Property

Red Hot Property Markets In Brazil

Red Hot Property Markets In BrazilWhat is there to say about Brazil that wasn’t witnessed this summer when all eyes were on the World Cup? The home of bossa nova and samba, Havaianas, Paul Coelho, Walter Salles, the single greatest parade of the year in Carnival, the greatest example of civic engineering in the modernist capital at Brasilia and, of course, Pelé is one of the most exciting countries in the world. It’s been able to ride its BRIC status to a booming economy (now the seventh largest in the world en route to number five), and despite poor resources management, still has the world’s richest biodiversity. It’s also the location of two of the world’s most crime-plagued cities (São Paulo and Rio de Janeiro depending on the source) and some significant — and highly creative — social unrest. Nonetheless its property market is thriving, to a dangerous degree some argue. It’s also the world’s largest coffee provider.

Skyrocketing
Like London before 2012 and Tokyo right now, Brazil’s global event bump began with the announcement of this past July’s World Cup in 2007, but some would argue it will continue right up to the country’s next major moment, the 2016 Olympic Games in Rio. To that end, however, the impact of those events has been overshadowed by a generally robust economy that has dragged property market along with its 5 percent growth per year. Its $2.5 trillion mixed economy (resources, agriculture, manufacturing and increasingly services and tourism) is famously hampered by corruption, a problem that nearly 70 percent of companies operating there have identified as a major constraint for doing business and regardless of the swirling success, nearly a quarter of the population lives below the poverty line.

But those who can afford it are buying property. As Brazilians in the burgeoning middle class earn more, they’re taking advantage of low interest loans and buying homes. Values and prices are rising, investors are swarming in and many have been priced out of the market in some places. In January, Forbes reported that the Bank for International Settlements stated prices rose over 120 percent in the five years between 2008 and 2013 — more than prices in Hong Kong (101 percent) — with São Paulo and Rio at the peak. In May the BBC backed that up, stating the country’s FIPE-ZAP home price index put the numbers for those cities even higher: 200 and 250 percent. Prices began cooling down in 2012. Last year’s gains hit 9 percent and are up 7 percent so far this year. With the red hot economy a bit sluggish and overseas investors allegedly being driven away by record high prices, those numbers have led to fears of a bubble.

Nobel prize winning economist Robert Shiller — the same man that predicted the American housing collapse — harbours those fears. In August 2013 he expressed that at a conference in Brazil and has reiterated his Brazilian bubble worries several times since. His opinion has been taken with a grain of salt, as Brazil is predominantly an end-user market and mortgage lending as a percentage of GDP sits below 10 percent. Nonetheless the economy has slowed and interest rates are rising.

Investors entered into a love affair with Brazil years ago so the question becomes one of whether or not this affair is over. Shiller’s predictions for Brazil are wrong according to former finance minister and Tendencias consultancy founder Mailson da Nobrega, who told the BBC, “It’s not a classic bubble that was inflated through credit. Credit isn’t the source of house price increases in Brazil — it’s an imbalance between demand and supply.”

Heading South
Savills World Research Associate Director Paul Tostevin remarks that yields in São Paulo and Rio are high by international standards, indicating strong tenant demand. Tostevin also hints the market should find itself in better control down the road, though unlike da Nobrega, he does see available credit as a market driver. “Price growth remains strong, [and] while the rate of price growth has slowed significantly from the highs of 2011, annual price growth in Rio and São Paulo is still in double digit territory. The Brazilian housing market expanded rapidly on the back of availability of credit. This has since been reined in with recent interest rate rises, suggesting more sustainable levels of growth going forward. This will be underpinned by an expanding middle-class, and continued government investment in the sector,” he says.

Investment in Brazil is relatively simple for overseas investors. Foreign nationals can buy freehold property unrestricted, with few exceptions. Among those are, “Very large farms and islands/coastal land tracts that could be deemed ‘militarily sensitive’. International buyers can purchase freely in Brazil, but do require a tax number from the government (a CPF),” notes Tostevin.

With almost 7,500 kilometres of coastline and some spectacular architecture, holiday homes are becoming a bigger draw for global buyers. Affluent Brazilians are underpinning the demand for luxury resort real estate, most notably in coastal Trancoso, in Bahia state, and Buzios, in Rio, both of which rival anything in Thailand or the Caribbean. “[These are] small, understated resorts characterised by historic buildings and rich history,” Tostevin explains. “Buzios was once a haunt of Brigitte Bardot but has remained relatively obscure until recently. It is now emerging as a more international destination.”