Property Futures

Real Estate News, Reviews and Investment

The Quiet Real-Estate Boom in Brazil

Article: real estate investment in Brazil.

Brazil is a relative newcomer to the world of global real-estate investment.  However, over the past few years, it has come to be regarded as an excellent opportunity for investment—the potential for high returns should continue for the next 2 decades or so.

Potential exists because of the mismatch between high levels of demand and the comparatively restricted supply.  Additionally –

  • 2 major sporting events are expected to drive the market: the World Cup soccer tournament in 2014 and the 2016 Olympic Games, to be held in Rio de Janeiro.
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Factors encouraging real-estate investment in Brazil

  • Relatively low rate of inflation
  • Affordable cost of living
  • Low cost of maintaining real estate
  • Favorable foreign exchange rates (making it comparatively cheap for investors from Europe and the United States)
  • Incentives offered by the government to encourage investment

The rapid rise in real-estate values is due to a combination of factors:

  • The rapid increase in income of Brazilians, giving them more room for consumption
  • A period of economic and political stability with the emergence of a growing middle class
  • Growth in population

According to real-estate consultancy Jones Lang LaSalle in the report “Global Market Perspective Real Estate Outlook for 2011”, their opinion is that “Latin America will continue to build momentum with Brazil taking the lead”.

Commercial real estate

Commercial real estate is rebounding throughout the world and prospects in Brazil appear promising because of the short supply, particularly in the major cities.

The potential for growth is driven by increasing demand and, in cities like São Paulo, both international and domestic businesses are actively seeking quality office space against the background of a shortage.  Property consultants CB Richard Ellis say that office rentals in Rio de Janeiro are inflated by what they describe as “constrained supply and robust demand”.

Residential real estate

PricewaterhouseCoopers described Brazilian residential real-estate by saying, “There’s a ton of demand for a ton of new space”.

A government program drives the boom: it provides developers with funding at below market rates to build properties to be sold at prices below BRL R$140,000 (around USD $86,000).

In turn, homebuyers receive mortgages at below-market interest rates from the government bank, Caixa Economica Federal. The effect makes housing affordable at a time when disposable incomes are growing.

  • This program is expected to continue because estimates suggest that the housing deficit is between 5 million and 30 million.
  • In fact, it should have a major impact on the low-cost housing sector where a large number of people live in slum communities.

The bottom line

Real estate in Brazil is not exactly cheap and residential properties in places like São Paulo can sell for twice the price for similar properties in US cities like Las Vegas and Miami.

  • Average prices in São Paulo rose by 85% between April 2009 and October 2011.
  • A Reuters’ poll showed that prices are expected to increase between 5% and 10% in 2012.
  • Consumer inflation is expected to remain stable at 5.5%.

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