Foreigners buying up Uruguayan land

Foreigners are buying up Uruguayan land at a fast pace.

Between 2000 and 2006, overseas buyers snapped up a quarter of Uruguayan territory, according to the latest figures from the Ministry of Agriculture.

And real estate analysts believe there is no end in sight to this trend.

"Foreigners, especially Argentines and Europeans, are showing a strong interest in Uruguay," said Lucia Canepa, a real estate operator.

So why is this South American country, sandwiched between Argentina, Brazil and the Atlantic Ocean, so attractive to foreign investors?

"Uruguay is a small area in the broader region where buyers find better prices and political and economic stability," said Eduardo Caldeyro from Caldeyro-Stajano, a land sales broker.

"Curiously enough, for the first time we are receiving enquiries from Americans; within South America we get calls from Argentines, Brazilians and a few Colombians. From Europe, it is mostly Spanish real estate investors, who are facing a sharp slowdown there."

Sovereignty

The government, which is actively encouraging foreign investment, is nonetheless worried.


Ernesto Agazzi, the agriculture minister, wants parliament to consider a ban on land sales along the borders with Argentina and Brazil to non-resident foreigners.



"This is to preserve our sovereignty, to avoid smugglers holding land on both sides of the border (…) and to prevent foot-and-mouth disease from entering the country.

"We all know that Brazilian farmers have lands on both sides, and nobody controls movement on that border," Mr Agazzi told Uruguayan media.

Uruguay uses vaccines to stay free from foot-and-mouth free but struggles to maintain this status every time there is an outbreak in the region.

During the last episode, in Brazil in 2005, Uruguayan cattle escaped infection, thus ensuring beef remained Uruguay's top export.

Other politicians believe there is another reason to regulate land sales.

"The land belongs to our grandchildren. We depend on it for our future food supply," said Jorge Saravia, senator and member of the left-wing Broad Front, the governing party.

He believes the country needs to limit land sales in order "to avoid losing our sovereignty".

The agribusiness community sees matters differently.

"Our country needs foreign investment. It would be silly to limit it based on ridiculous nationalism," said Eduardo Preve, an agribusiness consultant.

Argentine crisis

Uruguay, whose main exports include beef and grains, has benefited from the rise in commodity prices.



Uruguayans have been following the Argentine farm crisis closely

The dispute between the government and farmers in neighbouring Argentina, which dragged on for more than 100 days, has brought gains to Uruguay.

"We are filling gaps in international markets where Argentina failed to deliver", says Octacilio Echenagusia, president of the Rural Federation, the largest farmers' organisation.

"I would hate to think that if they lose we gain, but this is what has happened with beef exports: Uruguay is selling more beef, filling in for Argentina."

Last March, Argentine President Cristina Fernandez de Kirchner raised taxes on food exports, triggering nationwide strikes and roadblocks.

The Argentine Congress must now debate the contentious export tax increases, but some farmers have warned that they will resume the roadblocks should Congress ratify the tax rises.

For some Argentine agricultural producers, shifting at least a portion of their production to Uruguay seems a sensible way of increasing profits and avoiding export taxes.

"We are receiving more and more inquiries from Argentine investors and producers who want to buy land, in search of risk diversification and fiscal certainty," says Ms Canepa.

Lower taxes are not the only reason - agricultural land sells for an average of $2,000 (£1,000) per hectare in Uruguay compared with up to $10,000 in Argentina.

Boom time


An increasingly popular alternative to buying land is to lease it.

Argentine group Ceres Tolbas has been producing wheat, soy, maize, barley and sorghum in Uruguay for two years.


Agricultural products form a key part of Uruguay's economy
"Most big Argentine companies are already producing here, financed by European and American funds," says Ceres Toblas's local representative, Santiago Bono.

His firm leases land and develops partnerships with local landowners, providing agricultural supplies, training and professional management.

"It is quite difficult for us because landowners are not deeply involved in the agricultural business. They are not up to date with the latest technologies. We start by renting their land and once we get to know them better we can develop businesses together."

For all the disagreement on limiting land sales, there is one thing everyone involved can agree on.

"We are experiencing an agricultural boom," says Mr Echenagusia, "and it looks like it is going to continue this way."

Reuters: Brazil is a dream, Spain is a nightmare

NEW YORK (Reuters) - For commercial real estate investors, Brazil is a dream and Spain is a nightmare, Michael Pralle, president of real estate private equity firm J.E. Robert Cos, said on Wednesday.

"I'd avoid Spain and Italy right now, and be patient in the United States," Pralle said at the Reuters Global Real Estate Summit in New York. "It's going to get worse before it gets better."

The credit crunch has walloped the U.S. commercial real estate market as borrowing costs soared and lenders have reduced the amounts they will loan. But in developing countries, a dearth of modern office and apartment buildings and shopping centers offers investors lucrative opportunities.

"The U.S. market is pretty tough right now," said Pralle, who was CEO of GE Real Estate, a division of General Electric Co (GE.N: Quote, Profile, Research), until last year.

Eight months ago he became president and chief operating office of J.E. Robert. The private equity company, one of the world's largest commercial real estate private equity firms, creates funds that invest in real estate in the United States, Europe, Latin American and Russia. It also manages real estate investment trust (REIT) JER Investors Trust (JRT.N: Quote, Profile, Research).

The firm plans to raise $3 billion to $5 billion a year from pension and sovereign wealth funds, endowments and wealthy individuals over the next several years to expand into emerging markets, Pralle said.

About 70 percent of its investments currently are in the United States, but it expects that to drop to 50 percent within three years, he said.

Earlier this week, Pralle attended a meeting organized by real estate tycoon Sam Zell and Wharton professor Peter Linneman. The 50 to 60 attendees included the heads of real estate investment units at Morgan Stanley (MS.N: Quote, Profile, Research), Blackstone Group LP (BX.N: Quote, Profile, Research) and Goldman Sachs Group Inc's (GS.N: Quote, Profile, Research), as well heads of many REITs, Pralle said.

"It was clearly the most negative sentiment that I've ever seen at a real estate meeting," he said."

U.S. commercial real estate prices are off about 5 percent from this cycle's peak last year, and many experts believe that by the time it's all over, the plunge will be 15 to 20 percent.

Still, there is very little distress in commercial real estate as sellers refuse to do deals because they don't need to do them. Pralle expects that in about six to 12 months, many property owners will be forced to sell as they find themselves unable to adequately refinance loans when they come due.

"What will drive the distress in real estate is really going to be the credit markets," he said. "It's not going to be the fundamental oversupply or lack of demand for commercial real estate. It will simply be that people can't get same financing that they had before."

U.S. commercial banks also are looking to rid themselves of questionable real estate loans, which may soon be buying opportunities for investors.

"There's a lot of toxic loans on their balance sheets, and eventually they'll be wanting to sell those, and we'll be there as a buyer," he said.

Office buildings in Orange County, California, may offer good buys as many sellers will be forced to sell because their tenants, many of whom were mortgage brokerage firms, have closed due to the housing collapse.

Still, he is pessimistic about U.S. shopping centers, which he said was the only type of commercial real estate that saw overbuilding in places such as Denver, Las Vegas, Phoenix and Los Angeles.

While U.S. investment opportunities will come in the form of buying other investors' distressed loans or real estate, Brazil and Mexico offer growth, he said.

"I'm excited about Brazil because I think it's a great emerging market with a growing middle class and great macro characteristics," he said. "There's not enough retail. There's not enough housing. There's not enough modern office space. The strategy there is simply build to meet demand."

He is concerned about Argentina, where underlying inflation may hobble the economy, but is upbeat on Russia, which is booming. J.E. Robert has a fund geared to investment in Russia. So far, it is building five office towers outside of Moscow.

Meanwhile, some European markets are hurting.

"The sick boys of Europe right now are Italy and Spain," he said. Residential overbuilding in Spain is dragging down other real estate markets, he said. Meanwhile, London's office market is down. But Germany, whose real estate market has avoided large swings in prices, is stable.

Although J.E. Robert has yet to enter Asia, Pralle said Japan is the world's best market for commercial real estate investment. Prices are still 20 percent below that of the 1990s and borrowing costs are minute.

"We will eventually be in Asia, and I think Japan will be the first place we'll go," he said.

Eventually, the firm will move into China, which he said will overtake the United States as the world's largest economy within 30 years.

"This is China's century," he said.