First a little update as to what’s happening in Argentina. It’s raining here now which is a relief because just like us in California they are having a drought. My understanding is that it has been so dry that they have lost over 800,000 head of cattle. The government, along with the drought is putting Argentina once the third leading exporter of beef in the world to seventh in the world. (BBC News) Since Judy and I were down here in November of 2008, the peso has depreciated from 3.40 pesos to 1 dollar, to the present time of 3.70 pesos to the dollar.
Everyone I talked to down here blame the recession on America’s and Europe’s ability to borrow money to buy houses with a low down payment and to have a thirty year mortgage. They say that cannot happen in Argentina because there, everyone pays cash for their homes. Paying cash for their homes assures them that they will not lose their homes to foreclosure. They said if we had paid cash for our homes, we would not be in this real estate melt down.
In Argentina there is only one way to buy a residence and that is strictly cash. You offer fifty percent down and on closing you put up the other fifty percent. There are no title companies there; you rely on a notary to assure you that you are getting a clear title to the property that you are buying. He or she is insured and they charge two percent of the purchase price for their service.
For them, it limits their market tremendously, only those that can afford to raise cash in the amount of $90,000 to $500,000 can afford to buy a home. (About the going rate in Buenos Aires for apartment condominiums)
It is hard for the Argentineans to see the advantages of being able to borrow money to buy real estate, since all they read about and see is the news about foreclosures, here in the United States and abroad. They are not aware of the greed of the banks and their CEO’s that led to this present crisis. Their qualifications for a loan were simple, they put a mirror in front of a person’s nose and if they detected that the person was breathing, the loan was approved.
Of course paying cash also limits your market, since so few here in Argentina (And the United States) can afford to raise that kind of cash. Even now, in the United States, our ablity to borrow money is what will pull us out of the housing crisis. First time home buyers, real estate investors, almost all of them rely on borrowed money. So we still have in my opinion, the best system in the world. Borrowed money has made a lot of people wealthy and provided homes for the majority of people in the United States. In contrast, the real estate market is flat in Argentina, since no one is spending money and the majority of the people do not have the resources’ to buy a home.