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Has Punta Peaked?

Posted on June 2, 2007
Filed Under Real Estate, Economy, Places | 7 Comments

Could the region around Punta del Este be heading into a real estate decline? There are many indicators that seem to suggest this may be the case. Over-development, costly infrastructure and crime increase may be working together to change the economics of property ownership in Punta.

Punta rose to fame as a crime free, first world, oasis for rich South Americans, ensconced in the Uruguayan coast. Over the years it has been the preferred destination of the jet set, the rich and the famous from Argentina, and to a lesser extent Brazil, Chile and other countries.

In order to attract this select crowd, the quality of construction is first rate, the streets and roads are always well maintained, the supermarkets are well stocked, the restaurants are excellent, the list goes on. Because of the cost required to build and maintain this world-class infrastructure that is used for only two months of the year, Punta has always been expensive compared to the alternatives in South America. Property prices were such that only South Americans in the top one percentile could afford that playground.

The high profile of the Punta life also attracted a large number of not so rich wanting to participate in the lavish lifestyle associated with summers there. Most people in this group could only afford owning a property there by using it for fifteen days in December and renting it out the rest of the summer to help pay for the expenses.

Not too long ago, Punta was primarily confined to the peninsula (see map) and the immediate surrounding areas. But over the years, real estate development caused it to spread out over an enormous area. As a result, the cost associated with building and maintaining a first rate city infrastructure now weighs heavily on many property owners. Especially when you consider that Punta has a population of 250,000 for two months of the year and 10,000 the rest of the year. This means that the city has to maintain an idle infrastructure for most of the year. Water costs for example are now a major issue (see the comments on this article). Property and municipal taxes are also high compared to other areas in Uruguay.

Continuous development has also affected the economic picture. As the trendy spots keep moving from year to year and new houses continue to be built at a fast pace, in some areas it requires some effort to find paying tenants for December or February and rents are half as much as in January. For prices examples, see this site, click on ficha completa.

Crime is also a factor that weighs on the property ownership budget. The increase in break ins in the last few years has led more people to add alarms and hire management companies. This has added to the costs.

Add to this picture a new income tax that requires property owners to pay a 12% tax on the rental income, plus the asset tax, plus the high cost of supplies in the summer, plus the cost to get there. And it all adds up to deter many people.

In spite of this, real estate prices will probably continue to go up in the very trendy, unique areas, but prices may actually go down in other areas as houses become expensive to maintain and difficult to rent or sell.

Other posts in Economy

• Things I Find Puzzling About Uruguay
• Squatter Rights in Uruguay
• Cost of Living in Uruguay
• Observations on Pricing in Uruguay
• The Effect of Exchange Rate on the Cost of Living in Uruguay

Other posts in Places

• Overview of the Balneario of Atlántida
• Ten Things I Love About Montevideo
• Beach Customs in Uruguay
• A Dispassionate View of Punta del Este

Other posts in Real Estate

• Pros and Cons of Retiring in Uruguay
• Heating in Uruguay - Things to Consider
• Overview of the Impuesto al Patrimonio (Asset Tax) in Uruguay
• Inheritance Laws in Uruguay
• What Everybody Ought to Know About Renting in Uruguay
• Uruguayan Spanish Real Estate Terminology
• Squatter Rights in Uruguay
• Real Estate Investment Risks in Uruguay
• A Description of the Land Buying Process in Uruguay
• Uruguayan Links

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