Over the last three years, Latin America’s real estate market grappled with challenges as the pandemic hit, buying power decreased, and inflation soared.
Consequently, interest rates rose to tackle price increases. Now, add political uncertainty and elections to the mix in 2023.
In Ecuador, a political crisis led to an early presidential vote. Colombia held regional elections. Argentina and Guatemala voted for new leaders.
Such events have stirred the market. Theodore Kahn from Control Risks confirms this. Political unrest shakes the economy and investor confidence. Real estate feels this impact.
Consumers need stability, especially when taking out housing loans. A study by Van Nguyen and Carles Vergara-Alert examines this.
Published in the Journal of Housing Economics, it links political uncertainty to slower growth in housing prices.
It also associates uncertainty with fewer home sales and more construction permits. This was evident in U.S. gubernatorial elections from 1982 to 2018.
Mariano Sardáns, CEO of FDI, observes political uncertainty’s effects. It can devalue local currencies.
Properties Traded in Dollars
In countries with ongoing political issues, like Venezuela and Argentina, this is more intense.
Properties are often traded in dollars. Yet, their replacement costs are in local currency.
Investment propels the real estate sector. It boosts demand for homes and other buildings, says Kahn.
In nations like Colombia and Argentina, political uncertainty can scare off investors.
It also devalues the currency, which affects construction costs and slows down the real estate market.
Kahn highlights another crucial point. Confidence is key for housing investment. Political instability clouds economic prospects.
It can slow down investment rates. In Latin America, elections often lead to increased uncertainty. Candidates may represent extreme political positions.
Sardáns explains the impact of polarization. It can halt investments and freeze projects. Currency devaluation adds to the hesitation.
A deal that looks good today might not be tomorrow. As sales slow and projects falter, the whole economy feels the shock.
The demand for materials drops. Employment falls. The construction industry suffers.
Political Events Resonate
The U.S. provides a comparative backdrop. Van Nguyen and Carles Vergara-Alert’s research reveals that tight elections correlate with a downturn in the real estate market.
Sales volumes drop. Housing prices grow more slowly. However, there is an uptick in construction permits.
Finally, consider the UK’s housing market. Post-Brexit, central London’s housing sales plunged. Prices fell significantly.
This was a response to uncertainty over trade agreements with the European Union. Thus, political events resonate through real estate, both regionally and globally.