Buenos Aires, by Noelia Diaco. Photo is not visible, used only for sharing on social networks.

Understanding the scams and tax shelters in the expat real estate market

December 17, 2011
We had a dispute with our landlord recently, related to the dollar exchange restrictions imposed in November. The restrictions are aimed, among other things, at fighting a tax haven that has now become apparent to us.

To rent property here as a local, you need a guarantia, like a co-signer on the lease. Leases under those terms can be for two years, and the landlord - who otherwise has to deal with tenant-friendly eviction rules (which prevent homelessness at the expense of property owners) - has some protection.

Tourists and expats visiting here don't have a local guarantia or the wherewithal to navigate the local realtor system, so they go to a special market aimed at foreigners, with prominent websites to attract clients before they arrive, and local offices/agents who work as brokers with the landlords. That's the demand side of the market.

The supply side is fueled by the promise of easy cash dollars: a landlord could charge rent at a dollar rate, avoiding the peso's high inflation. Short-term visitors (who probably pay higher rates than locals to begin with) often pay in cash dollars that they've brought on the plane (as we did when we first arrived). The owner can then hold this cash in a safe, as a rainy-day fund for another peso crash (the currency being historically unstable) or simply wait for the exchange rate to rise. Most importantly, with the tenants living mostly off the Argentine grid, it's extremely easy to hide this income from taxes.

The new dollar restrictions are trying to fight this phenomenon. They're partly backfiring - dollars are still escaping the country, depleting the strategic reserves - but most people seem to credit the good intentions. The effect is, it's impossible for foreigners to buy dollars at the banks. They're available at the shady casas de cambio, but at rates much higher than the official rate. (Even the legal casas de cambio are able to raise the rates, because the alternative for locals evading taxes is the even higher black market.)

The dispute we had - resolved for the time being - is caused by the fact that our landlord, for his own reasons, literally hoards cash dollars, so he's having to buy them on the black market, and is losing money from the restrictions, a loss which he's trying to pass onto us. We're not having it, though - and our primary leverage is simply the fact that what he's doing is illegal, and we know it, and neither he (nor the realtor, who isn't directly involved in the scheme but knows full well how it works) doesn't want the government to know it.

Some of our expat friends here are having the same problem. I'm guessing our realtor is having this problem with many of their landlords, as are their competitors in the market. They're all probably wondering if their business model - offsetting the risk of short-term leases with the advantage of cash dollars - will still make sense at the new rules sink in.

- Ben

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