Uruguay Coastal Properties

If you’ve read this sermon on Coastal Uruguay, forgive me, but we are getting vacation rental requests for later in the year and 2011 even. It appears our annual message has not been received.  If you’re visiting in December through February, or March for that matter, reserve your rental well in advance.

In 2009, high season rentals, December through February were a done deal by August. As mentioned many times, no owner wants to rent for a few nights during any of these months. One week is the minimum and from mid December through February, one week is consider a short-term rental. Many choose not to rent for one week.

Also, some people are pressuring for discounts………not in 2009 and not this year. First of all, demand was and is strong in Piriapolis as well as Punta del Este and prices were tending up, not down. Secondly, rents are paid in US dollars; the dollar is down almost 20% from last year at this time. This creates upward pressure on rates as many owners have to convert dollars into pesos.

For those planning on a visit, I hope this helps.

Five months ago, I did an article about real estate prices and where they might go. I feel like it’s a good time to revisit the subject. First, a few words about the global economic backdrop.

Justin Lin, Chief Economist at the World Bank recently warned that a global surge in excess capacity could lead to a worldwide “deflationary downward spiral.” Ask the Japanese about deflation, and their lost decade. The economy was in the sewer for over ten years, millions lost their jobs, banks collapsed, stock prices fell by 75% and real estate tanked. (Sound familiar?) The economy has yet to recover. Speaking of which, the Bank of Japan is forecasting two years of declining prices.

Prices are also falling in the remaining economic engines, India and China. For instance, the producer price index is down about 5.9% during the last year according to the China National Bureau of Statistics. Prices in Europe are on track to fall about 1.5% this year.  And of course this bleak backdrop is crowned by the collapse in US demand for imported goods.

So here’s a ten second history lesson…..the Great Depression of the 30s was a deflationary bust. The virus started with the breakdown of the financial markets in 1929/1930. The epidemic didn’t affect the average person until the 1931/1932 time frame. By 1932, 25% unemployment was common in the industrialized world as well as negative growth. This ugly picture didn’t change until the 40s. Needless to say, all asset classes got hammered.

So here we set in mid 2009. Western economies have been getting the crap kicked out of them for nearly two years, with the same MO as the Japanese debacle. What effect has this had on prices in Uruguay? The long and the short of it is not much. The average from top to bottom is mostly flat. The luxury property market might even be moving up a bit; the mid market is clearly flat or down a few pesos. Why?

My feeling is prices are flat because this is a cash market; there’s little or no debt on real estate. I know people that would like to sell and can’t, but they aren’t forced too since there’s no payment, often no insurance and taxes can be quite low. In the long run, if global deflation continues to build, there will be zero to nil demand from the outside world for property in tiny Uruguay. This will cause pricing pressure. How much? Your guess is as good as mine.

The real threat is from within and nearby. Uruguay, and its primary partner in the real estate dance, Argentina, are both due for a bust. Every eight to ten years is the pattern.

If the bust happens, not good. Prices could move down sharply. If Southern South America avoids the pain the rest of the planet is experiencing, the flat line in prices could continue for some time.

Are flat prices a bad thing? Ask the average Brit, Spaniard or American.

Although the first half of 2009 was OK for the vacation rental market in Piriapolis, the last half of the year and high season 2010 are off to a strong start. Typically, we start booking January and February in August or so. This year, bookings started in May.

This is a nice turn-around when compared with the first half of the year. Although we were booked pretty solidly, we didn’t turn a lot of people away. In contrast, during the first half of 2008, we could have filled far more space than was available to us. For instance, we turned loads of people away who wanted to book the whole month of March.

Perhaps this reflects a global economy which is recovering a bit. At the very least, it’s a clear indicator the fear level that was palatable early in the year is easing.

This is good news for those of us with rentals and an advisory for those of you planning a visit.

Stay Tuned!

Steve Bowman

We’ve been absolutely flooded with calls and email for short-term high season rentals……less than a week.

This may be a little late, but I’d like to give a heads up to visitors coming durning late December, January and February.

Trying to book a private flat or home for less than a week is impossible! Much of this time frame is booked and the space that isn’t rented, can not be had for a few days. (Many owners, aren’t really receptive to one week rentals for that matter.) Hotels may be a little more lax, but not much.

The good news is there is space open for the second half of January with the above conditions.

Stay Tuned.

El Espectador reports Argentine President Cristina Fernández Show me the Money! de Kirchner told Uruguayan Foreign Minister Gonzalo Fernandez she intends to end the blockades at the bridges into Uruguay by people protesting the Botnia cellulose pulp mill.

For those of you not aware, Argie protesters have blocked the bridges into the country on and off for two years. They claim the nasty, polluting plant, built by the Uruguayan third world lackeys from Finland is an environmental threat. Of course, the competitive disadvantage of Argentina’s technologically inferior plants have absolutely nothing to do with it.

Mr Fernandez explained, “I mentioned the claims Uruguay makes at every forum regarding the highway blocks to the president. I can say that her answer was understanding and positive regarding this issue.” A few days earlier, the Argentine Foreign Ministry released a statement denying that it had plans to end the blocks, stating that only the Justice Department had the authority to do so. Members of the Gualeguaychu Environmental Assembly rejected Fernandez’s statements and said it was an operation by the Uruguayan press to affect the blocks. Assembly member Jorge Pouler said he does not believe the news from Montevideo.

The Uruguayan officials clearly don’t understand the game. Cristina and her good ole boys and gals are fond of findings several hundred thousand US dollars in cash in the restroom when such matters are at stake. Christina Show Me the Money! says the executive restrooms always have suitcases in them for just this reason.

Our sister publication, Coastal Uruguay, has a series of futuristic time warp articles comparing Spain in the 70’s to present day Uruguay. The estimate of how things might unfold appears to be accurate. (I lived in Spain back then for awhile; I’ve seen it first hand.) This same group of articles clearly identifies the challenges…..and the opportunities.

In this parallel universe, the challenges are almost identical. Are the opportunities? If the history of the motherland repeats itself here, things could get interesting on the Coast of Uruguay. The gods may smile on real estate for many of the same reasons here in the Land of the Sun.

Here’s a link to the page where these posts are found, Futurism and History. Do yourself a favor and read these, particularly if you’re researching the country for possible investment.

As Empires crumble into the sand, tiny Uruguay, the little train that could, remains steady.

Stay Tuned!

Steve Bowman

PS: Below is the dictionary definition of Futurism. This pretty much underscores how we feel about life and the tools we approach it with.

fu·tur·ism n
1. fu·tur·ism or Fu·tur·ism an early 20th-century artistic movement that attempted to express the dynamic nature of the modern age using technology.
2. belief in the need to look to the future rather than reflect on the past, coupled with an optimism that personal and social fulfillment lies in the future.

Could fallout from the Credit Crisis hit countries that were not participants of the easy money orgy, such as Uruguay?

If you’re living and breathing, you probably know the US financial markets, the credit markets in particular, are in a tale spin reminiscent of the 70’s. The bad news is it’s not just the US; Much of Europe is suffering from the same disease: Too Much Debt. The easy money, low interest rate, high risk loans that fueled the real estate boom in the UK and Spain, among others, are bringing the house down (pun intended.) Even the hard money Swiss are taking big hits. Credit Suissee recently reported loses of 14 billion francs on just one portion of its credit portfolio, and is marking down major chunks of their total holdings by 20%.

The video Debt Implosion provides a wonderful explanation from an old school conservatives point of view how bad it really is……think a few trillion, may be more. There’s a priceless spin by the BushWacker, aka as the W (President Bush), “The credit markets are functioning effectively.” Doesn’t this guy just crack you up? While the subject is the US, the fall out from the credit crisis will affect of the whole planet to one degree or another.

Will Uruguay feel the back blast? Count on it.

Will it be as severe as the US and parts of Europe? I do not believe so.

Stay Tuned!

Steve Bowman

PS: Just for fun, here’s a way to conceptualize a trillion dollars. 100 billion, a tenth of a trillion, is estimated to be a stack of 100 dollar bills extending to the moon.

I’ve never brought up personal stuff on this site because I haven’t felt like it’s relevant, but recently, a number of people have asked about what I do here in the States.

We’re in the real estate business, residential property management in Savannah, GA, primarily for our own portfolio. Most of our rentals are long-term, although we do have a couple of short-term/vacation rentals. I also do some professional contract work for organizations in town.

I feel very lucky to add the rental business is strong in our niche; we’re even increasing rents a bit. So far, the real estate crisis has not affected our  strategy: positive current cash flow. Fortunately, we own mostly smaller units (studio & one bedroom) which are typically in high demand locally. We’re seeing the large rental units, three bedrooms plus, getting hammered; they’re vacant or fetching lower rents. As the growing glut of unsold houses and condos come on-line as rentals, the bleeding will get far worse in this sector.

There is one underlying reason we’re doing OK. I never bought into appreciation get rich quick frenzy. We purchased based current cash flow/return on investment, which guided us to well priced smaller units, with reasonable cash down payments. Don’t get me wrong. Our balance sheet has taken a hit like everyone else but that wasn’t the reason for owning the stuff in the first place.

In the long run, rental property is worth the rents. That’s it.

For what it’s worth, the bottom in the US market in nowhere in sight. There are shoes yet to drop that no one is even talking about. As we’ve been saying for nearly two years, look to international property markets for opportunity, diversification and perhaps even safety at some point. Someday, the US market will be a screaming deal and the prospect of making gobs of money will be off the scale. This day is well into the next decade.

Stay Tuned!

Steve Bowman

The World Economic Forum, based Davos Switzerland, produces a pretty neat report that stacks up world countries for business competitiveness. They recently issued an interactive report for 2007 - 2008 World Economic Forum.

Out of 131 countries, Uruguay ranks 75th, on an overall basis. As you’ll see if you hit the link above, there are several unique variables you can key to see how the overall ranking was complied. One of the more telling variables shows Uruguay slipping to 60th from 54th in IT deployment/effectiveness since the last report.

For those of you coming here to do business, or if you’re just interested in international commerce, you’ll find this a very interesting tool.

This report sums up my feelings about doing business in Uruguay. UY is platform to do international business from, or have a business that serves foreigners within the country!

Stay Tuned!

Steve Bowman

Chris and I in Our Courtyard

As we’ve talked about, 2007 was the busiest year for tourism since 1996. (This is info we got from Telemondo.)

This year at our sister site, Coastal Uruguay, traffic is heavy on the Rental Page, 30 - 50 unique visitors per day. Piriapolis bookings and rental inquiries are above last year at this time by a wide margin.

This is coming to your attention because high season bookings are well underway. This is a good time to make your reservation.

In addition, airfares are still reasonable! We recently booked a direct flight from Miami to Montevideo for about $1,075 -  about 25 more than last year at this time. We noticed in 2007 that people who waited until October to book their high season flights paid around $500 more than we did. As I said, make your move soon.

In case you’re wondering what are good months to visit, here’s my take. There are several great months besides January (high, high season.) To me, December, March and April are the best months of the year. We’re happy to report that March and April were fully booked for several of us here in town last year. Also note that November has some very nice weather as well. Windbreakers are needed a few days of the month, but I’ve burned my hide off in November. (May has some decent weather for that matter.)

And don’t forget, prices are better during the other four ideal months here on the Coast.

February which is Carnival month, is a good high season bet because prices are very reasonable compared with January.

Stay Tuned!

Steve Bowman