Paraguay is increasingly making headlines as a great place to have a plan B. It always was, but with increasing tension in the world, having a viable plan B far away from conflict is increasingly appealing to many people. The most logical first step is to obtain residency there, but many people are also looking at the Asuncion real estate market for diversification purposes.
However, is Asuncion real estate a good investment? Overall we will see a picture of real estate that has good chances for capital appreciation from a relatively low base, but that is likely to suffer from chronically low rental yields and capitalization rates.
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My personal journey in Paraguay
As most people, the first thing I did was to obtain residency in Paraguay. Aleksandr, who helps people obtain residency in Paraguay and invest in Asuncion real estate, sorted it out for me. I gave him my documents on arrival, and two months later I received my temporary residency card (to turn into permanent residency two years later).
I spent a few weeks road-tripping around Paraguay and about two weeks in Asuncion specifically looking at real estate.
Macro overview of Paraguay
Before going into the specifics of the real estate market in Asuncion, it is important to have a decent understanding of the macro landscape in Paraguay.
Booming demographics
This booming population is a major long-term tailwind for the real estate market in Paraguay. It is entirely driven by births, not by immigration. The country boasts a high fertility rate of almost 2.5 children per woman.
This is a very high rate, which will ensure continued demand for real estate in the country. Additionally, the urbanization rate in Paraguay is still comparatively low, which implies a lot of catching up for Asuncion.
When you combine booming demographics with a strong urbanization trend, the Asuncion real estate market is set to do well in the coming decades.
Strong growth
Paraguay has seen consistent, strong growth for the past 10 years with the odd hiccup. It is expected to grow 4.5% in 2023.
Decent government finances
These numbers would put most North American and European governments to shame. Paraguay is not over-indebted. Sure, the Covid response hit them hard. They have been deleveraging since then in spite of a tough 2022 due to a massive drought which impacted agricultural exports.
A healthy current account
Paraguay is a country that generally exports more than it imports, which fundamentally is one of the most important metrics for a country’s macro situation. It primarily exports meat and agricultural products, and imports energy and everything else.
In a world of constraints with food supply, and Western countries increasingly limiting their production of meat, Paraguay’s export profile is a very positive one. It’s unfortunate that it does not have more manufacturing, but as a landlocked country with expensive logistics in its neighboring countries, it needs to continue focusing on what it does best: agriculture and being a safe haven for Argentines and Brazilians.
Political stability as a driver for the real estate market in Asuncion
This is an aspect that Westerners often fail to understand the importance of. Paraguay’s stable politics have been a key driver of growth for the past decades.
The center-right Colorado Party has held power for nearly eight decades. The result is stable and predictable laws and regulations. The country is very pro business, low tax, and the government does not over-regulate. It’s an easy, albeit slow, place to conduct business, especially compared to Brazil and Argentina.
As much as an increasing amount of Europeans moving to Paraguay is a good catalyst for growth, the real driver is Brazilians and Argentinians moving to Paraguay with their capital.
Brazil and Argentina are two ogres next to Paraguay’s population of less than 7 million. Brazil has a population of 215 million, and Argentina of 46 million.
Both countries are high-tax, high -regulation, complicated to do business in, politically unstable, and in Argentina’s case dysfunctional. Many of the regions in these two countries also face crime issues.
Capital in these countries is constantly looking for escape routes to more safety and predictability. Most of it ends up in America, Europe, and Uruguay. But increasingly, Paraguay has been attracting more escapees from these countries as Uruguay has become more expensive.
There are two scenarios:
- Brazil and Argentina grow; Paraguay benefits from large, growing neighbours and being able to trade with them
- Brazil and Argentina descend into chaos; Paraguay benefits from fleeing financial and human capital
Political stability is the bedrock of what Paraguay stands for in a volatile region. It’s crucial for the country to maintain this track record. As long as Paraguay remains stable, the Asuncion real estate market will continue to perform long term.
Migration in Paraguay as a net positive for the country and the real estate market
Overall, Paraguay has more emigrants than immigrants. Most go to Argentina, Spain, Brazil and the US. However, for the country, this is a positive. Why? People who could not be absorbed into the local labour market leave to earn money and send some back home in the form of remittances.
In return Paraguay gets wealthier incomers who generally flee socialism and want more freedom. The vast majority are from Brazil and Argentina. These immigrants typically earn money back home and live in Paraguay to benefit from lower taxes and less crime.
There has also been a surge in Westerners since Covid. Most come from Germany and Canada, but the trend is generalized. They typically flee what they view to be abusive health, education, and immigration policies in their countries.
Also, since the Russia/Ukraine war many Russians have been moving to Paraguay.
Most of these immigrants to Paraguay are extremely positive for the country. Why? Because they don’t come for employment as wages are low. They have to sustain themselves. So either they live off income from back home, or create businesses in the country. Also, they are a regular source of incoming, quality tenants for the Asuncion real estate market and elsewhere.
The real estate market in Asunsion
Asuncion is a growing city of 600,000, but including the adjacent cities it is a metropolitan area of 2.7 million people. You can expect to pay about $1,400 to $2,000 per m2 for apartments in the good neighbourhoods of Asuncion. Objectively, it’s not expensive for prime real estate in a capital city. However, there is a lot of space to build and the zoning laws are quite loose, so supply will not be an issue for the foreseeable future..
The key drivers of the real estate investment market in Asuncion
Obviously the local market is one of the drivers, but objectively Paraguay is a poor country. The purchasing power of Paraguayans is generally low, so only a small middle class and elite can buy in the better neighbourhoods.
A big driver in the nice neighbourhoods is foreign demand. Argentinians and Brazilians are investing massively in real estate in Asuncion because they view it as a safe haven. And this is actually a problem for investors in the sense that people are not driven by returns, but by safety of capital. The result is that there is a constant oversupply of nice properties as people buy to safeguard their assets, not to make decent money on rentals, which distorts the market. In many ways the Asuncion real estate market is similar to the real estate market in Panama in that its primary function is safety of capital, not return on capital.
This naturally leads to low rental yields and capitalization rates.
Additionally, just as in Panama, a lot of Paraguayan real estate is bought to launder money. This is great news for developers, but less so for investors who want rental income as there is a vast real estate park that sits empty.
Finally, because people in Latin America generally don’t know what else to do with their money other than buy local real estate, start businesses, and in Paraguay’s case buy cattle, there is often too much supply of real estate thus compressing yields. People don’t trust banks and are not aware of how capital markets function.
In which neighbourhood to invest in the Asuncion real estate market?
As in most of Latin America, capitalization rates and rental yields are relatively low on the local real estate market. If you want to buy a normal apartment to rent long term to local tenants, your returns will generally be uninteresting and you are likelier to deal with legal issues.
It’s therefore much better to aim for the better neighbourhoods, which are still objectively quite cheap, to hope to get higher quality tenants.
Centro
Decrepit. Many government buildings. A few bars and restaurants. It comes off as slightly dodgy. It’s absolutely not where monied people want to live. Is there a case for long-term rejuvenation? I think so. It could be a decent long-term speculation for people who believe that as the city develops and the country becomes wealthier, more money will go into the historical center to rehabilitate it. In some Latin American cities this was the case, in others no. Centro is a speculative buy at this point.
Las Mercedes
Middle class area with a few restaurants, bars, and universities. It’s tucked in-between Centro and the better monied areas of the East. It’s a decent place to live. IF Centro takes off then this area would also gentrify. It’s a nice place to live if you are a bit on a budget, but the best tenants don’t necessarily want to live here.
Perseverancia
This is a new neighborhood that is being built with malls, new residential buildings, good infrastructure and urban planning etc. I think this area will do well over time. Probably not a bad place to buy off plan with a payment scheme.
Speculation
I call this area on the map speculation. Why? Because right now it isn’t a nice area. The infrastructure is bad, the housing stock is of relatively poor quality, but its location is interesting as it is between the monied area, Las Mercedes, and Perseverancia. I believe that over time developers will enter this neighbourhood and that it will gentrify. I think it represents a good long-term speculation.
Malls and Money
This area encompasses the neighbourhoods of Recoleta, Villa Morra and Carmiletas. They are the best beighbourhoods in the country, host modern malls, hospitals, embassies, company HQs, etc. It’s where people with money want to live and where you will find the best amenities.
If you want a good shot a quality tenants when investing in the Asuncion real estate market, this is where you should invest.
What are the rental returns of Asuncion real estate?
Because of everything mentioned before, due to high supply of real estate combined with low local purchasing power, the rental returns are rather low. You can generally expect between 4% and 6% gross. Websites will try to convince you that you can make 10% but I did not come across such deals.
And what about Airbnb? It unfortunately does not work well in Asuncion. Why? Because there is very little tourism. There is objectively nothing to see in Asuncion. People move to Asuncion, but don’t go to Asuncion just to hang out and do nonexistent touristy things. Also, as Asuncion is a small capital city, large companies typically have their regional headquarters in Buenos Aires, Sao Paolo, or Montevideo. So there isn’t much business travel either.
Whatever you invest in, have the long term rental market in mind, preferably to foreigners.
What are the real estate taxes in Paraguay?
Taxes on rental differ between residents and non-residents. Residents pay 10% but can deduct expenses. Non-residents pay 15% of 50% of the gross rental income.
In case of real estate transactions in Paraguay:
- Buyer: About 2.8% closings costs for the buyer
- Shares between buyer and seller: 0.8% tax divided between the buyer and seller
- Seller: when you SELL real estate, it is important to be a resident. What? Because the tax regime differs. Residents just pay 10% on the capital gains, while non-residents must pay a 5% VAT on 30% of the value of the sale, and 15% income tax on on 30% of the value of the sale. This adds up to an “exit tax” of 6% for non-residents versus very little for residents. Also, expect to pay about 5% realtor fees.
Who is a real estate investment in the Asuncion market right for?
Overall, I feel that the Asuncion real estate market is not a play on rental income. It is a play on steady capital gains over the years. I don’t expect a sudden surge in prices unless Brazil or Argentina were to implode, which would lead to a flood of capital and people moving to Paraguay.
For Brazilians and Argentinians, Paraguay offers easy, safe diversification. For people from North America and Europe, Asuncion real estate provides exposure to an economy which is very different, and very far, from their own. It is the ultimate far-away diversification which combined with residency, adds up to an amazing plan B if things were to take a bad turn in the West.
I think Asuncion real estate is a decent real estate investment for patient investors who want such diversification.
Using a real estate buyer’s agent in Asuncion
The Asuncion real estate market is very fragmented. There aren’t many professional real estate agencies and their listings are often quite limited. You can look online but many of the deals are not listed as many sellers are traditional and “don’t trust the internet”.
This is why I like Aleksandr’s approach. He is a buyer’s agent which means he represents your interests, not the interests of the seller. He goes out and finds properties based on your specs and brief. In many cases this means driving around neighborhoods looking for “For sale” signs. You can find out more about Aleksandr’s Asuncion real estate buyer’s agent services here.
Services in Paraguay:
Other opportunities in Paraguay:
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FAQ
Can foreigners buy real estate in Paraguay?
Absolutely. You just need to be aware of the fact that taxation of real estate is different for residents and non-residents. Because of this, many investors opt to get Paraguay residency first.
Why Invest in Asuncion Property?
Diversification far away from all the geopolitical hotspots, and capital gains over the years. NOT for rental yield.
What Should I Know Before Buying a House in Asuncion?
The Asuncion real estate market has low liquidity. Selling can take months. Don’t invest money that you could suddenly need fast.
Can Americans buy land in Paraguay?
Yes, any foreigner can. But the taxation is different whether you are a resident of Paraguay or a non-resident of Paraguay.
What Kind of Investments Can I Make in Asuncion?
- Standalone homes which are interesting because of the land value
- Condos / apartments because they are easier to manage
- Plots of land and build a house. Aleksandr helps people with this and he did it for his own house.
What are the Latest Trends in Asuncion Real Estate?
Traditionally people all wanted a house with a small garden. As real estate prices go up, as urbanization continues, and as the country develops, people increasingly want condos with great amenities when investing in the Asuncion real estate market.
Again, get in touch with Aleksandr’ to find out more about his buyer’s agent services, and to avoid making big mistakes.
