Brazil Investment Top for Bloomberg

It’s official – the best returns for investment are found in Brazil. According to the latest Bloomberg Global Poll, Brazil is the world’s best investment destination.

The latest quarterly Bloomberg Global Poll released in mid-September ranks Brazil as the world’s number one spot for investment returns. Sharing top place with China, Brazil stands ahead of India in third place and the US in fourth. In the previous June Poll, Brazil came second behind the US, but strong growth and a solid economy have consolidated potential for investment and made Brazil top investment destination.

The Bloomberg Global Poll is carried out among investors, analysts and traders, and provides a quarterly insight into how those in the trade perceive markets for investment. Emerging markets continue to be favourites as highlighted by the fact that Brazil, China and India take the top three positions. One respondent to the Poll pinpointed Asia and Latin America as “providing support to the global economic malaise”.

When it comes to investment, Brazil also enjoys a high degree of confidence – lack of investor confidence in the US along with slower growth were the main reasons stated in the Poll for America’s fall to fourth position. Confidence in Brazilian investments can be seen in the record number of private equity funds entering the country. Since 2008, US$4.5 billion has flowed into Brazilian private equity with flows so far this year running to US$1.5 billion.

Recent examples include BTG Fund Management who has bought the energy company Coomex and several hospital networks, and the purchase of Burger King by 3G private equity fund. One of the largest and longest-established equity funds in Brazil is Advent, a US fund, present in Brazil since 1997, who has purchased fast food companies and duty-free shops.

Confidence in investment in Brazil and emerging markets is also apparent in stock market movements since June this year. Bloomberg reports that the Brazilian stock exchange has increased by 10.56% in the last quarter with India’s Index close behind on a gain of 10.44%. In contrast, the US S&P 500 Index rose by just 3.62%.

As well as attracting investment, Brazil is also seeing huge gains in tourism. Central Bank figures point to US$489 million spending by foreigners during August, more than 7% higher than August 2009. In the first eight months of this year, foreign tourists spent US$3.86 billion, a rise of 11.54% on the same period last year.

Obelisk International is well aware of Brazil’s investment potential and the latest Bloomberg Global Poll mirrors Obelisk International’s ranking of Brazil’s as the world’s number one destination for returns. Profits offered by Obelisk in Brazil (from 50% to 100%) are undoubtedly among the best around.

Contact Obelisk International on 0034 952 820 319. Via email: info@obeliskinternational.com or visit our website: www.obeliskinternational.com.

The Challenges in Brazil Real Estate

Over the last decade, the Brazil property market has faced some significant challenges. Meeting these and the new ones is key to successful investment in one of the world’s hottest real estate markets.

Brazil is a relatively young property investment destination, but even in its short history, the market has seen some radical changes. Ten years ago, property investment focused on the upper class (known as Class A) with construction centring on large homes in desirable locations in the largest cities in Brazil. This market was dynamic while it lasted, although lack of credit and choice of property always held back growth.

From 2004 when the economy began its path to consolidation and steady growth, a new market for real estate investment in Brazil emerged – the middle classes (known as Class C and Class A/B). Backing this new market was the introduction of home loans, although the mortgage market remained small and undeveloped until 2009.

Brazil is home to one of the world’s fastest-growing middle classes. According to the Getulio Vargas Foundation, the middle classes have grown 4% a year since 2004. This social process has changed the entire face of the Brazil property market, which now caters primarily for the middle classes.

Middle classes have different property tastes and the real estate market has adapted to match these. Homes are smaller (two or three bedrooms instead of four) with quality recreational areas – for example, swimming pools and tennis courts– and are located in metropolitan areas throughout Brazil.

Catering for the lower end of the middle classes has largely been taken care of by the Brazilian government. Minha Casa Minha Vida, the social housing scheme launched in 2009, provides homes for Brazilians earning between zero and ten times the minimum salary. This income bracket, which had previously proved unattractive and economically unviable for developers, is now a major investment opportunity in Brazil. So far this year, around 90% of units launched in São Paulo are part of the Minha Casa Minha Vida programme.

Adapting to new property market demands has been a steep learning curve for Brazilian developers, although most of them have modified their business and financial models very successfully. Lessons learnt include cost-effective developments, strategic alliances or partnerships within the business and the importance of looking at Brazil’s bigger picture and developing away from the largest cities. Developers are now also well aware that the middle classes in Brazil are priority investment targets. As such, quality and standards of construction and finishes are essential to meet consumer demands.

But one of the largest challenges facing the property market in Brazil is satisfying demand. With around 700,000 units due to be finished this year, Minha Casa Minha Vida is well on target for its million homes by the end of 2011 (3 million by the end of 2014). However, in terms of demand for property in Brazil, this is just a drop in the ocean.

As the middle classes and their aspirations continue to grow, meeting demand is likely to be impossible for at least the next 15 years. For Obelisk International, this translates into a wealth of opportunities for investment in property for Brazil’s middle classes.

Opportunities are available from the bottom of Class C through to the top of Class B. Whether it’s for Brazilians looking to fulfil a lifetime dream of homeownership or for Brazilians whose higher salaries mean they can aspire to a better lifestyle including a better home, Brazil has the investment to tick the box.
Contact Obelisk on 0034 952 820 319. Via email: info@obeliskinternational.com or visit our website: www.obeliskinternational.com.

Good Reading for Brazil Investment

Brazil recently released its Q2 economic figures and they make very good reading. With strong economic growth, salaries on the rise and controlled inflation, Brazil is steaming ahead as a top investment destination.

2010 got off to an exceptional start for Brazil and the trend has continued through the second quarter when the country’s GDP grew by 1.2%. This figure hides a bigger picture – over the last four quarters, Brazil has experienced GDP growth of 5.1%.

Since Q2 last year, all industrial activities in Brazil have seen double-digit growth. The largest expansion has been in civil construction (16.4%) with mining and quarrying coming a close second with a growth of 14.1%. Civil construction is booming on the back of infrastructure projects and the massive investment in the Minha Casa Minha Vida (MCMV) social housing programme. This sector will undoubtedly experience further big growth as Brazil continues with its ambitious building projects – MCMV alone intends to build 3 million properties by the end of 2014.

Unlike many developed countries where consumer spending cannot get off the ground, household expenditure in Brazil continues to grow. The 6.7% year-on-year quarterly rise is the 27th consecutive increase, proving beyond doubt that consumer spending is big business in Brazil. Powering household expenditure are growing salaries, which saw a year-on-year increase of 7.3% in Q2.

And inflation also brings good news. Brazil’s rates are registering lower increases than expected. After worries in late spring that inflation might soar above the Central Bank target, the consumer price index is now in check. Inflation rose by just 0.04% in July bringing the rate to 4.49%.

The figures for investment in Brazil also make good reading – Q2’s investment rate is the second highest Q2 level since records began in 2000. Investment represented almost 18% of GDP, reflecting the huge foreign interest in investment in Brazil.

But investment isn’t just pouring into Brazil; the boom is also working the other way. 3G Capital, owned by one of Brazil’s most influential entrepreneurs, Jorge Paulo Lemann, has just put in an offer to buy Burger King. Unless another company betters 3G Capital’s offer, Burger King, a global fastfood icon, will ‘become’ Brazilian in early October. At Obelisk International, we believe that the 3G Capital bid is yet another example of Brazil’s increasing economic presence on the international business stage.

By current international standards, Brazil is having a fantastic year and looks set to end 2010 as one of the best global economic performers. Against this scenario, Brazil offers endless investment opportunities and Obelisk International’s investment recommendations also make for some very good reading.

Contact Obelisk International on 0034 952 820 319. Via email: info@obeliskinternational.com or visit our website: www.obeliskinternational.com.

Brazil’s Strongest Government

Brazil is just over a fortnight away from presidential elections and President Lula’s designated candidate, Dilma Rousseff looks set to take a landslide victory. This highly-likely event will represent a continuation of Brazil’s progress along the path to becoming the fifth largest economic power.

Lula is Brazil’s most popular president ever – Obama has referred to him as “my man” – and 80% of Brazilians approve of him and his policies. With employment and salaries running at all-time highs, Lula is known as the man who has brought unprecedented prosperity to Brazil. And under Lula, poverty has shrunk to its lowest level ever thanks to the government’s flagship economic development project, the PAC.

Lula’s policies include major social and class reform. Thanks to the many social programmes, 30 million Brazilians have left poverty behind them and the huge class divide, once a defining characteristic of Brazilian society, is now a thing of the past. Middle classes can now aspire to a home under the Minha Casa Minha Vida housing programme (part of the PAC) and employment opportunities with better salaries are also available. Fired by the confidence Lula inspires, investment in Brazil is booming.

However, constitutional rules mean Lula cannot stand for a third term so he has appointed Dilma Rousseff (known as just Dilma) to carry on his political project. Since Lula was first elected in 2002, Dilma has formed part of his government with her posts including Chief of Staff since 2005. An economist, Dilma has had close involvement in Lula’s projects to the extent that Lula refers to her as “the mother of the PAC”.

So far, all polls and televised debates point to a victory for Dilma with many polls predicting she will win outright in the first round. According to The Economist, Dilma “looks unstoppable” as she approaches the election race “under a lucky star”.

Dilma’s victory is almost a given and her party (the Partido dos Trabalhadores /PT) and coalition allies also look set to win in Congress and Senate. If the polls are correct and Brazil follows its usual election pattern, the PT coalition should control almost 400 seats in the 530-seat Congress and well over 50% of the Senate. This means Brazil could enjoy what The Economist describes as “its strongest government since the end of dictatorship” in 1985.

A strong government will give Dilma plenty of scope to fulfil her election pledge of continuing Lula’s legacy of popular policies and to further consolidate Brazil’s economic stability. For Obelisk, this is good news for investment in Brazil, particularly for investment associated with the new middle classes. As the main instigator behind the PAC, Dilma will undoubtedly ensure that the social housing programme Minha Casa Minha Vida continues to fulfil its objectives. Further economic progress will provide yet more opportunities for investment in Brazil’s upwardly aspiring middle class, a sector Obelisk has firmly earmarked as one of the best currently available.

For more information on investing and to find out about Obelisk's latest projects, contact us on 0034 952 820 319. Via email: info@obeliskinternational.com or visit our website: www.obeliskinternational.com.

Brazil Property in the Driving Seat

Latest mortgage loan figures and rises in prices for property in Brazil show huge growth. And the strongest increases are found in the market for homes costing less than R$150,000, one of the biggest opportunities for investment in Brazil.

As investors in Brazil real estate are well aware, this is a young market. House values, the volume of construction and number of mortgages are still considerably below those found in developed property markets. However, the latest figures show that property is well and truly in the driving seat for the Brazilian economy.

In the seven months to July this year, 187,600 mortgages were approved in Brazil, a 51.5% increase on the same period last year. Every month in 2010 has, so far, broken a record in both value and number of housing loans. In 2008, when the global financial and property crisis was in its infancy, the total value of mortgages in Brazil was R$63 billion. Just 12 months later, this had risen to R$91 billion and experts predict that by 2015, mortgage loans could reach R$455 billion, representing a giant leap of 620% in just seven years.

But it’s important to get the Brazil mortgage market into perspective. In relation to a percentage of GDP, the size of the mortgage market is tiny in Brazil. By the end of this year, it’s calculated that home loans will be worth 4% of Brazil’s GDP, rising to 11% by 2015. This is small compared to the size of the mortgage market in neighbouring Chile (18%) and Mexico (13%) and tiny when compared with the US and the UK where credit for housing runs to 72% and 75% of GDP respectively.
Brazil obviously has plenty of room for growth when it comes to mortgages.

As Leonardo Santos, an economist at the Brazilian risk rating agency Austin Rating, points out, the massive growth in mortgage lending in Brazil is only to be expected as part of the stabilisation process of the property market. According to Mr Santos, the opportunities in Brazil are very different to more developed markets because “we have a huge housing shortage and lending regulations are much stricter than in many other countries”.

Data from the Central Bank of Brazil shows strong growth in house prices too. Since 2007, prices of new homes have risen 21.4% on average per year while prices for resale properties in Brazil have gone up by an average of 15.5% annually. Demand for property is strong throughout the country and the President of the Housing Union SECOVISP, João Crestana claims that the biggest growth area is for homes valued at less than R$150,000 (around €67,000). The government housing programme, Minha Casa Minha Vida caters mostly for this price bracket, but although the programme is building 3 million homes, it will not satisfy demand.

As in all property markets, demand in Brazil is a major driving force and the principal explanation for the rapidly increasing mortgage market and rising house prices. But unlike many property markets, demand is here to stay in Brazil for at least the next 20 years. The housing shortfall at the lower end of the market runs to at least 7 million. The nationwide figure is thought to be much higher and continually added to by the ever-increasing number of Brazilian families joining the housing market and the burgeoning middle class always aspiring to a better and bigger home.

For Obelisk, the figures behind the property market in Brazil add up to excellent potential for investment. With Brazil combining all the right ingredients for exceptional returns, Obelisk maintains that, in the current global scenario, it’s almost impossible to find anything better elsewhere.

The Right Brazil Property Investment

Demand within Brazil property looks set to continue for at least the next two decades with the market offering some of the best investment opportunities around. But as always, the secret to high returns is choosing the right sector for your investment in Brazil.

And all the signs are pointing to the middle and lower ends of the Brazilian property market as the areas where demand is highest and supply lowest. On the other hand, at the other end of the spectrum, the luxury property market is clearly showing signs of strain.

Over the last two years, investor focus – both Brazilian and foreign – has been firmly on the high-end of the Brazil real estate market. Properties priced over R$700,000 (€315,000) have seen spectacular rise prices, particularly in Rio de Janeiro and São Paulo, prompting speculation that the luxury property market is about to peak.

But while the top end of property investment may well be in danger of collapse, other market sectors are showing quite the opposite.

Prices have also risen in the middle and lower ends of the property market and construction continues apace, but demand still has a very long way to go before it comes close to meeting supply. Wilson Amaral, Chief Executive of Gafisa, one of Brazil’s largest real estate companies, claims that Brazil needs to build 1.6 million new properties every year just to satisfy demand from families entering the market. And all this without even addressing Brazil’s massive shortage of homes, currently estimated at around 7 million.

Quoted in the business broadsheet, Valor Econômico, Mr Amaral said that “if Brazil goes on growing at 5% to 6% a year, with salaries rising above inflation and young people entering the job market, demand will go on rising at current levels for the next 20 years”.

His predictions echo the Ernst & Young report, Sustainable Brazil – Housing Market Potential, which describes meeting demand for property in Brazil as a “huge challenge”. Statistics in the report point to an increase of 58% in the number of households in Brazil by 2030. This together with a rapid increase in purchasing power leads Ernst & Young to forecast the construction of 37 million properties in Brazil over the next two decades.

A huge slice of these homes will be built for Brazil’s fast-emerging middle classes, indicating that this sector is the one with the biggest investment potential.
Meanwhile, the Brazilian government is focusing on meeting some of the demand. The state housing programme, Minha Casa Minha Vida aims to build 3 million homes by the end of 2014 through heavily-subsidised loans. But it’s more than obvious that Minha Casa Minha Vida will only go part of the way to help reduce demand.

Buyers in the middle and lower sectors of the Brazil property market tend to have a bigger stake in their homes than those in more developed markets. Brazilians buying off-plan typically pay 25% to 30% of the property price in monthly instalments over the construction period. As a result, buyers are much more price sensitive and house prices in this sector of the market tend to experience a slow but steady rise unlike the steep price hikes seen in luxury property.

So, while speculation in the high-end property market in Brazil’s big cities is expected to lead to the market peaking in the very near future, the very opposite is true for the middle and lower sectors. Here, the combination of relentless demand – that’s unlikely to be met for at least 20 years – and buyer profile means there’s scope for successful investment in property for many years to come.

Conscious of this potential, Obelisk’s investment in Brazil focuses on building for the emerging middle classes, whether they’re at the lower end or part of the newly aspirational upper middle classes. As always, it’s a case of choosing wisely.

For more information on investing and to find out about Obelisk's latest projects, contact us on 0034 952 820 319. Via email: info@obeliskinternational.com or visit our website: www.obeliskinternational.com.