Current trends in Real Estate Development in Montevideo (Uruguay) / Analysis from the developer`s point of view

Housing is a right and a need for individuals. Despite the significant effort done by the States to guarantee housing solutions, Latin America has a severe housing deficit, and Uruguay is not the exception. The public housing policy, launched in 2011 in Uruguay, promotes private investment and housing projects offering tax exemptions. After ten years, the plan has considerably boosted real estate development but has also drawn some criticism. The promoted housing law has social and urban aspects as its primary objectives. On the one hand, the State intended to stimulate the construction of new housing in central areas of Montevideo, which were almost unoccupied. On the other hand, it has a social objective committed to building cheaper (with a fiscal effort by the State), resulting in lower sale prices and better opportunities for housing for middle and lower-middle-income families. After one decade of implementation, the result of the policy has many critics. Most of them judge the performance as no more than an excellent business for the developers getting huge profits instead of transferring part of the tax exonerations to the final prices. It is undeniable that the law achieved many of the urban objectives, but the policy results in social matters do not convince all shareholders. The final prices are not showing significant changes, so the access to housing has not been improved. The Uruguayan State resigned more than 1,440 million dollars in taxes that have had little or no impact on housing prices. This study focuses on how the new public housing policy, launched in the last decade in Uruguay, influences the investor`s financial analysis and decision-making. This thesis work concludes that without the benefits provided by the law, real estate developments in the areas of interest would not be viable. The enactment of the housing law allowed the creation of development opportunities, improving one of the incidence factors such as national taxes. This study concludes that without the exemptions, the sales prices that reach the required rate of return should be set significantly above the current ones, there being no actual demand for these price ranges. In addition, this work concluded that with the current sales prices, the developers are earning an internal rate of return significantly higher than the required rate of return. This extra profit is the result of tax benefits. Therefore, the last chapter of this work analyzes the final prices if the developers transferred the extra profit to prices