Carnival Time for Brazilian Real Estate

A chronic shortage of property, 1.5 million new families a year and a burgeoning middle class all bring strong growth for the Brazilian real estate market. And with 20% growth predictions for the next five years, the carnival continues for property in Brazil.

Many Brazilian property analysts believe that the recent spectacular growth in the number of new builds shows that Brazil is making up for lost time. After years of virtual stagnation, the market for real estate in Brazil has regained momentum with annual growth in the region of 20%.

Repeat Cycles in Brazilian Property

For some analysts, the pattern is a repeat of the one seen 30 years ago. In an interview with the Brazilian Mortgage Association (ABECIP), the CEO of Brookfield Incorporacoes Nicholas Reade compares the present scenario with 1980. According to Mr Reade, Brazil built 630,000 units in 1980, a figure that was only slightly higher in 2009 (650,000 units). Yet, Brazil’s population has grown by over 70 million since 1980.

This comparison leads Mr Reade to believe that there is plenty of room for growth in the Brazilian real estate market. He predicts 20% annual growth over the next three to five years, a view that is shared by many others in the industry.

Long-term Future

All housing markets follow cycles and Obelisk International market research points to a steady upward trend for Brazilian real estate over the next few years. The number of new households in Brazil (currently around 1.5 million a year) plus the shortage of housing support this view.

For Thomas White, the long-term outlook for Brazilian property seems “set in concrete”. In the article ‘Brazil Housing Sector: No sign of the carnival ending’, Thomas White emphasises that “scarcity, not abundance, is the driving force” in the property market in Brazil.

Short-term Future

The recent boom in the real estate market has led many analysts to pose the question of a bubble. The question is particularly poignant in the context of a worldwide crisis with several countries such as the US, Ireland and Spain deep in property recession.

Thomas White looks at both sides of the argument. The small size of the Brazilian mortgage industry (between 4% and 5% of GDP) is a compelling argument against a bubble scenario. Mr Reade agrees with this highlighting the low level of loan-to-value (LTV) on mortgages in Brazil. Brazilian property buyers have to pay at least 25% of price upfront, removing much of the risk mortgage excesses.

On the other hand, as Thomas White points out, the current low level of housing credit to GDP could lead to mortgage excesses. Many experts believe, however, that Brazil can comfortably afford considerably more growth in its mortgage market to around 11% of its GDP without disruption to growth in real estate.

Brazil, on balance, presents a unique market for property with excellent long-term prospects. For Obelisk International CEO Gary Hardacre, one of the strongest sectors is social housing in the Minha Casa Minha Vida programme. “This niche market represents one of the most solid investment prospects with its ready-made market among low-income families and 100% government finance,” he said.

About Obelisk International: Obelisk International offers select investment opportunities in Brazil in a range of sectors such as residential real estate, construction and social housing. Obelisk gives investors security, profitability and diversity thanks to a combination of close attention to our clients’ investment requirements and high quality in-house research and analysis.

For more information on Brazilian investments and to find out about Obelisk International’s latest opportunities for investment in Brazil, contact us on             0034 952 820 319      . Via email: info@obeliskinternational.com or visit our website: www.obeliskinternational.com. Follow us on Twitter – Obelisk International and Facebook.