amidst a slump in investment and retail sales. The economy contracted by 0.1% in Q2 2015 from a year earlier, and by 1.8% from the previous quarter, according to the Banco Central del Uruguay (BCU).
The downward trend is expected to continue. The IMF predicts 2.8% GDP expansion in 2015. The government, on the other hand, expects a less optimistic scenario, with a 2% to 2.5% growth.
Uruguay has recently unveiled a US$12 billion spending plan on energy, transport and housing infrastructure to create jobs and buoy the economy.
Uruguay is tagged as a “moderately free” and the world’s 43rd freest economy in Heritage.org’s 2015 Index of Economic Freedom, down 5 notches from the previous year. It ranks 5th out of 29 South and Central American countries. But in reality, the government’s continuing influence over economic activity hinders overall economic growth.
After enjoying annual average GDP growth of around 6.1% from 2005 to 2011, Uruguay’s economic growth slowed to an average of 3.8% per year from 2012 to 2014. The slowdown in the recent years is attributed to a the slowdown in the global economy, which also affected Uruguay’s trade partners as well as the country’s neighboring countries in the region, such as Argentina and Brazil.
One of Uruguay’s main risks is its high inflation.
In July 2015, inflation stood at 9.04% on an annualized basis. Inflation is expected to hit 8.4% this year, far from the government’s official target of 3% to 7%. In 2014, inflation was 8.9%, from 8.6% in 2013, and 8.1% in 2011 and 2012, according to the IMF.
The Uruguay peso (UYU) has weakened by 17.4% against the US dollar since the start of the year, stoking inflationary pressures and shattering President Vazquez's hopes that inflation would ease to 5% next year. In August 2015, the average monthly exchange rate stood at UYU26.55=USD1.
The government’s fiscal deficit stood at 3.4% of GDP in 2014, up from the average deficit of 1.4% of GDP seen over the past decade. The shortfall is expected to fall to 3% in 2015 and to 2.8% in 2016.
Uruguay’s unemployment rate has reached its record lows in the recent years, falling to only 6.5% of the labour force in 2014, far from the average jobless rate of 14% from 2000 to 2006. In July 2015, nationwide jobless rate stood at 7%, down from 7.4% in the previous month, according to Instituto Nacional de Estadística. IMF predicts a slight increase in unemployment in 2015, to around 6.8%.