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Source: Wall Street Journal
By: Ian Mount

Standing on the cement deck of a half-completed property that overlooks a laguna, Lucas Abihaggle points to a structure a few hundreds yards up the scrubby hills that terminate in the vast Andes mountain range. "That's the corral, where you can keep your horse," he says. "And behind it -- beyond those palm trees -- we'll have the polo field."

Mr. Abihaggle isn't overseeing the construction of a luxury polo estate; he's the project manager of the 2,000-acre Santa María de los Andes, a development that sells parcels of small, ready-made vineyards.

The foothills south of Mendoza in Argentina have long been known as the agricultural heart that produces the country's increasingly popular signature wine, malbec. For the past three years it has also been where Americans, Canadians and Europeans looking to fulfill winemaker fantasies have taken advantage of Argentina's relatively low land prices and bought mini-vineyards.

Mendoza was once a quiet provincial capital famed mostly for its cheap rotgut wine and for the elaborate irrigation system that allows the city, and the surrounding agricultural region, to exist. But in the late 1980s and 1990s Argentine vintners embarked on a program to improve local wine, a plan that brought famous foreign winemakers like Michel Rolland, Paul Hobbs and the Lurton brothers to the area and later inspired them to open full-scale, commercial vineyards in the area's wine-friendly rocky, dry soil.

The area began to see a tourism boom after 2002, when Argentina's peso devaluation made the country an inexpensive destination. Attracted to Mendoza by the increasingly well-regarded wines, visitors were also met with views of the snow-capped Andes, as well as by a growing number of luxury hotels, boutique guesthouses and gourmet restaurants.

With Mendoza's fusion of high-end wine and a relatively undeveloped real-estate market, developers started selling ready-made vineyard projects -- known as vineyard estates or turnkey vineyards. Investors buy a plot of land and pay a management group an annual fee to plant vines, care for the vineyard and harvest and sell the grapes. At some, for an extra fee, grapes can be made into wine. Several of the developments will eventually include hotels and rental villas for travelers. (At a regular vineyard, winemakers buy the land then develop the property themselves, which includes cultivating grape vines and overseeing workers.)

• Where to stay: None of the hotels planned for the vineyard communities are built yet, but there are plenty of places to stay on or near full-scale wineries. The 11 rooms in Finca Adalgisa's old family house and stone addition are gathered around a five-acre vineyard, pool and miniwinery; prices run from $200 to $300 a night ( For more-urban nightlife, the 46-room Hotel Argentino faces Plaza Independencia in downtown Mendoza; in the current season, rooms are from $70 to $95 per night (www.argentino-hotel.com3).

• Where to eat: With cuisine by Jean Paul Bondoux, who helms the restaurant of the same name in Buenos Aires's Alvear Palace Hotel, La Bourgogne serves French-accented Argentine food amid the vines of the Carlos Pulenta winery (www.carlospulentawines.com4); about $60 a person. Karma, opened by a Tibetan who came to Mendoza to act in the locally filmed "Seven Years in Tibet," serves Tibetan cuisine in the suburb of Chacras de Coria (Italia 6076, 0261 496 1731); about $20 a person.

• What to do: Irish expat Charlie O'Malley's Trout & Wine offers wine tours in a van and on horseback, from $135 to $170 per person (www.troutandwine.com5). A half-day rafting trip from Argentina Rafting costs about $35 including transportation from Mendoza; it also has kayaking, trekking and other outdoor programs (www.argentinarafting.com6).

While an acre of good vineyard land in California's Napa Valley can go for $50,000 to $300,000, an acre of Mendoza land runs from $4,000 to $16,000, says Juan Carlos Pina, manager of the Bodegas de Argentina, a winery trade group.

Jim Farley, 71, who along with his wife, Nancy, owns Farley's Bookshop in New Hope, Pa., paid about $175,000 for a four-acre vineyard and house at the Calitina Vineyard Country Club last year. The couple plans to rent the property to tourists for short-term stays later in the year when they're not in Calitina. "This is an investment, as well as a fulfillment of the dream of owning a vineyard," says Mr. Farley. "[But] someone else does the grunt work."

The Santa María de los Andes vineyard development has 110 5- to 17-acre lots, planted with vines and with space set aside for a house. Prices start at $350,000, including one year of vineyard maintenance. The property, about a half hour south of Mendoza, will feature polo fields and a winery, and there are plans for a hotel. Some 45 minutes farther south, near the Lurton brothers' vineyard in the currently hot wine area of the Uco Valley is Vines of Mendoza, run by two American former technology executives. Plots sell for $50,000 an acre, including vines and three years of vineyard maintenance. There are plans for a commercial winery and a hotel resort on the property by 2010. Other projects -- such as Armani Estates and Finca Los Amigos -- are more modest in scope.

Once vines reach maturity, usually in three years, some developers say that investors can break even by renting out their villas or selling the grapes, if they can find buyers. But there's no guarantee that these properties can be anything more than a vanity project.

The country is "battling inflation, as always," says Chuck Bedsole, managing director of the hospitality and leisure group at Alvarez & Marsal Real Estate Advisory Services, a firm that does extensive work in Latin America. Some private economists peg Argentina's inflation rate at up to 20% annually. Land prices have been on the rise -- Mr. Bedsole estimates that recreational real estate prices, while still relatively good value, have risen by about 200% over the last five or six years. Labor costs and other vineyard overheads have also shot up in the past few years. The country is also undergoing political tensions as farmers protest increased export taxes and food shortages hit some supermarkets as a result of strike action.

Buyers are unlikely to make money simply by growing grapes and trying to sell them to winemakers, says David English, an American real-estate scout whose Mendoza-based company, English & Associates, has placed clients in the Los Amigos, Armani and Vines of Mendoza projects. "Being a grape farmer is not a moneymaking proposition. People make money by making wine and selling it overseas," says Mr. English. "People purchase at these projects because they want a turnkey solution and don't want to make a lot of decisions. And they pay a premium for it."

Lee Asbell of Vancouver, Wash., is one aspiring winemaker who's feeling the pinch of rising prices. In 2006, Ms. Asbell and her husband Jim bought an 18.5-acre turnkey vineyard in Mendoza for $90,000, hoping to make a malbec-blend wine with a view to covering their costs and retiring there.

In 2007, the Asbells had their management company plant three acres of cabernet franc and sauvignon blanc (adding to 10 acres of malbec), a project that, along with overall property maintenance, was estimated to cost around $20,000. The final charges came to nearly double that, Ms. Asbell says, in part because of higher management costs, a 35% rise in labor and farm chemical costs and a 50% jump in fuel. "The economic instability makes us very, very cautious about investing further," Ms. Asbell says.

They're comfortable with their goals for the vineyard, however. "As long as the property pays for itself, that sits fine with our retirement plan," says Ms. Asbell. "Compared to what it costs to buy land and plant vineyards in the U.S., Mendoza is still an excellent bargain."

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