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Argentina Denies Inflation, Subsidizes Loans: Mortgages

Argentines are lining up at banks again. This time, they’re leaving with loans.

Veronica Cajal, who wants to move out of her mother’s house, is among 1.4 million Argentines who applied for subsidized home-construction loans in the first week they were offered as part of a program designed to ease a chronic housing shortage and help revive growth in South America’s second-biggest economy.

The plan calls for the national pension agency to lend about 20 billion pesos ($4.4 billion) for new homes at rates as low as one-tenth the pace of consumer-price increases. The government is trying to foster home building as private banks balk at issuing long-term loans amid inflation that economists estimate at 24 percent a year, a legacy of government policies that followed a $95 billion default in 2001, when Argentines queued at banks to buy dollars before a currency devaluation.

“I’m hoping this will give us the chance to have something for ourselves,” said Cajal, a 31-year-old secretary who lives at her mother’s two-bedroom house in Buenos Aires with her husband and their two boys. “We’ve tried to get loans at other banks but were never approved.”

Cajal was among about 50 people who lined up outside a branch of Banco Hipotecario SA, the lender administrating the mortgage program, on a recent weekday morning. The pensions agency, called Anses, will provide most of the financing, President Cristina Fernandez de Kirchner said June 12 on national television when she announced the program. For borrowers who don’t already own building sites, the state will sell lots from 1,700 hectares of land it has designated for home construction.

100,000 Loans

Shares of Banco Hipotecario jumped 7.9 percent, the most in five weeks, the day after Fernandez announced the program. The shares were little changed today at 1.20 pesos as of 11:09 a.m. in Buenos Aires. Holcim Argentina SA, a cement producer, also advanced 7.9 percent on June 13, the biggest increase in almost five months. The shares closed yesterday at 3.20 pesos.

The program calls for making 100,000 loans by the end of 2013. Recipients will be chosen randomly from all eligible applications.

Interest rates on the 20- to 30-year loans will be fixed at 2 percent to 14 percent for the first five years. The credit of as much as 350,000 pesos is available to Argentines who earn as much as 30,000 pesos a month. Private banks charged average interest of 14.6 percent for mortgage loans of more than 10 years in May, according to the latest central bank data.

Conflicting Data

Those rates compare with annual inflation of 24 percent in May, according to an average of economists’ estimates released by opposition lawmakers. Argentina’s national statistics agency, whose data has been questioned by the International Monetary Fund, said consumer prices rose 9.9 percent in the same period.

“Inflation has made financing for homes extremely expensive in the last few years,” said Fausto Spotorno, an economist at Buenos Aires-based Orlando Ferreres & Asociados, a business and finance advisory firm. “Most purchases are made using cash, which cuts out a large part of the population from the dream of owning their own home.”

Mortgage lending shrunk after Argentina’s default in 2001 as the government’s freezing of bank accounts that year made individuals distrust the banking system, said German Gomez Picasso, a director at Reporte Inmobiliario.

In the financial crisis that followed, Argentines lined up outside banks, and the same happened last year after Fernandez tightened currency controls, raising concerns that the government would turn their foreign currency savings into pesos or limit how much they could take out.

Protecting Savings

Only 6.6 percent of all home purchases used mortgage loans last year, according to Buenos Aires real estate research company Reporte Inmobiliario. The share hasn’t surpassed 9 percent in the past 10 years, compared with at least 25 percent in the four years before the default, the data show.

“There’s been a big real estate boom in Argentina because people see bricks and mortar as the best way to protect their savings,” Gomez Picasso said. “But this wasn’t fueled by home loans. The participation of mortgages in home buying has been negligible.”

Mortgages represented 11 percent of Argentine banks’ total lending in May, according to the country’s central bank, while in neighboring Chile it represented 67 percent of banks’ loan portfolio in April, according to the Chilean banks regulator.

Housing Shortage

If all 100,000 people who are awarded loans for the average amount of 200,000 pesos estimated by the pensions fund, lending will total 20 billion pesos by the end of 2013, almost equal to the total amount of mortgages outstanding as of last month, according to the country’s central bank.

About 32 percent of Argentine families have some sort of housing deficit, according to a May 14 report by the Inter-American Development Bank. The rate hasn’t dropped below 29 percent in 20 years, according to the institution.

The country’s economic growth will slow to 2.75 percent this year, according to the median estimate of economists surveyed by Bloomberg, down from 8.9 percent last year and 9.1 percent in 2010.

Argentina uses government agencies such as the pension fund and the central bank to finance spending because it has been locked out of international credit markets since the 2001 default. Anses will probably withdraw some of the 23.4 billion pesos it has in bank deposits to finance the plan, driving up bank rates, Miguel Kiguel, a former deputy economy minister who now runs research company Econviews, said from Buenos Aires.

International Reserves

“Anses doesn’t have all that money available so it’ll have to take some of the funds it has in the banking system in timed deposits,” Kiguel said. “Any other country would go and sell bonds abroad to finance these programs, but Argentina can’t so it reverts to these alternative mechanisms.”

Argentina’s government took $7.5 billion of reserves and borrowed a further $9.6 billion from the central bank last year. It also sold 11.4 billion pesos of debt to state-owned lender Banco de la Nacion Argentina as well as 5.3 billion pesos to state entities other than the national pensions agency, according to the Economy Ministry.

The Argentine government’s plan won’t help the real estate industry rebound from its worst year since 2009 as the loans will be granted to build new houses, not buy existing properties, Spotorno at Orlando Ferreres & Asociados said. Sales have slumped since Fernandez limited access to dollars, the currency that is most used in Argentine home sales. Fernandez on Oct. 31 required authorization from the federal tax agency to make any foreign exchange purchase. The agency approves or rejects the requests based on undisclosed guidelines.

Bond Rout

Declining property sales spurred a rout in bonds of Argentine real estate developer Irsa Inversiones y Representaciones SA. Yields on Irsa bonds due in 2020 surged 494 basis points, or 4.94 percentage points, this year to 16.25 percent.

Residential real-estate transactions in Argentina’s capital fell 9 percent in the first four months of the year to 24,023, the fewest in three years, according to Reporte Inmobiliario. Sales fell 15 percent in May from a year ago to 6,706 the data show.

Still, average prices per square meter rose 10 percent to $807 in that period as Argentines bought property to shield their savings from inflation. Property values have risen in nine of the past 10 years, providing more stable returns than Argentine dollar bonds that posted annual losses four times in the past decade.

“Real estate has become too expensive for most,” Gomez Picasso said. “It’s been 10 years of very difficult conditions for homebuyers. The government’s program is very ambitious and may help ease this problem, if they manage to pull it off.”

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