The Changing Face of Brazilian Real Estate

The market for Brazilian real estate is undoubtedly one of the hottest around. And it’s also one of the fastest evolving. With the advent of the social housing programme, the face of real estate in Brazil has totally changed.

The effects of the Minha Casa Minha Vida programme have been two-fold. Firstly, this massive investment in Brazil property has boosted the civil construction industry to unprecedented levels. And secondly, the bid to build 3 million homes by the end of 2014 has changed the dynamics in the Brazilian property market.

Although property developments have now sprung up all over Brazil, construction was once small scale and usually limited to the largest cities. With a housing shortage of at least 7 million homes, previous property developments in Brazil were little more than a drop in the ocean and did nothing to reduce the deficit. High prices and lack of available property meant that owning a home was a pipeline dream for most Brazilians. For example, in 2005, the average Brazilian family needed ten times the minimum wage in order to buy a property priced at R$60,000.

With Minha Casa Minha Vida, the property market has changed completely. Now, to buy an R$83,000 home a Brazilian household needs just three times the minimum wage. For the first time ever, getting on the first rung of the property ladder is now possible for thousands of families.

Minha Casa Minha Vida is running slightly behind schedule and has not quite reached its target of the construction of 1 million homes in 2010. However, Brazil is not far off the mark and all over the country households are benefitting from the chance to buy their own home at a price they can afford.

Brazil’s new President Dilma Rousseff is totally committed to the Minha Casa Minha Vida project. Like ex-President Lula, Dilma has made the social housing programme a top priority for her government. The necessity to build quality housing for millions of Brazilians has been made even more apparent after the recent floods in the Rio de Janeiro district.

Last month, the Brazilian government approved this year’s budget for Minha Casa Minha Vida. The amount for 2011 is R$30.6 billion and will go towards the building of many more Minha Casa Minha Vida units. The government has indicated that it may ease the price restrictions for properties in the programme to allow more middle class Brazilians to enter the market.

In cities with a population over 1 million the maximum price for a Minha Casa Minha Vida property is currently R$130,000. The government plans to increase this to between R$150,000 and R$170,000. For smaller cities, the current price limit of R$100,000 will be raised to R$130,000. This measure, to be confirmed by the end of this month, should allow the influx of thousands more potential homeowners into the Brazilian real estate market.

As one of the main Minha Casa Minha Vida developers in Rio Grande do Norte, Obelisk International has experienced first hand the changes in the Brazilian property market. Not only is the market more dynamic and fast moving, the potential for returns from investment are considerably higher. It is also very satisfying to be contributing to the reduction in the shortage of property in Brazil.

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

Great Prospects for Investment in Construction Materials in Brazil

Prospects for investment in construction materials in Brazil look very good until at least 2016. Industry experts are predicting annual sales of at least R$146.5 billion over the next five years.

These sales figures are based on the excellent performance of the construction materials industry in Brazil during 2010 and the expected increase in the number of Brazilian households. This high growth is pushing the demand for new homes and is the main engine driving property investment in Brazil.

In its quarterly construction materials industry report, the Brazilian Association for the Construction Materials Industry (ABRAMAT) provides figures for 2010 and outlines the perspectives for the next five years. The report confirms the excellent prospects for this niche market in Brazil investments.

According to ABRAMAT, the construction materials industry grew by double digits in 2010 and the expected final figure will be around 12% to 13%. Sales of building materials in Brazil last year averaged R$9.1 billion a month and business done in the year to October 2010 were up 13.4% on the same period in 2009.

Part and parcel of this buoyant market in Brazil was employment in construction. Between January and September last year, 15.2% more jobs were created nationally in the building industry. This figure was even higher in some regions of Brazil – for example, employment in the construction sector rose by 27.4% in north east Brazil and by 24.5% in the north.

ABRAMAT concludes that 2010 was undoubtedly a great year for the construction materials business in Brazil. And the good news for investors is that 2011 looks set to follow suit. On the back of last year’s performance, Brazilian businesses are very optimistic for this year. Industry experts are predicting the growth in sales of building materials to be nearly 9% this year with sustained growth at least until 2016.

This optimism is based on the demographics driving demand for Brazil property. ABRAMAT reports that between now and 2016, the rate of growth in the number of Brazilian families will be over double the rate of population growth generally. The increase in the number of households is set to be even higher. The conclusion is obvious – the higher the number of households, the higher the demand for homes. This translates to an increase in construction and the corresponding rise in building materials sales.

ABRAMAT expects an annual average of R$230 billion to be spent on property investment in Brazil between 2011 and 2016. In tandem with this, construction materials will average sales of R$146.5 billion every year (R$104 billion in basic building materials and R$42.5 billion in finishing materials).

All in all, ABRAMAT predicts an 8.8% growth in construction materials sales in Brazil this year. For the next five years, the Association forecasts that sales will increase by 48%.

For Obelisk International, this latest report into construction materials confirms the huge potential for investment in Brazil’s building industry. The inexorable demand for property from Brazil’s ever-increasing households means that demand for construction materials will also continue on a steady upward trend. Investment in this niche market therefore makes perfect sense.

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

Investment in Brazil’s Middle Classes

After eight years under Lula, Brazil now has a new president. Like her predecessor, newly-elected President Dilma has pledged to continue investment in Brazil’s new middle classes.

Under this investment, Brazil has experienced spectacular economic and social growth. A glance at statistics in key areas since 2002 shows impressive increases in both Brazilian wealth and social status. Although there is still plenty to do to fulfil Dilma’s pledge to end poverty in Brazil, the investment has paid off hugely. And thanks to the new-found wealth and spending power, Brazil looks well set to become one of the world’s top five economic powers.

Since 2002 when Lula came to power, Brazil has seen steady economic growth. The increase in income – the minimum wage in Brazil has grown over 60% since 2002 – and decrease in unemployment (currently 5.7%, the lowest for 15 years) has led to a legion of new spenders. Brazil now has 40 million new consumers whose big spending is, in turn, driving the economy forward.

The recent Christmas shopping period was reportedly the best ever throughout Brazil and consumer spending is expected to continue to rise over the next few years with an increase of 4% forecast for this year. Domestic appliances and telecommunications are experiencing huge increases in sales – mobile telephone ownership has gone up by nearly 500% since 2002 and internet connections by over 340%.

But the new consumers also aspire to bigger purchases. Top of the new middle class wish list is a home. Investment in Brazilian real estate has increased dramatically over the last few years and is set to do even further this year as more and more Brazilian families get a foot on the property ladder.

Next on the wish list are cars with 45% of the new middle class keen to buy a vehicle. Car manufacturing has grown by 88% since 2002, but there is still plenty of room for growth in this key sector, a favourite for investment in Brazil. This year, several large car manufacturers such as Fiat, Ford and Volkswagen have earmarked large investment sums for their factories at locations throughout Brazil.

Driving Brazilian investment in property and cars is the availability of credit. Since Lula was first elected president in 2002, credit has grown by 180%. This translates into a rise from R$600 billion in loans in 2002 to a massive R$1.68 trillion in 2010. And credit looks set to grow even further this year on the back of record numbers of mortgages.

Government investment in Brazil’s middle class has more than paid off in terms of economic growth and potential. There is still a lot to do – 5% of Brazilians live below the poverty line, but further investment in property through the social housing programme, Minha Casa Minha Vida, and in education should ensure this figure continues to fall. It has already dropped significantly since 2002 when it was 9%.

For Obelisk, the transformation of Brazil over the last few years has been more than impressive. However, we believe this is just the beginning. As more and more Brazilian move up the middle classes, consumer spending will continue to grow driving the economy even further. This together with the planned investment by the government should ensure that Brazil continues to provide spectacular statistics.

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

Excellent Year for Brazil Construction Materials Industry

Excellent Year for Brazil Construction Materials Industry

The Brazil construction materials industry has just closed one of the best years ever. On the back of widely available credit and vast investment in Brazilian real estate and infrastructure, construction costs rose by 7.36% in 2010.

Latest annual figures issued by the Brazilian Statistics Agency (IBGE) point to a nationwide increase in the cost of construction of 7.36%. The total cost of building a square metre in Brazil was R$769.06 at the end of the year with construction materials accounting for R$434.25 of the total.

Some regional figures, particularly those for the north and north east regions of Brazil, show even higher increases. Construction costs in the north went up by 8.84% last year and those in the north east experienced a 7.5% increase. Within the north east, Piauí and Ceará saw the largest hikes in the price of building (9.73% and 9.14% respectively) with Rio Grande do Norte close behind with an 8.3% rise.

For Guido Mantega, Finance Minister under Lula, “the construction industry has been one of the major engines of Brazilian economic growth”. Powering the Brazil construction industry are several factors, all with good long-term prospects.

Perhaps the most important factor is the government social housing programme, Minha Casa Minha Vida. Building 3 million homes by the end of 2014, Minha Casa Minha Vida is responsible for huge investment in property throughout Brazil. The programme is heavily over-subscribed in most cities and a major force behind the current boom in construction in Brazil.

The wider availability of credit, both for developers and homeowners, is also a driving force behind the big increase in construction costs. As mortgages become easier to obtain and lending criteria more flexible, demand for property rises. And the third factor is Brazil’s booming economy whose growing employment and salary levels mean that demand for property in Brazil stands at one of the highest ever.

The good news for those planning investment in real estate or construction materials in Brazil is that these factors are here to stay for the short to medium term. In an interview in the business publication, Valor, Fabio Romão from LCA Consultores stated that “the perspectives are good for all the sectors related to the construction industry”. This includes all manufacturers and suppliers of building materials from basics like cement to finishing touches such as taps.

Further good news for construction in Brazil came at the end of last year when the government announced that building materials will continue to qualify for important tax discounts. These discounts will apply for the whole of 2011 and are a welcome boost for developers and builders, already enjoying booming business.

For Obelisk International, the construction industry in Brazil represents an obvious investment opportunity. The latest figures for 2010 are a clear indication of the power of the industry and those for 2011 will undoubtedly show a similar pattern.

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

Civil Construction Investment in Brazil Booming

Latest figures estimate that civil construction investment in Brazil needs to average R$255 billion a year until 2022. By then, the shortage of property in Brazil should equal that in developed countries.

Brazil has a massive housing shortage and the investment needed to reduce it is also massive. According to the latest estimates published by the Sao Paulo Industry Federation (Federacao das Industrias do Estado de Sao Paulo/FIESP), around R$3 trillion investment in Brazilian real estate is necessary to build 17.5 million homes over the next 12 years.

These 17.5 million properties include those within the social housing programme, Minha Casa Minha Vida plus millions others to be built for the increasingly affluent Brazilian middle classes. FIESP believes that if the Brazilian economy continues to grow – and with the OECD predicting at least 5% annual growth over the next three years, all signs point to this – it’s possible that by 2022, the shortage of real estate in Brazil will be similar to established markets.

FIESP in conjunction with the Brazilian economic research experts, Fundacao Gertulio Vargas are due to present a report addressing the most important concerns in civil construction. These concerns include the shortage of labour, particularly qualified and experienced civil construction professionals, and rising taxes on building supplies.

FIESP emphasises the need to approach the housing shortage in a sustainable way to avoid a property bubble in Brazil such as the one recently experienced in the US.
For the Director of FIESP, Joao Robusti, “Brazil is at a crossroads in housing development” and for growth to be sustainable, the civil construction industry must anticipate potential problems.

“Designing a long-term housing programme is a huge challenge,” he said, “but the economic stability and rising purchasing power plus growth in infrastructure show that it is possible.”

For the FIESP, the objective of all investment in property in Brazil over the next 12 years should be to reduce the housing shortage as much as possible. Work towards achieving this objective is already underway as can clearly be seen in the latest civil construction figures in Brazil.

The building industry created 2.8 million jobs in the ten months up to October this year, considerably ahead of the 2.3 million new jobs in construction in 2009. Production in civil construction saw a year-on-year increase of 10.1% in the year to October with the region of Recife seeing the biggest hike (30.7%).

These trends are set to continue as Brazil moves towards reducing its mammoth housing deficit. The civil construction sector needs an additional labour force of 10.2 million between now and 2022 to keep with demand. And the huge annual investment – R$255 billion a year according to FIESP – will ensure production levels continue to grow. Construction materials are another sector experiencing huge growth. For UK Trade and Industry, “Brazil’s construction sector has one of the largest growth rates in the world” and Ernst & Young believe that the pressure of demand for housing “translates into sustained demand for building materials”.

For Obelisk International, the huge demand in Brazil for property and the investment needed to keep up with it are the main reasons for our presence there. We see opportunities in several niche markets and believe all offer excellent investment potential until at least 2022.

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

Sovereign Wealth Fund Latest Investment in Brazil

Brazil’s status as a prime investment destination continues to grow. Hot on the heels of private equity funds entering Brazil comes the news of the arrival of the first large sovereign wealth fund investment.

Brazil has just received sovereign wealth funds amounting to US$1.8 billion. The funds – the first of this level of investment in Brazil – have gone into BTG Pactual, an independent Brazilian investment bank. The US$1.8 billion comes from a consortium of nine funds, including GIC from Singapore, the Chinese CIC and the Abu Dhabi Investment Council.

These are the world’s three largest funds and the fact that they have chosen to go into Latin America’s largest country is an indication of the growing status of Brazil as an investment destination. For Andre Esteves, the Chief Executive of BTG Pactual, the injection of these sovereign wealth funds into Brazil is “a sign of a new financial order”.

Sovereign wealth funds are increasingly moving away from established economies to the new emerging markets such as the BRIC nations (Brazil, Russia, India and China) where investment opportunities are wider and returns higher than traditional markets.

Until recently, Brazil had not been a focal point for this type of funds. But as the Brazilian economy grows and Brazil’s standing on the world economic platform rises, more and more fund managers are looking to this huge country for their next move.

The latest deal with BTG Pactual will look to expand across Brazil and Latin America, which along with Asia is one of the world’s hottest investment spots. Strong economic growth makes Latin America an attractive proposition. Figures just released from the United Nations (UN) Economic Commission for Latin America and the Caribbean point to 4.2% GDP growth for the region as a whole in 2011.

Individual country figures are even better. For the UN, Brazil’s economy will be posting 7.7% growth this year – the highest in Latin America – to be followed by 4.6% in 2011. Chile and Peru also look more than promising for next year with a forecast of 6%.

As world economic dynamics change, shifting away from developed nations to the new emerging economies, Brazil is gradually moving to the forefront of favoured investment destinations. Obelisk International has noticed the gradual evolution from small investment amounts to some of the largest fund movements. 2010 has undoubtedly been an excellent year for Brazilian investments from private equity to real estate. The arrival of serious sovereign wealth funds suggests to Obelisk International that 2011 will be an even better time to invest in Brazil.

And we echo the words of Huw Jenkins, a partner at BTG Pactual when he points out that “we have to take advantage of this period when Brazil is clearly at the centre of a global investment re-rating”.

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