Mortgages for Brazil Property Investment on the Horizon

Property investment in Brazil has just received a very welcome boost. According to official government sources, mortgages for foreigners buying real estate in Brazil are finally within months of becoming a reality.

Speaking to Property Wire at the OPP Property Investor Show held in London last week, Laercio de Souza, the general co-ordinator for investment promotion at the Brazilian Ministry of Tourism, said that negotiations are taking place at the highest levels to implement the necessary legislation to allow home loans for foreigners making investment in Brazil property. Mr de Souza is confident that these negotiations will come to fruition within 12 months.

“Although in theory the Central Bank allows foreign investors to have access to finance, in practice it does not really happen,” Mr de Souza told Property Wire. Conscious that this situation is holding back vital investment in Brazil, the Brazilian authorities are determined to change legislation. They will bring in modifications in financial law to facilitate mortgages for foreigners buying property in Brazil.

For Brazilians themselves, mortgages are a relatively new product and have only been in existence for around five years. But in spite of a lack of mortgage tradition, Brazilians have embraced the concept of home loans. As credit terms and conditions become more familiar, more and more Brazilians are applying for mortgages for buying real estate in Brazil.

Home loans have taken off this year with record levels of mortgages approved – the government-owned Caixa Economica Federal bank expects to approve R$39 billion in mortgages by the end of this year. In 2005, the Caixa lent a mere R$5.1 billion for buying property.

At its October meeting, Brazil’s monetary policy committee (known as Copom), voted unanimously to maintain interest rates at the historically-low rate of 8.75%. In its press release, Copom explained that this low rate is “consistent with a benign inflationary scenario, contributing to ensure the maintenance of inflation in line with the target path.”

Brazil’s Central Bank uses the inflation target as a guide to setting interest rates. Brazil’s target for inflation for 2009 and 2010 is 4.5%, with a margin of 2% (plus or minus). With year-on-year inflation in September coming in at 4.34%, Brazil is comfortably inside the government and Central Bank target.

At Obelisk, we welcome the news that mortgages for foreigners buying in Brazil are shortly to become widely available. Brazil already ranks among the world’s top emerging markets when it comes to value for money and investment potential. The increased availability of mortgages for foreigners will open up the market still further and undoubtedly add weight to the theory that an unprecedented Brazil real estate boom is on the horizon.

Investment in Emerging Markets Booming

More and more experts are tipping investment in emerging markets. Emerging markets are forecast to represent up to 75% of global growth in the near future, proof that now is the time to make investment in property, stocks and equities in these countries.

Emerging markets, particularly the BRIC nations (Brazil, Russia, India and China), are now leaving the recession behind and are expected to lead the rest of the world out of the economic downturn. Speaking in Seoul, Allan Conway, head of emerging market equities at Schroder Investment Management, said that as emerging markets drive world growth, they will represent “70% to 75% of global growth for the foreseeable future”.

According to Bloomberg, the top ten global highest performing benchmark indexes this year are all emerging markets. Indexes in Argentina and Sri Lanka have more than doubled while Brazil’s stock exchange has increased in value by 55% so far during 2009.

Conway went on to say that because of increasing domestic demand – Brazil saw a 2.1% quarterly increase in Q2 – and growing trade between developing nations (Brazil and China are ever-bigger trade partners), “emerging market growth looks much better than developed economies”.

According to Conway, the BRIC nations are in an “early stage” of development, which is set to take off. “The importance of BRICs will just get bigger and bigger,” he said, emphasising that this is not a short-term phenomenon but one that is here to stay.

Domestic demand in the BRIC nations is huge and rising. Between them, the four countries have a population of 2.9 billion and purchasing power in the quartet is rising fast, creating huge internal markets. Better credit conditions – for example, Brazil has historically low interest rates and record consumer credit – also adds to consumer demand.

Other investment experts have echoed Schroder. JPMorgan Chase has advised investors to buy equities in emerging markets and sell shares in developed countries. The advice to make investment in emerging markets has already taken effect. Santander, the euro zone’s largest bank by market value and the 7th largest in the world, made US$7 billion last week from the Initial Public Offering (IPO) of its Brazilian subsidiary.

The IPO was the biggest ever in Brazil and the sale of shares gives Santander in Brazil a market value of US$50 billion. Santander bought Brazil’s Banco Real in 2007 and the recent listing has made €1.43 billion in capital gains for Santander’s Brazilian subsidiary.

Santander’s IPO proves that floatations have resuscitated after more than 18 months of stagnation on world stock markets. It also proves that there is immense confidence in investing in Brazil. After a blip in GDP growth in Q1 this year, Brazil’s economy is now back on track for strong increases. Most experts are predicting around 4.5% GDP growth for 2010 with Merrill Lynch out at the front predicting an extremely healthy 5.3%.

Most emerging markets offer excellent investment opportunities in stocks and equities, but few can match Brazil when it comes to property. With its stunning scenery, excellent climate and almost-bargain luxury property, Brazil real estate has no competitors. And since property investment by foreigners is very limited in China and India, this situation is likely to continue for the foreseeable future. No wonder property analysts are predicting one of the biggest real estate booms in Brazil ever.

For more information on overseas property investment and to find out about Obelisk's latest projects, contact Obelisk on 0034 952 820 319.

Obelisk also produces its Absolute Guide Series which contains the most recent investment information on 30 of the world’s top emerging markets. They can be downloaded free of charge at http://www.absoluteguideseries.com.

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