A series of lawsuits taken against one of the largest and experienced property developers in Latin America – Homex Mexico – has served to highlight the difficulties that foreign companies can witness when doing business in Brazil.
Commenced in late 2007, today the low cost housing project of 1,033 units in the São José dos Campos (northeast São Paulo state) remains incomplete with complaints ranging from deficient structural engineering and major internal defects to a number of essential administrative procedures that have not been followed (such as no CEP postal code being registered).
The result has been a mixture of frustration, confusion and anger amongst buyers. Jailma da Silva, a pensioner who purchased a 45m² (484 sq ft) property for 84,000 reais (US$ 50,420), stated to O Estado de S. Paulo daily newspaper: “I did not buy the house of the three little pigs, I bought a house to live.”
Cristiane Alves de Oliveira, another Homex Brasil customer stated: “They promised that we would spend the last Christmas in the new house but we still cannot move because it is full of glitches.”
The housing development is one of the new neighborhoods being developed in the state of São Paulo aimed at Brazilians who earn up to six times the minimum wage. (Brazil’s minimum wage is 510 reais (US$ 306) a month.)
Industry experts have criticized Homex’s business plan in terms of its lack of understanding of the principles and concepts of construction in Brazil.
Indeed Érika Taboada, Brazil’s president of the well established Mexican company – with over 58,000 units sold on its own soil last year – recently admitted that she knew very little about the Brazilian market in terms of land transactions and analyzing a clients profile / credit rating, stating to O Estado: “I knew basically that Brazil was the land of Carnaval, football and happy people.”
Problems first developed shortly after a failed partnership with a São Paulo based construction company as well as the departure of businessman Jacques Khafif in 2008 (who formally owned 33 percent of the Brazilian arm of Homex).
Some examples of dubious business practices that have been called into question include not outsourcing the construction work to Brazilian companies and no advertising budget being allocated (clients are street canvassed) – both attempts to cut costs.
According to Homex Brasil, just under 30 percent of the developments’ stockpile has been sold and they are working at providing effective solutions to the various issues without the need for their clients to go to court.
The company also state their intention to expand to the Marília municipality of São Paulo as well as to Mato Grosso do Sul and the Northeast of Brazil. However, whether this actually materializes has been called into doubt by both industry executives and the general public.
Ruban Selvanayagam is a Brazil real estate and land specialist. For free e-books, state guides, up-to-date statistics, strategies, interviews, articles, weekly broadcasts and more head to the Brazil Real Estate and Land Investment Guide via the following link: http://www.brazilinvestmentguide.com/brazil-property-real-estate-land/