In a historic move, Argentina's President Javier Milei is set to sign the "Pacto de Mayo" on May 25, a significant date in the country's history marking the First Junta's formation in 1810. This 10-point agreement aims to reform critical economic and social aspects, emphasizing fiscal balance and private property rights. Milei's first six months in office have seen remarkable success in combating hyperinflation, leading to a fiscal surplus and lower interest rates. His reforms have significantly impacted the real estate sector, with the market poised for growth due to improving economic conditions. IRSA Inversiones and Loma Negra are identified as key players well-positioned to benefit from this economic shift, potentially attracting more investors to the real estate sector.
Author: Mihail Stoyanov
Milei’s “Pacto de Mayo”
On May 25, Javier Milei will meet in Cordoba with the heads of all 23 provinces and the Autonomous City of Buenos Aires to sign the 10-point agreement. The pact is intended to be a “new foundational pact for the Republic of Argentina.”
The ten points of the pact are aimed at reforming critical areas of the economy and society including the inviolability of private property, fiscal balance, reduction of public spending, and the exploitation of natural resources, among others.
The Pacto de Mayo is viewed a significant and bold political move to unite the country and its politicians around a shared vision. By linking the signing of the foundational agreement to the nation’s independence from Spain, Milei emphasizes the importance of the pact and places his proposed reforms in the context of Argentina’s historic struggle for freedom and self-determination.
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Milei’s Reforms are Surprisingly Effective
In his first six months in office, President Milei implemented decisive austerity measures to combat hyperinflation, resulting in a significant reduction in inflation. This success led to Argentina's first fiscal surplus in 16 years, prompting a decrease in interest rates. The Central Bank of the Argentine Republic (BCRA) initiated a rate cut to 40%, a stark contrast to the 133% rates in December 2023.
Additionally, Banco Nacion's new mortgage loans program, set to begin on May 20, aims to address the housing shortage caused by the country's economic challenges. The 2020 Rental Law, which limits annual rent increases and stipulates minimum contract lengths, has added to the strain on the housing market.
Argentina's extreme inflation rates, exceeding 200%, have kept interest rates around 100%, making homeownership nearly impossible for those without dollar income. Low demand for housing due to inflation has kept prices low, diminishing profit margins for home builders and discouraging new projects.
Argentina’s Real Estate Sector Well-Positioned for Growth
Given the positive impact of the "Pacto de Mayo" and improving economic conditions, the real estate market is poised for growth. The economic recovery is expected to attract more investors seeking Alpha, with the real estate sector offering some of the most promising opportunities.
IRSA Inversiones, a leading player in the Argentine real estate market, owns commercial properties in prime Buenos Aires locations and is developing Costa Urbana, a project with the potential to become a significant urban development akin to Puerto Madero 2.0. The project received approval from the Buenos Aires City Congress in December 2021, marking a significant milestone for IRSA after more than two decades.
A healthier real estate market is expected to drive home prices up, increasing developers' profit margins and leading to the development of more new projects. Cement factories, like Loma Negra, one of Latin America's top five cement producers, stand to benefit from this growth. Despite recent challenges, Loma Negra has maintained a strong balance sheet with prudent leverage, making it well-positioned to capitalize on the real estate market's resurgence.
President Javier Milei's first year in office has disrupted Argentina's economic history, characterized by fiscal excess, inefficient policies, and rampant inflation. If Milei's administration continues on this path, Argentina is likely to regain investor interest. The real estate sector, in particular, is poised to benefit from this economic shift.
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