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.