Buenos Aires, August 23, 2017. I would like to start this address talking about dreams.
Our lives are marked by dreams: some are bigger than others, some accompany us through our entire lives and there are others that stay with us only for a short while. I had a dream when I took office as President of Banco Ciudad, almost 10 years ago. I wanted this dream to become an emblem of management, an icon for the city, a flag to show that we, the Argentine people, can do things correctly and can make great things. I am talking about a dream that can summarize our famous “Yes, we can”. A dream that an entire government and the citizens who voted for us can be proud of.
But, for a dream to come true, we have to work hard. And this dream has not been the exception: there were sleepless nights and a constant encouragement to many people to go forward. I can assure you that I had never imagined it was going to be so difficult because, in fact, my job was just to raise a building. I never imagined I was going to face so many obstacles, sometimes even from the people of the neighborhood. We were proposing a change of paradigm: “Are you planning to build a branch of Banco Ciudad here? You will not be able,” I was told once and again. But I disregarded the comments and kept on fighting. Not just me but a whole team kept on fighting. There were days when we were not even sure if we would be able to move forward. But the dream of seeing it completed and in operation was the driving force to go ahead.
I am not talking about the building located in Parque Patricios which is on the screen behind even though it is also true that we raised a nice building there. But, instead, I am talking about the first bank branch of the country ever opened in a shanty town. We built a branch in Los Piletones in 2013. That was my dream! To take everything a bank has to offer precisely where it was most needed. I had to break down prejudices about its feasibility and prove that it was possible and it was going to work. Now you can see the image and I will tell you more about the person who is there with me and why that person is there.
As I said before, our life is marked by dreams. They are our driving force, they encourage us, they give us support, they show us a direction to follow and, most importantly, they give us shelter. They are like a light that keeps us in motion.
Nevertheless, I must admit I had never imagined, not even in my craziest dreams, that I would be acknowledged as Real Estate Developer. In fact, I love architecture and I am proud of the building you were seeing in the video which we constructed for Banco Ciudad when I was the President of the institution, but it is also true that I have never handled a brick in my entire life. As it is self-evident, my professional career was not even close to such path. So, thank you very much for this acknowledgement! It comes from another perspective but I am really happy to know that the work performed to support that area has been appreciated.
I go back to our dreams. When I was professor at Harvard University, Mauricio Macri, then recently elected Mayor of the City of Buenos Aires, invited me to be part of his team as President of Banco Ciudad. He asked me what I had to offer as if he were trying to see my reactions and to figure out the type of person I was. After some seconds of silence, I told him I had neither managing experience nor a track record in the financial industry. “Then, Federico, what do you think you have?”, he asked me again with enthusiasm. “I have dreams,” I replied. “I dream that we can manage out of honesty, that we can manage with civic-mindedness and that from the public environment we can think about common good”. This is something obvious but it had not been practiced in Argentina for a long while. That was my dream and, luckily, it was enough to be included in a team that in the next few years would do many things and, maybe, it would even make history.
As President of Banco Ciudad, this dream gave rise to another dream: helping all Argentinians to have their own house. With this objective in mind, I worked hand in hand with Juan Curutchet –an extraordinary professional and now an excellent President of Banco Provincia under Maria Eugenia Vidal’s Administration in the Province of Buenos Aires– to transform Banco Ciudad into a leading bank in terms of mortgage loans. During the five years prior to our arrival, the bank had granted around 5,000 mortgages. But our effort paid off and during our six-year term we managed to increase this number to 25,000 loans, thus placing Banco Ciudad as the second mortgage bank of the country. We provided many solutions: mortgages at a fixed interest rate and at a variable rate, a social mortgage loan, whereby we provided loans to three families at the same time who were jointly and severally liable parties. In the latter case, the setup of the group served as credit risk analysis, thus becoming a method that allowed us to reach informal workers. The truth is that we never had problems with these credits. “Housing is a serious matter”, clients used to tell us. On many occasions, I cried when visiting those who were finally fulfilling their dream of becoming home owners. I remember a visit paid to Viviana who was leaving her house in the Fátima shanty town to move to her first apartment in Lugano I and II. While walking together around the place, she told me: “Now, I’ll even be able to go on holidays because I now know that nobody will illegally take over my property”. I realized that, in many cases, we were not only helping people to move to another house but to change their lives for the better. We walked many blocks in silence, moved, and enjoying a time which we knew was a turning point in the lives of Viviana and her daughter, Mercedes.
But, naturally, despite of all the efforts made, our impact was not enough. Argentina’s high inflation rate resulted in very high interest rates. We did not intend to liquefy the bank’s capital; that would have been an easy solution but we were part of a government seeking lasting and sustainable solutions rather than mere short-term shortcuts. If the inflation rate is 20% and the interest rate is 25%, this means that the client has to pay a 25% of the newly-purchased house during the first year. But who earns a salary that allows for paying 25% of the house in one year? Consequently, loans, in general, were limited to very few people.
Together with the City’s Housing Institute (Instituto de Vivienda de la Ciudad (IVC)) and, in particular, with Emilio Basavilbaso, then president of the institution, and his team (Ivan Kerr, Federico Braun and María Eugenia Lopez Isnardi), we designed a plan called “Primera Casa BA” (My First House in the City of Buenos Aires). It was a subsidized loan for low-income families with one key aspect: it was shielded against politics. Requests were uploaded through the web and there were strict and inviolable selection parameters. This ensured that the benefit reached whoever might need it; this had been a pre-requirement set by the Mayor of the City of Buenos Aires to support this plan. It was really successful and increased the number of mortgages granted to people like Viviana, the woman I have recently mentioned. But the program entailed a sizable subsidy, so it was really difficult to escalate the loans massively.
We needed one million loans and Banco Ciudad did not have sufficient resources for this within the context of a plan with subsidized lending.
It was at that moment that we started to analyze the Chilean “Unidad de Fomento” (or UF) system. This model was very known here as well, and Guillermo Laura and Ergasto Riva had written a book advocating the idea, and the people from the Association of Housing Businessmen (Asociación de Emprearios de la Vivienda (AEV)), led by Fernando Esquerre, came to Banco Ciudad to explain the idea. We quickly realized that it had potential. Traditional mortgages were like a hurdle race, except for the fact that with an initial installment corresponding to a rate of, let’s say, 25%, the initial hurdle was so high that nobody could surmount it. It is worth stating, anyway, that the following hurdles were increasingly accessible. But it made no sense having the end of the race free from hurdles if no one could even participate. The Chilean UF credit allows leveling the height of all hurdles: the first one is lower to allow for the participation of more people and the business works because it does liquefy the subsequent hurdles. For example, an UVA loan such as the one currently offered by Banco Nación, at a 3.5% rate and an annual amortization of 3.3%, allows for installments to be similar to a rent. As a result, the dream that buying a house may cost the same as leasing a house has finally come true.
In fact, the tool was already legally available. Executive Order No. 905/2002 –ratified by Law No. 25827– allowed the financial sector to grant deposits and loans adjusted by CER (Reference Stabilization Coefficient), i.e. adjusted according to domestic inflation. The problem we faced at that time was that the national government manipulated statistics on price indexes within the framework of a policy that fortunately today is seen as nonsensical. As a result, the national government had destroyed this lending instrument. Under this framework, in 2013, we decided to carry out an experiment in the City of Buenos Aires called “Mi Casa BA” (My
House in the City of Buenos Aires). Backed by Mauricio Macri and Horacio Rodríguez Larreta, 40 million pesos were allocated to the IVC, which contracted Banco Ciudad to grant loans whose capital was adjusted on the basis of the City of Buenos Aires’ price index. The legal framework was a bit weaker because we did not have the regulatory support of Law N0. 25827 but we were sure that the product was so good that we finally took the risk. The result? The 40 million pesos were granted in one week and we had no problems in the subsequent years. Some months later, I moved to the House of Representatives, but we had planted the seeds and, what is even more important, we were confident that the instrument would pay off.
Then, when the incumbent President offered me to lead the Central Bank and I only made a request to him: to help me to unblock any obstacle so as to be able to provide loans following the Chilean UF methodology.
Therefore, as soon as the current Administration took office, we started to work on this topic. In April last year, we issued Communication “A” 5945, which was the starting point of the Acquisition Value Unit (UVA). I want to thank my fellows at the Board of Directors –Fabian Zampone, Horacio Liendo, Pedro Biscay, Francisco Gismondi, Demian Reidel and Pablo Curat– who accompanied this decision and, especially, to the Deputy Governor of the Central Bank, Lucas Llach, who has been an extraordinary co-pilot in this adventure since he understood it immediately and became a strong champion of the UVAs. At that time, the fact that we might even dare to think that something different was possible was almost an experiment. Frequently in our lives, our limitations are not imposed by the environment or by specific circumstances but by our own prejudices and fears.
At the beginning, we had to give the best of ourselves to explain the concept. Some people understood our plan but others did not. For example, it was not clear enough for many that the real value of capital was always amortized, even though there was a chance that the nominal value could go up, especially during high inflation periods. Others thought that UVA loans were products in which the rate was “inflation plus the rate”. We faced a series of inaccuracies that had to be timely communicated and corrected. And it is also true that journalists helped a lot in this respect. I particularly remember three reporters who firmly advocated this project: Florencia Donovan, from La Nación newspaper, Gustavo Bazzan from Clarín newspaper, and Martin Tetaz from Mitre radio station, who dared to say that UVAs were the most important financial innovation in recent decades. To all of them, thank you very much! “This is like our Ovalo Plan”, used to tell me people at Ford. “Every year you pay a little part of the car and a low interest rate on that amount. This model has worked for us since the 1970s”. Another confirmation that the system had a sound basis. Once again, Banco Ciudad took the baton under the leadership of its new president, Javier Ortiz Batalla, and the Sales Manager, the multitasker Maxi Coll. They made an extraordinary effort and proved that things would work. Juan Curutchet has also given us invaluable support since he already knew the virtues of the product and launched it in Banco Provincia. During meetings held with banks –where skepticism prevailed– whenever Juan had the floor he always talked about the panic he felt because of the success he knew the product started to have (and he confirmed it would have). As a result, Juan left everybody thinking: “Is there anything I am missing here?”
In the end, officers from a leading private bank told me that they would begin offering UVAs to employees just as if they wanted to give us proof that they were merely complying with an obligation, so please stop bothering with this issue! When they finally launched it, the HR officer had a picket line of hundreds of youngsters who were desperate to get the loan. Yes, we were starting to change history!
Little by little, things began to gain momentum. As it happens with any 360° change, time is essential. As months went by, the concept grew and grew. Today, the stock of loans reaches ARS 23 billion, out of which ARS 16 billion correspond to mortgages and ARS 7 billion correspond to pledge-back loans and personal loans. In July, around 3,900 loans were granted, i.e., one every eight minutes. Another key player was Javier Gonzalez Fraga who, since he took the helm of Banco Nación, has also aligned the institution behind this objective. Nevertheless, the promising 5 billion pesos granted in mortgages last July are still far away from the goal we have set. If we really want to change the housing reality of this country our goal needs to be ARS 15 billion per month in lending. And we will not stop until we achieve this goal!
In a joint effort, the Government of the City of Buenos Aires cut down the Gross Income Tax rate for mortgages from 7% to 1.5%. This allowed for the reduction of the cost of installments between 10% and 15%, depending on the term, thus widening access to more Argentinians. Then, the provinces of Buenos Aires, Río Negro and Córdoba followed suit in the reduction of this tax rate. And I hope more provinces will join us in this path so that the dream of being homeowners may easily come true in every corner of the country.
But the change is just starting. With UVA mortgages, virtually the entire population of this country may have access to their own house. For example, with loans such as those granted by Banco Nación I mentioned before, a wage of ARS 11,000 allows for accessing a loan for ARS 725,000. Let me leave this example aside as reference for a moment.
And I say this because now it is time for you to click into action firmly. Now, for the first time, you have 2 million families with housing needs and eager to buy what you sell. Most of them have the resources required to request a UVA loan to purchase a house if we manage to balance supply and needs. You have millions of tenants wanting to become homeowners.
It is important to bear in mind that the country that only built for the ABC1 socio-economic segment is over. The new challenge is to offer housing solutions for the entire population. And this forces us to radically rethink the entire business and its entire supply.
We continue working on this issue day after day. A few months ago, Rogelio Frigerio, Minister of the Interior, boosted Executive Order 146/2017 which authorized UVA loans for developers, i.e. now developers can offer UVA loans to their clients. Soon after this, Communication A 6250 allowed for the granting of the mortgage loan upon execution of the bill of sale or upon acquisition of quotas in building projects. In turn, we simplified appraisal procedures, authorizing real estate agencies to make such appraisals or the use of the price recorded in the title deed. With all these initiatives in motion, the US$ 100,000 apartment to which few people could access comes out of the stage, which is now occupied by smaller apartments of US$ 30,000, which will allow our young citizens to start dreaming with the possibility of being homeowners. We have finally managed to leave aside the constructions where the incidence of the square meter was US$ 500 to make room for projects in which such incidence is marginal. Now, we will not only have luxury towers but also buildings in satellite cities of Buenos Aires with good transportation connections and with hundreds of small or medium-sized apartments for a fraction of the cost required by constructions today.
Now, I imagine towers along the layout of La Matanza Metrobus1, for instance, or close to Ciudadela railway station (25 minutes away from downtown) or Berazategui (40 minutes away from Constitución railway station) or San Fernando (45 minutes away from Retiro railway station). Self-construction in vulnerable neighborhoods will be replaced with more industrial and modular houses in the same place. Last week, people from Pilay showed me a prototype prepared by Capitel S.A. that can be purchased for ARS 600,000 using a 30-year loan granted by Banco Nación for which a wage of ARS 9,100 is required, resulting in a monthly installment of $2,700. There is no doubt that we have a huge market out there!
The business of contacting people living in their plot of land in a precarious construction to make it anew has already started or will be starting soon. There will be mobile homes to meet the demand from people not holding good title to their plot of land yet, thus turning a mortgage loan into a pledge-backed loan. In addition, any person living in illegally occupied land will now be able to come out of this situation of precariousness and focus on the legal purchase of a plot of land where to move the house such person already has.
As you can see, the real estate market would change radically. You are at the doorstep of two decades of growth. In that period, you will build millions of houses. You will pull down settlements and raise cities. You have in your hands the opportunity of building a country of owners and, consequently, of responsible and committed citizens who are proud of their country.
I think you have ahead years of great achievements, great businesses and great contributions to society. You just have to dare to tackle that future. Fear and skepticism should never stop you, because today there is no impediment…you are free to dream!
At the beginning of the speech I said that dreams are everything in life. Now, it is your time to dream. If this acknowledgement is useful to convey this message, then all the efforts were worth it.
Thank you very much!
1Network of dedicated separated lanes and stations for normal buses.
August 23, 2017