The true causes of the lack of mortgage credit

The true causes of the lack of mortgage credit

High inflation, lack of reserves and political uncertainty are complex economic phenomena, which generate negative expectations and slow down economic activity and investment decision-making.

But they also tend to be factors that often cover up the root causes of the problems that exist in some sectors of the economy or are even often used as “excuses” to hide inefficiencies and/or lack of entrepreneurial spirit.

Some points that many know or sense and are not new

  • The real estate market in Argentina, particularly in large urban centers, represents a practically marginal economic volume. Only 1% of the economically active population (22 million pex) is in a position – due to their income level – to purchase a standard home.
  • In the last 30 years, the volume of credits destined to buyers (mortgage loans or similar) or to developers/builders has been insignificant in relation to potential demand.

Two statements that -almost- everyone believes to be true but are not (or are used as an excuse to do nothing), and some facts that refute them:

  • It is impossible for there to be credit in an economy with high inflation.
  • Nobody is willing to lend money in pesos, so no bank is going to risk lending.

But… Any suitable lender, when defining whether or not to grant credit, evaluates whether the business to which it is going to lend is profitable. He doesn’t care about inflation (because if this were the criterion, in an economy with no or low inflation he would be introduced to anyone). In any case, inflation generates the need to establish an update mechanism, but nothing more than that.

In the economy, even in the current context, there is a mass of practically incommensurable pesos, managed by institutional investors (insurers, reinsurers, mutual investment funds, public entities such as ANSES, etc.), who seek investment alternatives – reasonably safe and profitable – in productive and infrastructure projects.

Banks do not lend because of high inflation: but they do not lend now, and have never lent in significant volumes to real economy projects, simply because it is not their business and that is why they do not even have the capacity to make an economic evaluation of a project. They obtain their permanent high profitability from the transactional business (accounts, cards, insurance, etc.).

Mortgage credit: what is the solution?

First of all, be sure to have a profitable business. In real estate development, safe and stable profitability depends on two factors: building a product with appreciable differential advantages, and having ultra-rigorous cost monitoring and control.

In second place, have a regulatory framework that standardizes and ensures transparent and accessible economic, financial and commercial information about the developer and the project, for institutional investors. This framework substantially already exists and is regulated by the CNV (National Securities Commission) which allows the qualification and approval of a debt or equity issuance program, with or without a public offering.

Either way, the scheme still needs tweaking. Above all in two points: first, in terms of simplification and lowering of instrumentation costs, which facilitates access to medium and low scale developers, who constitute the generators of more than 90% of the current and potential m2 supply. . And also, in finishing ordering the tax regulation to enhance its attractiveness.

What can be done in the meantime?

A lot. Having an innovative and profitable real estate product, put together safe and transparent investment schemes to raise funds from investors with pesos.

As innovative and qualified developers in the field, we structured two investment schemes: on the one hand, a closed fund that has allowed us to offer our own financing, interest-free and for up to 5 years. And on the other hand, we work with a market-leading ALyC in the implementation of an investment structure. This will allow us to qualify to obtain funding from institutional investors, recognizing the enormous opportunity that this mass of available pesos represents to pour into the real economy, instead of instruments of financial speculation.

Founding partner of the MAHE Real Estate Development Group and consultant specializing in economics and finance.

Source: Ambito

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