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While the World Burst Its Bubble, the Good Times for Brazil’s Real Estate Have Just Started

Building in construction in Paraíso, São Paulo It’s been over 3 years since the majority of the developed world’s housing markets saw their bubbles burst. Yet, along with a number of other so-called ’emerging’ countries, Brazil has witnessed what many commentators and professionals have termed as the start of a long-term growth trajectory.

In 2010, renowned real estate developer Donald Trump, for example, talking about Brazil, commented to the Los Angeles Times that: “It is one of the few places in this troubled world I feel confident to make an investment.”

And the modern day sage of value investing, Warren Buffett, told Fox News: “Brazil has cleverly positioned itself to become one of the world’s greatest investment opportunities in modern times.”

Of course, acquiring real estate related assets in the country is not without its risks which need to be managed effectively – particularly for the foreign investor – yet, nevertheless, it remains clear that there are some interesting times ahead for the housing market.

Below are some excerpts via the annual report from the Brazil Real Estate & Land Investment Guide:

Brazil’s Real Estate Finance Market

“It is the youth of housing finance market that is demonstrating the growth potential exciting the Brazilian banks and lending institutions. In 2002 and 2003, no more than one thousand houses were mortgaged and it was not until 2006 that the evolution really started to take place as loan terms were extended from periods of 12 to up to 30 years and repayment levels (whilst still internationally comparatively high) decreased from 12 to the 8-9 percent level.

By 2004, 321,149 units were financed in Brazil – of which 53,787 were from via the Brazilian System of Savings and Loans (Sistema Brasileiro de Poupança e Empréstimo, SBPE – the constituted system of Brazilian lending institutions that offer housing finance) and the rest by means of the Fundo de Garantia do Tempo de Serviço (FGTS).

By 2009, the amount of units being financed by the SBPE comfortably increased by over five times to 302,680 and those financed by the FGTS increased to 396,367. This does not include the Minha Casa, Minha Vida allocation bringing the total for the year to 897 thousand properties.

Banking figures have shown that in 2004, a total of R$ 6.849 billion was lent – of which R$ 3.9 billion was via the FGTS and the remainder from the SBPE. By 2007, this figure via the FGTS increased to R$ 24.464 billion.

According to Ana Maria Castelo of the Getúlio Vargas Foundation in an interview with the Conjuntura Econômica magazine: “The growth of the market occurred in very little time both in quantitative and qualitative terms. By 2004, a significant proportion of middle class Brazilians earning over five and six times the minimum wage were able to access housing finance in addition to make use of the FGTS.

“Then, the introduction of the ‘Minha Casa, Minha Vida’ program in 2009 enabled those who were previously excluded to enter the market. It was not too long ago that rates were so high that the total value of the finance package exceeded that of the property…”

Brazil’s Housing Deficit

“The fact that the provision of housing in Brazil has improved cannot be denied – particularly when comparing to the 1990s where there was very little housing credit and low income earner programs as what exists today as well as the lesser security for homeowners as mentioned above. Nevertheless, the issue of an insufficient supply of housing remains.

Deficit predictions vary with the João Pinheiro Foundation believing that there were 5.6 million units by the close of 2009 – of this total, 89.6 percent were of families earning between one and three of the Brazilian minimum wage (the organization point out that this does not take into account favela community dwellings and those which are sub-habitable which would certainly push this figure upwards).

According to a survey conducted by Sinduscon-SP (the Union of Construction Industry of the State of São Paulo) and the Getúlio Vargas Foundation, the Brazilian housing deficit has remained virtually unchanged between 2008 and 2009. Using data from the IBGE (Brazilian Institute of Geography and Statistics), it was concluded that the deficit for 2008 was 5,799,859 and 5,808,547 in 2009.

The data also showed a decrease in the number of makeshift dwellings by 6.8 percent from 3,780,113 in 2008 to 3,521,089 in 2009. Prior to the onset of the global downturn (between 2007 and 2008), the IBGE data estimated that 450,000 units were delivered to the entire market place but with growing demand – not to mention the population (which between 2000 and 2010 increased from 169 million to 185.7 million and the number of people per household from 3.79 to 3.34 in the same period, according to the 2010 national census) – there continues to be less supply than demand.

The João Pinheiro Foundation’s analysis (for statistics leading to the close of 2008) pointed the deficit representing 9.7 percent of the total stock of the country with the Southeast (composed of Espírito Santo, Minas Gerais, Rio de Janeiro and São Paulo) having the largest proportion at 36.9 percent; followed – in order – by the Northeast (Maranhão, Piauí, Ceará, Rio Grande do Norte, Paraíba, Pernambuco, Alagoas, Sergipe and Bahia) at 35.1 percent; the South (Paraná, Santa Catarina and Rio Grande do Sul) at 10.5 percent; the North (Acre, Amapá, Amazonas, Pará, Rondônia, Roraima and Tocantins) at 10 percent and the center west Goiás, Mato Grosso, Mato Grosso do Sul and the Distrito Federal)…”

The full 2011 report can be downloaded for free by registering at the Brazil Real Estate & Land Investment Guide’s website – http://www.brazilinvestmentguide.com/ – or by clicking here to read the introductory blog post: http://www.brazilinvestmentguide.com/blog/2010/12/brazil-real-estate-land-investors-2011-report/

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/

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