Argentina Real Estate- Introduction

Deals of a lifetime may be found in Argentina. The countries default on its $141 Billion debt was announced by President Eduardo Duhalde early 2002. The economy contracted 11% as unemployment rose to 20%, resulting in 30% to 70% drops in the real estate market.

The economy in this beautiful and diverse country is recovering, and with it great opportunities in real estate.

Spanish is the official language

Argentina Real Estate- Restrictions on Foreign Ownership

The Constitution of Argentina grants the same rights to foreigners as it does to Argentine nationals to conduct business, work, buy, own and sell property.

Foreign ownership of real estate in Argentina are subject to no restrictions.


Argentina Real Estate- Ownership Options

Forming a corporation to purchase property is possible.

A corporation comes with advantages:
-Being able to sell shares of the company and avoiding transfer tax.
-You are able to  make yourself the director of the corporation, hire yourself, become an employee, resulting in qualifying for permanent residency.

The disadvantage is that a corporation comes with risks, and not many buyers are willing to buy a corporation.
-When the property is sold, the corporation is liable for capital gains tax, unlike an individual owner.
Because capital gains tax does not apply to individuals and if you are planning on buying one or two properties only with the intention of renting out or for personal use, buying in your own name would be the best option.

Argentina Real Estate- Buying Property

Most real estate deals in Argentina can be completed in a month or two because the process of purchasing is straightforward.

1- Make an Offer
Making an offer is always a simple thing, as long as it is an appropriate one. If your offer is not accepted, it is probably best to move on rather than making a counter offer. The response in Argentina will not be the same as in the United States. Your offer may have insulted the seller and will not sell to you at any price.

For a purchase of a house, requesting updated floor plans reflecting actual construction is very important. Back taxes that could have been paid by the previous owners could become your responsibility if this request is not made.

2- Notarized Documents for the Offer
The offer is documented once a price for the property has been reached, stating:
-price
-closing date
-name of the notary
-special conditions

When the offer is accepted and signed, the deposit amount will be forfeited to the seller if the buyer backs out prematurely to the closing date. If this happens the seller must refund double the amount of the agreed deposit. The deposit amount should in the offer document.

3- Closing
Closing has two options: one being more American and another two-step process. The American way is simple: Once your offer is accepted, the deposit is increased maybe from 1% to 3%, then follow the closing time frame according to the offer.

The other way has a few more complications. An offer is made. The deposit is increased to 30%. The documents are signed and will state the specific date the title will be exchanged, as well as the balance. This way is more of the French way.

Because locals don’t trust the banks, all transactions are in cash of U.S. dollars.

To acquire a deed to a property, a foreign buyer will need a CDI; a Personal Tax Identification Number. The CDI will take a few weeks to obtain, around two weeks. A third party may act on your behalf with a Power of Attorney. A third party may be difficult to find in certain circumstances. Some sort of responsibility associated with the personal asset tax on the property my fall on their shoulders, so it is best to be present at the closing.

4- Possession
Before taking possession of the property, you will need to be patient during a 30 day waiting period after closing. These 30 days is standard and during this time, the seller is allowed to occupy the property while they find another place to live. This is a necessary step in Argentina as there is no credit industry. The seller, who will not be able to borrow to buy, needs the cash from the sale for their new home.

Argentina Real Estate- Closing Costs
For a smoother transaction, it is better to work with one real estate agent who will do the research of the market and understands what the buyer wants. There are multiple listing systems and agents will share lists, getting more than one agent involved. The commission paid buy the buyer does not vary with the number of agents involved.

-Notary fees: payable to the buyer, they are around 2% of the purchase price.

-Real Estate Agent Commissions: depending on location around 3% to 4%, plus IVA at 21%. The final amount is payable to both parties. The agent of the estate will get 6% to 8% of the purchase price.

Argentina Real Estate- Taxes

Transfer Tax:  Payable to the seller, a transfer tax of 1.5% is charged on the sale. If a resident his selling his primary residence, this tax does not apply if he commits to buying another property within 12 months.

Real Estate transfers are subject to a provisional stamp tax, and depending on the jurisdiction, the rate varies between 1% and 4%. This tax is exempt in some jurisdictions if the transfer includes standard or inexpensive housing for permanent family dwellings.

Also subject to the stamp tax are rental contracts varying between 0.5% and 2.5%. In the city of Buenos Aires, this tax is not applicable for a buyers first property whether the buyer is resident or not.

Property Tax: There is no property tax out side of Buenos Aires. These taxes are based on the assessed value of the property and are levied by the provinces. The rates vary depending on the jurisdiction.

Inheritance and Gift Tax: Argentina does not have taxes on inheritance or gifts. The Department of Justice charges between 3% and 10%, depending on the amount or size of the inheritance when the estate or wealth goes to trial between heirs.
Wealth Tax: Real Estate owners in Argentina are subject to “personal asset tax”. A fixed rate of 0.75% for non-residents is applied to the value of the property stated in the title deed, or the fiscal value of the property. The fiscal value is the value taken by the government, and the tax will apply to whichever figure is higher. The value on the title deed is usually higher.

Rental Income Tax: Any income earned as a resident through renting your property is considered part of your normal taxable income. Depending on declared income, the rate is between 10% and 35%.

A withholding tax of 21% on the gross annual rent for non-residents is enforced. The percentage is raised to about 26.5% when the tenant is responsible for paying taxes.

A vacation property not rented and used solely by you and your family during the entire year is considered part of your annual taxable income, and the amount is determined from estimated rental value.

Income from rental properties is subject to a provisional tax. This only applies if the housing units rented, exceeds the limit in your jurisdiction. The limit in the City of Buenos Aires is 2, in the Province of Buenos Aires it is 5. The rate for excess is between 3% and 5%, depending on jurisdiction.

Capital Gains Tax: Upon the sale of your property, individuals are not liable for capital gains tax. The income earned from the sale may be subject to regular income tax depending on the situation.

Argentina Real Estate- Financing

For foreigners, it is nearly impossible to arrange financing in Argentina like most Latin and South American Countries. Options for financing could include arrangements for a loan through your bank in the U.S., or pooling money with investors, friends or a group.

 
Argentina Real Estate- Where to Put Your Money

Apartments in Buenos Aires are probably the best opportunity in Argentina right now. Something small, or a starter home for single person or a couples would be a good place to look first, or something bigger in the better neighborhoods.

For a long-term rental in the local market, a smaller apartment would net a return of about 3% to 6% including the rental management fee. The minimal potential hassle would be eviction. The eviction laws in Argentina are similar to laws in the States, so it may not be that difficult. It is good practice to research any potential tenants.

Appealing, attractive smaller apartments in older buildings reminiscent of Barcelona and Paris can be found in the neighborhoods of Recoleta and Retro in Buenos Aires. They are appealing to the local and world markets. They possess style and character, and if owned, you may desire occasional use, or simply rent for the long term.

As Argentina’s economy strengthens, the demand for short-term rentals will increase, the demand stemming from foreign tourists. The return on a furnished short-term rental property could be around the same as a long-term rental of 3% to 6%. So depending on your desire to stay in your own property, you could go either way.

Argentina Real Estate- Long-term Potential Up North

North of Buenos Aires is the potential for long-term appreciating properties. The suburbs to the north offer higher-value investments and similar to properties in Buenos Aires, they offer long-tern rental potential with strong potential of valuable appreciation.

Expats with families and school-aged children are attracted to these homes. There is commuter train to the city, an English-language school, and it has a more American suburb feel than the third world.

This area is where the wealthy of Argentina live, and the homes will be big and equipped with maids’ quarters, swimming pools, and outdoor patio kitchens. These homes will appeal to potential buyers looking for long-term appreciation, more than 3 years. They usually have quality construction materials including granite, hardwoods, and brick. In the States, homes found with these materials would sell for at least 4 times the price found in Buenos Aires.