In Argentina, real estate agents have one key piece of advice for potential home buyers: bring cash, big bags of it.

Pro-free-market President Javier Milei is trying to fix the South American country’s economy after years of crisis and high inflation. Part of his solution is to encourage banks to revive the moribund local mortgage market.

But buyers and real estate agents say that won’t be easy. Argentina’s mortgage market is tiny, less than 1% of the country’s GDP versus around 30% in Chile, 10-15% in Brazil and Mexico, and 15% in the U.S. Regular cycles of economic uncertainty mean borrowers – and lenders – fear the risk of long-term credit.

“People buying properties in Argentina come with cash, in a backpack or a bag,” said Juan Verzero, owner of Buenos Aires broker Succeso Propiedades.

Typically, he said, sellers and buyers get together in locations such as shops or offices to sign the contract, exchange keys, and hand over cash, usually in dollars to defuse inflation and devaluation fears – counting it out on the spot.

“Now and in recent years everything we sell is done without a mortgage,” he said. “People come with cash and leave with cash.”

Paying in this way locks most people out of the market. “Only those with a very high income, around the top 9% to 10%, are able to buy a house. The rest have to rent,” said Cynthia Goytia, director of the Urban Policy and Housing Research Center at the University Torcuato Di Tella.

In an attempt to tap into middle-class dreams of home ownership, there have been new mortgage launches this year. Local banks Banco Nacion and Banco Galicia pledged billions of dollars of mortgage loans, adding 4.5%-8% interest on top of an official inflation-linked index.

Fabian Kon, General Manager of Banco Galicia, told Reuters the bank had received tens of thousands of initial queries, but said ultimately most chose not to take on the financial risk.

“The problem is inflation, not the mortgages. If you have 200% inflation, people get scared,” he said.

“(The market) could make a comeback. What does it depend on? That there really will be no inflation in Argentina for many years, that we won’t again have an explosive situation where someone who has a loan is scared of what could happen to them.”

In May, only 141 houses were sold with mortgages in capital Buenos Aires, edging up from 134 a year earlier, the college of notaries said in a report. In the first five months of the year it was 509, down from 515 in the same period in 2023.

A Reuters reporter went to nearly a dozen real estate firms in June and July. None said it had assisted a local buyer in acquiring a home with a new loan this year.

‘I don’t trust banks’

Argentina’s economic track record doesn’t help. The country has registered nine sovereign debt defaults, the most recent in 2020, which has left it largely cut off from foreign capital markets. In 2001, the government froze bank withdrawals after a then world-record debt default, leaving many to watch the value of their savings evaporate as the peso plunged and sparking sometimes violent protests.

In addition, inflation is among the highest in the world. Although it has cooled in recent months, in June it was still 4.6%, over 270% annually.

Small wonder, perhaps, that many Argentines prefer to keep dollars in safes or stuffed under the mattress.

“I don’t trust banks,” said 31-year-old Feli Fernandez, a fintech sector worker who wants to buy a house but sees mortgages as too risky. Although she was then a child, she recalls the 2001 protests.

“I remember that day clearly… My older brother was trying to explain why people were setting fires in the streets,” she said.

Limited access to credit has forced people to get creative.

Sandra Kattan, a 61-year-old teacher, managed to get on the property ladder with a credit card and some dollar savings.

With her husband, they purchased land in Moreno, a Buenos Aires neighborhood, paying around $30,000 upfront in dollar savings, raising more money by selling their car and truck. In 2017, they used a credit card to pay for materials to start building and paid workers with Kattan’s teaching salary.

“Mortgages that existed were too expensive for us, it was inaccessible,” she said. “We were a little afraid of bank loans… We were afraid of inflation.”

Argentina’s government has cited the return of mortgage products as a signal of support for Milei’s pro-market reforms. He wants to deregulate the economy, reduce state interventions and slash public spending to bring down inflation.

“We went from being headed for almost certain hyperinflation to having mortgage loans,” Economy Minister Luis Caputo said in a speech in June.

Although acknowledging that they are starting from a low base, banks are cautiously optimistic.

Manuel Herrera, general manager of Banco Hipotecario, said in June the bank had received over 60,000 queries since launching a mortgage product on April 20.

“We have nine loans in the process of being carried out. That’s a lot,” he said. “Up until now there were no mortgage loans at all.”

In the booming agricultural area of Buenos Aires, silos overflow at the end of the harvest. Farmers are delaying sales while waiting for the ultra-liberal President, Javier Milei, to whom they gave their vote, to eliminate taxes and exchange barriers.
| Photo Credit: AFP

In the pampas, Argentina’s vast and fertile grasslands outside Buenos Aires, grain silos overflow with this year’s harvest — but nobody is selling just yet.

Though the country’s farmers largely gave their votes to President Javier Milei in the November election, they now want him to deliver on promises to slash taxes and ease exchange rate controls.

Until then, their bumper harvest will sit.

“The silos are full. One sells just enough to cover expenses,” Ricardo Semino, a farmer from Lobos, 110 kilometres (68 miles) southwest of Buenos Aires, told AFP as he finished harvesting his corn and wheat fields.

“Those who can wait, do so.”

After the country’s worst drought in a century saw agricultural exports plummet, leading to a shortfall of $20 billion in revenue, the industry is expecting an excellent harvest in 2024.

The latest estimate from the Rosario Board of Trade indicates that the grain harvest could yield 131.1 million tons, a sharp rise from the 82.2 million tons gathered in the previous year.

But farmers say that low global prices and the delay in freeing up the exchange rate at which producers can sell their goods abroad have complicated the seemingly good news.

Agriculture is a major part of Argentina’s economy, accounting for 55% of the country’s exports. It is among the world’s largest food producers, ranking third in soybeans behind only Brazil and the United States.

Argentina usually sells about 70% of its agro-industrial production, while the rest goes into storage.

Agricultural exports are estimated at $29.3 billion this year, falling short of the average $32 billion a year over the past five years.

Unsold crops

The combination of increased production and unfavourable economic conditions has left Argentina’s fields dotted with “silo bags” — basically, tons of harvested soybeans and grains wrapped in plastic.

Mr. Semino says sending grain to actual silos is a bit of a crapshoot.

“Usually you speculate when you send (the grain) to the silo plant,” he explained.

“Nowadays the silo plants, which belong to big companies, give you the possibility to deliver the grain and you can sell it within five, six, seven months or a year.”

The Rosario Board of Trade estimates that there are some 35.6 million tons of unsold grains in the country, valued at almost $10.6 billion.

Despite Mr. Milei’s campaign promises, he raised taxes on exports of soybean meal and oil from 31 to 33% upon taking office. Taxes also increased on fuel.

Reforms to exchange rate controls have not been forthcoming, and no timeline has been set. Inflation, though trending down, was still at 276.4% in May year-on-year.

Argentina has half a dozen dollar exchange rates. Exporters get a preferential rate, but still far less than the value of the peso on the parallel informal market (1,300 pesos to the dollar) — which is the rate producers use to pay for farming supplies.

Six months into Mr. Milei’s tenure, all of that translates into uncertain costs for farmers.

In the past year, “the price of a tractor went from $170,000 to $250,000,” Mr. Semino said.

Nevertheless, support for Mr. Milei persists in the countryside, with Mr. Semino explaining that a devaluation of the peso in December did help farmers.

‘Moving forward’

And despite all the uncertainty, the future still seems brighter.

Cristian Russo, head of estimates at the Rosario Board of Trade, said strong rains had boosted projections for the wheat harvest, with a 40% higher yield expected next season.

The agricultural sector does not stop production, no matter what happens in government, Mr. Semino explained.

“You get used to always moving forward,” he said. “Nobody is going to leave a field fallow because they are waiting for another government. You have to plant it and get the most out of it.”

Argentina’s economy minister and the anti-establishment upstart he faces in a presidential runoff next month began competing Monday to shore up the moderate voters they need.

Economy Minister Sergio Massa earned almost seven points more than chainsaw-wielding economist and freshman lawmaker Javier Milei in Sunday’s vote. Most polls had shown Mr. Massa slightly trailing, as voters had been expected to punish him for triple-digit inflation that has eaten away at purchasing power and boosted poverty.

On November 19, voters will either choose Mr. Massa, despite the economic deterioration that took place on his watch, or place their hopes in a self-described anarcho-capitalist who promises a drastic shake-up of South America’s second-largest economy.

Mr. Milei’s fiery rhetoric and radical proposals — like slashing subsidies that benefit a large swath of the population and replacing the local currency with the dollar — galvanised die-hard supporters, but cost him support among more moderate voters.

Mr. Massa focused his messaging in the latter part of the campaign on how Mr. Milei’s budget-slashing chainsaw would negatively affect citizens already struggling to make ends meet, with a particular focus on how much public transportation prices in Buenos Aires would increase without subsidies, said Mariel Fornoni of the political consulting firm Management and Fit.

That “had a significant impact and evidently instilled more fear than anything else,” Ms. Fornoni said.

Mr. Massa once again showed his Peronist party’s power to mobilise Argentine voters. A political movement named after former President Juan Domingo Perón that has both left- and right-wing factions but broadly believes in social justice and workers’ rights, Peronism has been a dominant force and in this election cycle emerged as the only viable left-leaning option.

Right-wing votes were divided between Mr. Milei, former Security Minister Patricia Bullrich of the main opposition coalition and another candidate, Cordoba province’s Governor Juan Schiaretti. Ms. Bullrich finished third in the field of five candidates, and the runoff will be decided by where her voters ultimately migrate.

She said in her concession speech Sunday night that she wouldn’t congratulate Mr. Massa on his victory because he was part of “Argentina’s worst government,” and that her coalition would never support “the mafias that have destroyed this country.” She stopped short of endorsing Mr. Milei, however.

During the campaign, Mr. Milei harshly criticised Ms. Bullrich as part of the entrenched elite that required purging, but he sought to appeal to her voters in a radio interview Monday, suggesting that they should focus on the bigger picture.

“Everyone who wants to change Argentina, who wants to embrace the ideas of freedom, are welcome,” Mr. Milei said. “It’s not a matter of labels; it’s a matter of who wants to be on this side.”

Asked in a news conference Monday whether he foresees challenges in siphoning support away from Ms. Bullrich, Mr. Massa responded that “leaders aren’t the owners of votes” and that several views espoused by Mr. Milei “have nothing to do with our culture and the values of the average Argentine citizen.”

Mr. Massa also said he would not want his government to be characterized as only Peronist.

“I believe it’s a mistake to suggest that the upcoming phase should be tied solely to Peronism. We are heading toward a government of national unity. I will call upon the best from various political forces, regardless of their origin,” Mr. Massa said.

Mr. Massa had already told voters that he inherited a bad economic situation exacerbated by a devastating drought that decimated exports. He reassured them that the worst was past.

With nearly all ballots counted Monday, Mr. Massa, 51, had 36.7% of the vote and Mr. Milei, 53, had 30%. Ms. Bullrich got 23.8%

In his radio interview, Mr. Milei characterised Mr. Massa’s results as the minister’s “ceiling” and said his showing marked a “floor”.

Mauro Salvatore, a 23-year-old programmer, said outside Milei’s campaign headquarters Sunday night that he is optimistic Mr. Milei will pick up the votes that went to Bullrich in the first round.

“We have a clear possibility. We find ourselves in a situation we knew wouldn’t be easy, but you can see the Argentine people are tired and really want change, independent of whether it will be Milei or Bullrich,” said Mr. Salvatore. “We have a lot of faith that some of Bullrich’s voters can be taken, given it’s understood they have more inclination toward Milei’s ideas than Massa’s.”

Analysts, however, questioned whether those votes would automatically transfer to him. Some of the more progressive elements of Ms. Bullrich’s coalition were already making clear Monday they would not support Mr. Milei, who has raged against the so-called “political caste,” vowed to eliminate half the government ministries and slash public spending.

And some analysts warned a runoff scenario may not be conducive to Mr. Milei’s combative style.

Mr. Milei is “an inexperienced candidate, lacking political expertise, who perhaps may not have the capacity to understand that the current scenario will require him to moderate, build political agreements, and appeal to voters who might ask for changes in his political proposal,” said Lucas Romero, head of Synopsis, a local political consultancy.

Mr. Milei’s casting himself as a culture warrior against the creep of the so-called “socialist agenda” appears to be a headwind, said Benjamin Gedan, director of the Latin America Program at the Washington-based Wilson Center. Mr. Milei has been endorsed by Brazil’s former far-right President Jair Bolsonaro and says he shares a common mission with former U.S. President Donald Trump. Some supporters wear hats that read “Make Argentina Great Again”.

Mr. Gedan described Milei’s opposition to abortion and gun control, among other positions, as “out of sync with Argentine society”.

Sovereign bonds plunged Monday and there was a selloff in Argentine equities as the market predicted that Mr. Massa’s first-round surprise means the government has little incentive to correct any of the economy’s imbalances for now. In the run-up to the vote, Mr. Massa boosted welfare programs and implemented tax cuts that benefited almost all registered workers, going against calls from the International Monetary Fund for austerity and removal of subsidies.

Mr. Massa “was able to build over the last two months through some tax holidays and other giveaways that could be fairly deemed populist,” said Brian Winter, a longtime Argentina expert and vice president of the New York-based Council of the Americas. “It’s going to be really interesting to hear what he says in the next few weeks, because he will need to win over some more moderate voters in order to win.”