(Bloomberg) -- Endless boom-and-bust cycles have shuttered Argentines’ access to mortgages for years. Now, home loans are coming back in a big way.
Banks are expected to issue some $3 billion of them in 2025, up about 260% from the year before, according to local consultancy Empiria. Real estate brokerage franchiser Re/Max Holdings Inc. sees demand for housing soaring on the back of the reintroduction of loans.
The surge is thanks in part to President Javier Milei’s efforts to nurse the economy back to health, which has fueled optimism among Argentines and Wall Street traders alike. Squashing triple-digit inflation and subsequent reductions in borrowing costs by monetary authorities have pushed banks to return to their traditional roles as lenders to people and industries.
That campaign is reverberating throughout markets, with mortgage-backed home sales in the city of Buenos Aires roughly tripling in 2024 to some 5,000 compared to the prior year, according to a local notary association. But Argentines are making a bold bet: The monthly payments for their home loans are ultimately pegged to jumps in consumer prices, whose total elimination has proved elusive for many Argentine governments.
It’s another success story that Milei and his team can point to, even in the face of rising poverty and an embarrassing crypto scandal that’s galvanized his political opponents.
“I was resigned to renting for the rest of my life,” said Juan Pablo Rotger, a 29-year-old economist. That was the case until April, when he and his wife, Josefina, caught wind that several banks were starting to offer home loans.
After months of wrangling to get the correct documentation as well as finding a property they liked, the duo secured a $156,000 loan from Banco Santander in October. They used those funds to finance the purchase of a $200,000 two-bedroom, two-bathroom apartment in Acassuso, a suburb in Buenos Aires province just north of the capital.
Rotger’s change of fate stems from the fact that inflation has slowed considerably — from as high as 25% per month to just over 2% — with real wages catching up. The economy is expected to grow more than 4% this year after contracting for the past two.
Monetary authorities have also brought the benchmark interest rate down to 29% from 133% when Milei took office. That’s forced banks to wean themselves off holding government debt, like inflation-linked treasury bonds and central bank notes, for easy money to protect their reserves.
So, at moments like this, when consumers feel more confident about the economy and banks are forced to look elsewhere for new revenue sources, Argentines appear eager to snap up financing when they can.
Private sector loans overall, which include financing for businesses, home buyers and car purchases, surged by 22 trillion pesos ($20.8 billion) in 2024 when adjusted for inflation — the biggest jump in data going back to 1992, according to estimates from ADEBA, the main Argentine bank association.
“When opportunities like this appear in Argentina, history has taught us that they can also go away pretty fast,” Rotger said.
The last time lenders financed home buying was between 2016 and 2018, under the business-friendly administration of former President Mauricio Macri. A steep currency selloff and a return to capital controls toward the end of his term all but ended that trend.
Sales from 2019 onward were almost exclusively in cash with buyers tapping their “local mattress bank,” said Alejandro Bennazar, a former president of the Argentine Real Estate Chamber.
Buckling under decades of economic crises that chipped away at trust in politics and policy, Argentines have long relied on real estate as a safe-haven investment with transactions finalized in US dollars and most home buyers paying with stacks of greenbacks.
It’s one of the few assets with “positive long-term returns in the country,” to Santiago Magnin, owner of local real estate firm deinmobiliarios.com.
But with a major peso devaluation or sovereign default expected every few years, consumers and banks have traditionally shied away from toying with long-term debt.
“With that type of volatility, financial institutions and people don’t have the luxury of long-term thinking that facilitates access to 30-year mortgages,” said Federico Gonzalez Rouco, a senior economist with Empiria.
Milei, for his part, has kept the peso overvalued and has yet to dismantle currency controls. It’s a process that investors are closely watching.
More than a third of households in the city of Buenos Aires are rented, according to census figures from 2022. Magnin estimates that a remaining 50% of the city’s dwellers are owners, with many properties inherited or gifted.
To expand the reach of loans, banks are registering mortgages in units known as UVAs, or unidades de valor adquisitivo. Thinking of it like a exchange rate (even though it’s an index), one UVA is currently worth about 1,356 pesos. The value is adjusted by the central bank daily to take inflation into account, hedging against a historically volatile peso.
To work out mechanics, bank officers issue the loans in UVAs and then charge the relevant interest rate — anywhere between 3.5% and 8.5%, which partially depends on how much funds the institutions have on hand to lend. Then, they convert that amount back to pesos based on the UVA for that day.
For all the buzz around the mortgage market’s revival, there may be a ceiling. Banks only lend money to those who can demonstrate income from formal employment. In a country where nearly half the labor force works informally, there’s a limit to how many people can access credit.
The risks are whether or not banks can sustain low borrowing costs and if the government can continue its strategy of mitigating big jumps in consumer prices. Should things go in the wrong direction, that could push inflation and interest rates up and potentially make monthly payments unaffordable.
But home buyers like Augusto Rocca are optimistic that Milei will get the job done as it would help in keeping his monthly payments around 756,00 pesos — 78% of which is just interest owed — affordable and worthwhile.
Rocca works in digital marketing and bought a 70-square-meter (about 750 square feet) apartment in the city’s Colegiales neighborhood for $143,500. He, like Rotger, is bullish on Milei’s handling of the economy.
“These loans would not have come into existence had the government not managed to get inflation down,” the 42-year-old said.
--With assistance from Paulina Munita.
