Uruguay’s Highest Rental Returns
Date: 02/12/2008
Edificio Rincón del Indio is typical of the high-end construction on Punta del Este’s eastern beach, known as Playa Brava.
Wednesday, Feb. 13, 2008
Punta del Este, Uruguay
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High rental returns: that’s why many buyers have entered the Punta del Este real estate market in Uruguay. And with returns sometimes in excess of 10%, it has paid off nicely for them in recent years. What’s more, property investors have seen returns of 30% on their pre-construction investments, according to one Punta del Este real estate firm. But will it continue?
This summer, construction will complete on an unprecedented 27 new apartment buildings, costing more than $600 million. The additional 300,000 square meters of living space (3.23 million square feet) will have a significant impact on the local apartment inventory, no doubt. But I don’t think it will have too much of an adverse affect on property investors, for a few reasons.
First, 70% of the new construction is destined for the high-end, premium market. I’ve seen these super-luxury models list for as high as $5.5 million each, and such units are rarely used as rentals. At these prices, buyers are normally not seeking rental income, nor do they want the associated cigarette burns on their furniture or little chocolate handprints on their walls. Of the remaining 30%, many are destined to be second homes whose owners find prestige in the fact that they own a property here and don’t need to rent it out to cover costs.
Second, the demand still seems to be unsatisfied, as buildings sell out pre-completion and often pre-construction, with 60% of the buyers coming from neighboring Argentina.
Finally, there are increasing numbers of buyers from Europe (especially Spain) and North America, which will help to sustain the apartment market.
This year—proving the old real estate axiom about location—the best properties in the most sought-after areas are still booked solid at good prices, and should continue to be.
The construction industry’s official forecast (as of January 2008) is that current sales demand levels will hold through at least 2010. Beyond that, I think that a well-thought-out apartment purchase in a good location will still make sense and provide a decent return. But long term, I’d expect rental returns on apartments to fall to the more normal 5% to 6% range.
Lee Harrison
Roving Latin America Editor, International Living
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