Property

Brazilian Boom

Brazilian BoomBrazil is famous for a lot of things. It’s always been there — the titan of South America — but until recently it wasn’t really respected, for lack of a better word, on the global stage. That changed when British economist James O’Neill coined the term “BRIC” in 2001 to lump the country in with three other booming giants. Brazil is home to the famous and infamous Carnaval and the crazy futurist, master-planned capital at Brasília. One of the globe’s true megalopolises (Sao Paulo) is here, and rumour has it the country has a pretty good football team. This is the country that gave us samba.

The largest of the Lusophone states, it’s alone in Spanish speaking South America, yet is arguably the continental engine. Brazil boasts the sixth largest economy in the world — expected to rank at number five by the end of this year — rooted in agriculture, industry (such as auto and aircraft manufacturing) and energy and growing at approximately 5 percent per year. Tourism has yet to make a significant mark on the country’s total economy, but if Embratur, the Ministry of Tourism, has anything to say about it that will change soon. Brazil welcomed 5.4 million visitors in 2011, regionally behind Mexico and Argentina, most of whom took in the beaches, UNESCO sites and, perhaps most notably, the vast array of adventure/eco-tourism options in that still burgeoning subsector. Brazil is home to a little thing called the Amazon Rainforest.

It’s not all perfect, however. Brazil ranks as among the most criminalised countries in the world, it sits directly on major international drug routes, rampant inequality and economic imbalance still exist, and like many of its neighbours, Brazil has along history of military dictatorships and coups d’état. That said, media images tend to be hysterical (what action movie can’t benefit form a vicious Brazilian drug lord?), crime rates overall have been dropping steadily over the last decade, Brazilians, on average, earn more than Russians, Mexicans, Malaysians, South Africans, Thais and Chinese and regardless of its past political instability, Brazil has never reached Argentine levels of violence and transitioned to a democratic state quite smoothly.

All this means property is becoming a serious investment and prices in Brazil are rising. And there’s a lot going on in Brazil in the coming years to support building and investment: Brazil is host to the FIFA World Cup in 2014 and Rio de Janeiro is hosting the next Summer Olympic Games in 2016. Most analysts are expecting an increased demand for both commercial and residential property in the near future. Rio is already experiencing an infrastructure and construction boom that will benefit the city long after both events are over and the hotel industry is putting a great deal of effort into both new investments and upgrades. “This changes the business environment, creating more opportunities for the city,” said Monica Barg, director of leasing at Jones Lang LaSalle in Rio in a statement on the city’s current property activity.

Rents are already rising too. As reported in the Financial Times in May, prices in Rio have jumped almost 22 percent per square metre in the last year. A growing middle class and an active mortgage market are two of the causes, as is the attention both local and international buyers are paying to the country’s key cities. That middle class is expected to account for 60 percent of the population by 2018 — a higher rate than China’s — making the rental market a growth industry: space is limited at the moment. In a report on global residential pricing from early 2012, Knight Frank researcher Kate Everett- Allen stated, “Brazil … tops the rankings with 26 percent price growth in 2011. This remarkable performance is being fuelled by strong population growth, rising household wealth and an expanding mortgage market.”

Beachfront properties, townhouses and city centre apartments are all available to varying degrees right now, and most Brazilian properties will either generate strong rental returns or be capital gains winners down the road. Currently both luxury and mass-market real estate make for good value. Flats can be picked up in new developments for as little as BRL150,000 (HK$575,000) in Natal, on Brazil’s north coast, or BRL1.6 million (HK$6 million) in Rio’s exclusive Ipanema district.

Though consultancy Colliers International fears currency pressures due to high volumes of foreign investment, particularly in the commercial and office sectors, any appreciation of the Brazilian Real may come to a halt on the back of continued woes in Europe and the United States. Nonetheless, Brazil is shaping up as the place to be for the foreseeable future.