Uruguay, Rhymes with "You're a Buy"

Lately, the credit rating agencies haven’t been doing much for International Living’s home country of Ireland, other than downgrading it. Moody’s cut Ireland’s credit rating to junk in recent weeks. But some countries are faring much better.

In July, Standard & Poor’s bumped Uruguay’s credit rating up to “investment grade.” Moody’s and Fitch, the other major ratings agencies, boosted Uruguay’s rating as well, although not quite to investment grade.

S&P's Credit Rating for the Irish Government vs. S&P's Credit Rating for the Uruguayan Government

All three agencies like the country’s “prudent and consistent economic policies.” Fitch, which bumped Uruguay one notch to BB+ on July 14, said that Uruguay’s high GDP per capita income, strong social indicators and solid institutional framework underpinned the country’s creditworthiness. Of course, it helps that Uruguay’s economy is growing strongly, too.

In fact, it grew by 6.8% in the first quarter of 2011. This growth follows on from economic growth of 8.5% in 2010. Manufacturing (pulp paper and dairy), construction, and commerce (car sales and restaurant services) were the most dynamic sectors of the economy. Exports of goods and services expanded 14.7% in the first quarter of 2011, mainly auto parts and tourism. Analysts forecast growth for 2011 to reach 6.3%, up from their prediction of 5.9% in May, based on quarter one’s strong performance. Interestingly, domestic demand in the first quarter rose by 8.3%.

Canada’s Scotiabank wants to target those domestic consumers. The bank just concluded the purchase of Uruguay’s fourth-largest private bank in terms of loans and deposits, NBC. NBC has 47 branches throughout Uruguay and a three-branch subsidiary in Brazil. The purchase of NBC is not Scotiabank’s first foray into Uruguay. Earlier this year, the Canadian firm bought Pronto!, Uruguay’s third-largest consumer finance company. That gives Scotiabank a strong presence in the Uruguayan market.

Foreign direct investment hit a new high in 2010 according to a report released this week, reaching $2.35 billion. That’s 47.8% higher than in 2009.

The big driver in Uruguay is the “soya dollar.” That is, the agro-wealth that’s been created within Uruguay, as well as in neighboring Brazil and Argentina. Also fueling the fire, Uruguay’s tourism numbers are up an astonishing 40% as of January, 2011, bringing more people to the scene.

Buyers from neighboring countries are here in force…from Brazil because it’s booming…and from Argentina, because inflation is driving prices up, and they’re looking for a safe haven for their money.

Not surprisingly, in Montevideo, the capital, apartment prices rose 22% in 2010. House prices increased by 17%. In Punta del Este, real estate transactions reached $2.25 billion in the 12 months to April 2011.

Around 45% of the properties purchased in Punta were in the town itself. The remaining 55% splits between farms and developments around the town. Chacras, larger lots in private communities, are popular. These large lots, sometimes up to five acres in size, are usually set in a tranquil country landscape of grassland, artificial lakes, and stands of trees. Most offer minimal on-site amenities — a clubhouse and swimming pool, perhaps tennis courts. Pricing ranged from $40-$135 per square meter ($162,000 to over $500,000 per acre) when I checked them out late last year on a scouting trip.

But if you leave Punta del Este behind, and head east to the province of Rocha, you’ll notice two things. First, the beaches are better…wide, unspoiled carpets of white sand, with dunes and white-capped breakers…and empty. Second, real estate prices are much lower.

The province of Rocha stretches east from Punta del Este to the border with Brazil. As development continues to move steadily up the coast from Punta we expect real estate prices will rise in Rocha.

The Rocha market is overlooked and undervalued right now. Buyers tend to focus on Punta del Este if they want a property close to the beach in Uruguay. They simply don’t consider other options. But Punta’s pricing is pushing many buyers out of the Punta market. They’ll start to look elsewhere. Once they do, they’ll realize that not only will their real estate dollars go further in Rocha, but that this area also offers more upside potential.

Now is the time to buy here.

The cheerful and energetic La Paloma is Rocha’s biggest beach town, while the upmarket La Pedrera has a quieter and more genteel ambiance. Tiny Cabo Polonia is famous for its shifting sand dunes, and bohemian residents.

This stretch of coast is in the sights of a handful of international developers. Argentina’s most prominent developer, Eduardo Costantini, is planning a $350 million project here. There have been reports of another planned community by the founder of clothing chains Mango and Etiqueta Negra.

A couple other developments have also attracted our attention. Developer Daniel Oks’ La Serena Golf, for example, is close to one of the best beaches in Rocha. This private community will have a 9-hole golf course, seven lakes, a putting green and tennis courts. More than half the 225 acres will stay as green space. The community is 400 meters from a beautiful beach, a kilometer from a large lake and four kilometers from a nice beach town. Lot sizes in the community range from a half-acre to three-quarters of an acre…and they start at $31,900, which is only a fraction of what a comparable property would cost in Punta.

Rocha is a special place…a great place to visit and spend time. But it’s also a place where real estate investors can profit. We’ve got our eyes on Rocha!


Ronan McMahon and Margaret Summerfield,
for The Daily Reckoning

The Daily Reckoning