18/10/2011
Stable Outlook for Brazilian Real Estate
For the Central Bank of Brazil, the Brazilian real estate market is stable. Steady increases in income and by extension, purchasing power together with a conservative banking sector are all behind the strength in property in Brazil.
Recent increases in Brazilian property prices and the hikes in home loan approvals have led some analysts to question the stability of the property market. Some have concluded that there may be a bubble forming within Brazilian real estate, an opinion that is rejected by many industry experts based on the economic drivers behind the boom in property.
No Evidence of Risk
One of these experts, Antonio de Moraes, Director of Fiscal Supervision at the Central Bank of Brazil, is adamant that there is no evidence of a bubble. Interviewed in the business weekly Exame, Mr de Moraes states that "there is nothing in the Brazilian property market to concern us or anything putting the sector at risk".
He is emphatic in that "there is no evidence to suggest a bubble forming" and he draws on two fundamentals to back this up. The first factor is, according to Mr de Moraes, the recent steady increases in income for a huge segment of the Brazilian population. This rise in income means more Brazilians have more to spend and most families want to spend their new wealth on a property in Brazil. This leads to huge demand with the first-time buyer market.
Conservative Mortgage Lending
Secondly, Mr de Moraes cites the conservative nature of lending adopted by all Brazilian banks. This conservative policy prevents mortgages in Brazil representing more than 65% loan-to-value. He also points out that most purchases of Brazilian real estate are made by first-time homebuyers with a lot more at stake in their purchase than second home buyers.
Central Bank of Brazil data shows that Brazilian real estate loans represented 1.3% of the country's GDP in 2005. Six years later, this percentage has increased to around 4%, an easily sustainable figure and one allowing plenty of room for growth. Many experts agree that the Brazilian property market can easily support a loan rate of between 10% and 15% of GDP, a rate that is expected to be reached over the next decade.
Record Transactions in 2010
Reflecting the massive growth in the market for real estate in Brazil are figures for 2010 recently released by the Construction and Real Estate Institute (INCI). According to INCI, Brazilian real estate transactions numbered over 65,000 last year and reached a value of €11.4 billion.
The 12% annual increase in the number of transactions reflects the rise in Brazilian property investment opportunities last year. Many analysts including Obelisk International expect 2011 to see another increase based on solid activity within the real estate sector. "The social housing programme, Minha Casa Minha Vida, will add hugely to the number of transactions," comments Andrew Switzer de Guimaraes, CEO of The Bauen Group of Companies, "as more developments are completed, confirming the potential behind Brazilian investment in property".
"With the current demand drivers and buoyant economic situation, we at Bauen Capital International see no signs of a property bubble," says Mr Switzer. "This is particularly true in regions such as Espirito Santo where the demand for affordable property is so strong," he adds.
