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SPRING 2013

BRAZIL RESIDENTIAL REPORT


SPRING 2013

BRAZIL RESIDENTIAL REPORT

Market Update In the past five years house prices have more than doubled in the cities of Sao Paulo and Rio de Janeiro Boom Never in Brazil’s modern history has so much noise been made about the South American nation. With the announcement that Brazil would be hosting not only the 2014 World Cup, but also the 2016 Olympics, the world turned even more of its attention to Brazil. The country had already been of growing interest due to its growing economy, leveraged from rich oil and mineral deposits and relatively cheap workforce. Its growth has been such that it has earned itself esteemed status as a member of the BRIC nations, the list of the world’s fastest growing economies, which also includes Russia, India and China. The combination of these factors has lead to a property market explosion, with investors the world over attempting to cash in whilst prices are still rising. Brazil exhibited a 15.2% average increase in property prices last year. The Attraction There are not any restrictions on foreigners buying property in Brazil, which is probably

one of the many reasons that people have chosen to invest there in recent years. In fact, it is the only country of the BRIC nations where a property can be bought in the buyers name 100% freehold. The Brazilian government welcomes and encourages foreign investment and therefore it is made easy to buy property. The property market is driven by fundamentals meaning that it is relatively stable at present. Mainly driven by a growing middle class, twinned with a lack of adequate housing especially in major cities, demand outstrips supply. As it stands there is a housing deficit of 5.8 million homes in the country. This has lead to the development of many new build homes to fill the gap. Mortgages are in their infancy, and whilst they are growing at a rapid rate−allowing many more first time buyers to get on the property ladder− the country’s mortgage debt is still low at just 5.5%, compared to 70% in the UK. With less than half of homes being funded by a mortgage, and a loan- to-value ratio of over 70%, the market is not mortgage reliant.

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SPRING 2013

BRAZIL RESIDENTIAL REPORT

Market Update In the past five years house prices have more than doubled in the cities of Sao Paulo and Rio de Janeiro In the past Brazil has attracted second home buyers keen to experience the South American lifestyle, as a holiday home or buy-to-let. However, it is now attracting a increasing proportion of profit-hungry investors. Ever since Brazil became an economic powerhouse, rich in oil, elevating millions upon millions of people from lower class to middle class and been named as a host for two famous global sporting events, the holiday home buyer has been all but replaced by the pure investor. The government has also made Foreign Real Estate investors exempt from paying a financial transaction charge. This has been implemented by the government to encourage international investment and boost the construction sector. São Paulo, Rio de Janeiro and the North East In the past five years house prices have more than doubled in the cities of São Paulo and Rio de Janeiro. In the past year prices have risen by 13% in São Paulo, and an even greater rise of 14% has been seen in Rio de Janeiro. Since 2008 price hikes in these cities has been astounding at 144.1% in

São Paulo and 178.2% in Rio de Janeiro. The average price for a medium sized apartment in the centre of Rio de Janeiro is now over £300,000. Rental yields are reasonably good in Rio at around 4%, but better in São Paulo which is now recognized as one of the top global cities for investment. The North East of the country such as the region of Bahia and city of Natal have also experienced huge growth since being announced as host cities of the upcoming sporting tournaments. World Cup and Olympics The closer we creep towards those all-important sporting events, the higher the prices climb. This has caused a migration of investors and second home buyers keen to getit- why- its- hot. The biggest rises have been felt at the very bottom and the very top of the market, with little movement in middle value property. “There’s a psychological margin that Brazil real estate enjoys at the moment due to the oil discoveries off the coast of Rio, the World Cup and the Olympics, which makes Brazil very attractive to foreign in-

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SPRING 2013

BRAZIL RESIDENTIAL REPORT

Market Update In the past five years house prices have more than doubled in the cities of Sao Paulo and Rio de Janeiro vestors at the moment,” says Marcus Vinicius de Oliveira, executive director of Consul Patrimonial. “But after 2017 Brazil will still have its oil discoveries, but the World Cup and Olympics will be done with and foreign investment into Brazil will slow as a result.”

It then remains to be seen whether or not Brazil’s economy can increase productivity and keep up with other the other big players on a global scale.

Overvalued? This may seem like the perfect opportunity for generating high immediate returns and it has proved to be the case until now. However, there has been some warning that the property market is suffering somewhat from an over-valuation. Capital Economics believe that the housing market is overvalued by 50%. Economic growth has begun to slow in the past year and the economic forecast is that the Brazilian economy is unlikely to grow by more than 1% in 2013. This is less than U.S economic growth and indicates that price rises are likely to come to a standstill soon. The boom is expected by most property experts to last until 2017, after the World Cup and Olympics have taken place. 4


SPRING 2013

BRAZIL RESIDENTIAL REPORT Real Estate Writer H. Karim

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Š Regent Place 2013 This report is published for general information only. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no legal responsibility can be accepted by Regent Place or any loss or damage resultant from the contents of this document. As a general report, this material does not necessarily represent the view of Regent Place in relation to particular properties or projects. Reproduction of this report in whole or in part is allowed with proper reference to Regent Place.

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REGENT PLACE | Residential Report Brazil | Market Update 2013