Why Brazilian Real Estate Prices Will Keep Going Up? | Obelisk International

It’s no secret that the Brazilian real estate market is booming. For many analysts, this is just the beginning of a long positive cycle for property in Brazil accompanied by steadily rising prices.

A recent article in the business magazine Exame looks at the many reasons why prices for real estate in Brazil will continue to rise. All the reasons indicate price rises are here to stay providing a compelling argument for property investment in Brazil.

Property Price Adjustment

According to Exame, house prices in Brazil have only just started to catch up with inflation. Their previous prices lagged behind inflation levels and the recent increases prove that there has been some very necessary price-adjustment in the Brazilian property market.

Exame quotes a recent study by JP Morgan into property value and income ratios. The study finds the value of property in Brazil is around 5.5 times the average annual income. In countries like China and Singapore, this rises to 11 times the average income showing there’s plenty of room for house price growth in Brazil.

Supply and Demand Drivers

One of the biggest drivers behind the boom in Brazil property is the huge demand for housing. This demand is apparent at all class levels and at the lower end, the social housing programme, Minha Casa Minha Vida is helping to address the problem.

Many real estate experts believe the Minha Casa Minha Vida programme is playing a large part in the current property boom in Brazil. The launch this week of the second phase of the programme – building 2 million properties in Brazil by the end of 2014 – has undoubtedly boosted the housing market still further.

Then there’s the lack of supply. This is highly visible in all sectors and Exame looks at the commercial real estate sector in Brazil where the shortage is particularly acute. The article finds that Brazil urgently needs new construction of all types of commercial property, particularly offices where vacancy rates are at all-time lows.

Funding for Brazilian Real Estate

While the take-up on mortgages in Brazil has grown rapidly over the last few years, the total loan rate still represents a fraction of the country’s GDP. Exame calculates that loans for property in Brazil currently stand at around 5% of GDP – Mexico and Chile come in at 11% and 18% respectively.

Brazil’s funding system means that here, too, there is plenty of room for growth. Maximum loans on Brazilian real estate are usually 65% and mortgages short term (15 years). Added to the buoyant mortgage market is the abundance of capital market alternatives. Analysts believe that Brazil has ample scope to bring in large-scale securitization over the next few years.

For Obelisk International, the Exame article highlights the fundamentals behind the Brazilian property market. The fact that these fundamentals are simultaneous and set to continue for the medium term underlines the huge potential for property investment in Brazil. The article also confirms Obelisk International’s belief that with price rises here to stay, now is the time to invest in Brazilian real estate to obtain maximum benefit from these increases.

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Big Potential for Investment in Brazil’s North East | Obelisk International

As Brazil consolidates its position as a leading emerging market, north east Brazil is attracting big investment attention. For The Economist, the region is a hive of opportunities for Brazilian investment.

Containing eight states including Ceara, Piaui and Rio Grande do Norte, north east Brazil occupies around 18% of Brazil’s land mass and is home to 28% of the population. It’s the poorest area of Brazil, but spectacular economic growth over the last decade has made it a favoured spot for investment in Brazil.

With annual average GDP growth of 4.2% since 2002, north east Brazil has an impressive economic record. For The Economist, the region is “Brazil’s star economic performer”. The great strides made by Brazil to reduce poverty have been particularly effective in north east Brazil.

Multinational Investment Interest

Since 2003, the minimum wage has grown by 60% and according to The Economist, this increase in purchasing power stands out in north east Brazil. And the new north east Brazilian buying clout is attracting the attention of big-name investment in Brazil.

The food and beverage giant, Kraft Foods opened its first factory in north east Brazil in April and Fiat is in the process of building a car factory with a total investment of R$3 billion. Since 2006, a total of 52 shopping centres have opened in this area of Brazil, giving an idea of the consumer potential in the region.

Once a region workers were forced to flee from, north east Brazil is now attracting labourers and many migrants are returning home. Massive investment in Brazilian real estate and infrastructure in the area has even led to labour shortages, particularly in civil construction.

Infrastructure Building

But the biggest focus of investment in this part of Brazil is on infrastructure. Both government and private investment projects are underway in the region. Construction activity is so busy in the area that the federal Integration Minister, Fernando Bezerra claims that “right now, the north-east is one big building site”.

Infrastructure investment includes the Atlantic coast highway and the port and industrial complex at Suape. Near Suape, the southern hemisphere’s largest shipyard is under construction, indicating the scale and importance of north east Brazil investment. Rail links for freight are also being built.

North east Brazil still has ground to cover to catch up with the richer southeast regions, but all the signs are that this part of Brazil is well on the way to economic prosperity. Low unemployment, rising wages and the provision of housing through the Minha Casa Minha Vida programme will ensure north east Brazil continues to progress.

Obelisk International is well aware of the huge opportunities available in north east Brazil, an area we pinpointed for its exceptional potential for growth. The area’s new-found prosperity makes it ideal for investment in Brazil. The population’s rising purchasing power also makes north east Brazil perfect for real estate investment, right across the property spectrum - from social housing to high-end luxury.

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Retail Investment in Brazil Tops Index | Obelisk International

When it comes to retail investments, Brazil has the highest market potential among 30 developing countries. And investment in Latin America retail opportunities dominates the rankings.

AT Kearney’s annual Global Retail Development Index is topped by Brazil with Uruguay and Chile in second and third places. This dominance of Latin American investment in retail indicates the potential to be found in the continent.

The 2011 Index reflects the change in global investment direction over the last year. The Index reports that “developing markets now drive the agenda in global arenas” with a clear advantage for South America. Continued growth and “lack of investment fatigue” has made investment in Latin America a favourite with retailers.

Brazil is Best Retail Investment

Brazilian investment tops the Index, a climb of four places from the 2010 edition and an impressive hike from the bottom of the first Index in 2002 when Brazil ranked in 30th position. For AT Kearney, retail investment in Brazil is backed by an expected GDP growth of 5% over the next few years, a “large and mostly urban population” and massive retail sales.

The forthcoming sporting events are highly influential in so many areas for investment in Brazil and retail investment is no exception. AT Kearney cites the 2014 World Cup and 2016 Olympics are two factors behind retail potential because of the significant investment in Brazil planned for both events.

The Index notes that retail investment in Brazil “is on the rise”, driven by strong consumer demand and high spending. Several prominent foreign brands are about to move into Brazil such as Debenhams, H&M and Topshop, while Burberry entered Brazil last year.

Explosion of Shopping Malls

Major Brazilian real estate investments are also responsible for retail growth, particularly shopping centres. The rise in the number of shopping centres in Brazil has been spectacular over the last two years – for AT Kearney, shopping centres “have exploded”.

Shopping centres make up some 20% of all retail sales in Brazil and are increasingly popular with Brazilian consumers. 25 shopping malls opened last year and 30 more are planned for this year.

More than half the centres have been built in the south east of the country, home to a sizeable percentage of the Brazilian population. However, the south east is not the only area with retail investment potential. According to AT Kearney, there is “future opportunity for additional real estate investment in the north and east of Brazil”.

For Obelisk International, Brazil’s top ranking in the Retail Development Index comes as no surprise. The meteoric rise of the middle classes – an ongoing process – carries endless opportunities for Brazilian investment and retail is no exception. Obelisk International expects Brazil’s potential to expand still further as the country consolidates its economic and social position within global investment destinations.

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Excellent Quarter for Brazilian Investments | Obelisk International News

Brazil has just published its economic results for 2011’s first quarter. Highlights include a GDP growth of 1.3% and an 8.8% increase in investment in Brazil.

The 1.3% growth for the first three months of this year came as no surprise to analysts who continue to predict a healthy 4% for Brazil’s annual GDP. The fastest-growing sectors over the last quarter were Brazilian agriculture with a quarterly gain of 3.3%, followed by industry with 2.2%.

Year-on-year figures show a 6.2% increase in Brazil’s GDP. Top performing sectors over the last year include industry (7.4%) and services (4.9%). Within industry, mineral extraction and civil construction were the largest growing sub-sectors since Q1 2010.

Civil construction grew by 9.2% in the year to April 2011. This huge increase was driven by intense activity in the Brazilian real estate market, particularly within the social housing programme, Minha Casa Minha Vida. The building and upgrading of infrastructure for the 2014 World Cup and 2016 Olympics is also another factor behind the rise in construction in Brazil.

Big Investment in Brazil

As well as strong internal demand, the last year has seen big investment in Brazil. Brazilian family spending grew by 6.4% over the last 12 months, reflecting the rise in employment and wages. Strong household consumption is a major attraction for multinationals investing in Brazil.

In terms of Brazilian investment spending, figures increased by 8.8%. According to the Brazilian Statistical Agency (IBGE), this was due to the expansion of imports and the rise in manufacturing.

For government and Central Bank analysts, the latest quarterly figures show that GDP growth is steady. Quoted by Bloomberg, the President of Brazil’s Central Bank, Alexandre Tombini said that the Brazilian economy was now expanding at “a rhythm that is more consistent with internal and external equilibrium”.

Q1’s steady economic growth shows that government measures to rein in inflation are working. The policies of tightening public spending and raising interest rates are set to continue at least until the end of this year to allow Brazil to keep inflation under control.

For Obelisk International, the latest economic figures reiterate Brazil’s potential as an investment destination. Steady and controlled growth is an essential ingredient for successful investment anywhere and Brazil is showing every sign of a maturing market. Obelisk International believes this confirms the excellent future for Brazilian investments.

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Brazilian Real Estate Better Investment Than Gold | Obelisk International

2010 was an outstanding year for investments in Brazil, particularly real estate and commodities. And investments in Brazilian property made higher profits than investment in gold.

Commodity investment in gold was an investor favourite last year when the value of the precious metal reached unprecedented levels. But if you invested in Brazilian real estate the chances are that you would have made bigger profits than the gold buyers.

Big Profits in Rio and Sao Paulo

Figures recently released by the Rio de Janeiro building union (Secovi-Rio) point to considerably higher profitability in property in Brazil than gold. Secovi calculates that Rio de Janeiro property saw a rise in value of 50% in 2010, some 18% higher than gold investment.

While 50% was a city average, some areas of the 2016 Olympic destination experienced exceptional returns. One-bedroom apartments in central Rio increased in value by 70% while other districts topped 90% profit for property investors.

Returns from real estate investment are also high in Sao Paulo. In the city generally, real estate rose by 34.4% last year, but launch prices for one-bedroom luxury apartments went up by a massive 71%. And it was not only buyers of real estate in Brazil who reaped big returns – investors letting Sao Paulo properties also made tidy profits. Residential rentals rose by an average of nearly 14% in the city with annual rental returns coming in at just under 48%.

Commercial Property Riding High

But the big story in Brazilian real estate is not just about residential property investment. Commercial property is also riding high on the back of a booming economy and record foreign investment in Brazil.

A recent survey by Colliers International finds Sao Paulo office property is at its lowest vacancy rate for a decade. The rate of 1.2% in 2010 reflects the imbalance of high demand and short supply. This imbalance continued into Q1 this year when the vacancy rate for quality office space in Brazil’s financial capital fell for the sixth consecutive quarter.

Despite the delivery of offices running to 30,000 square metres in 2010, high demand pressure continues. In Q1, rents for office property in Sao Paulo rose by 7.6% and Colliers International found that in ten regions of the city, high-grade office rentals were 50% higher than the market average.

Investors in Brazilian property with Obelisk International last year also saw high profits. Our market research indicates that returns from real estate in Brazil should continue to outpace other investments for the next few years. For Obelisk International, residential property has the best potential, particularly in sectors catering for the new middle classes where supply is unlikely to satisfy demand for at least the next 10 to 15 years.

Contact Obelisk International on 0034 952 820 319. Via email: info@obeliskinternational.com or visit our website: www.obeliskinternational.com.
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Brazilian Real Estate on 15-year Cycle | Obelisk International

Brazilian real estate is entering a period of sustained growth likely to last 15 years. This very positive scenario makes investment in Brazilian property a must for any portfolio.

In a recent interview, Fabio Nogueira, the founding partner of Brazilian Finance and Real Estate (BFRE), claims that the market for property in Brazil is at the beginning of a long growth cycle. For the founder of BFRE (whose partners include property mogul, Sam Zell), ingredients are in place for this cycle to last between 10 and 15 years.

For Mr Nogueira, the Brazilian real estate market has changed fundamentally over the last few years. He points out that property cycles in Brazil were historically short because of financial volatility and economic instability. Erratic conditions meant that cycles within the Brazilian property market rarely lasted for longer than three or four years.

New Scenario for Brazilian Property Market

This scenario has completely changed and the market now has conditions in place for sustained growth. Mr Nogueira believes the market for property in Brazil now brings together two essential conditions.

The first condition is well documented – the huge shortage of housing in Brazil, particularly apparent in the lower social classes. Estimates on the actual number of houses needed to satisfy the demand for property in Brazil run between 7 and 13 million. Some market studies (including Ernst & Young) have found that the shortage will last until 2030.

The second characteristic of today’s property market is a more recent phenomenon. Brazil’s current economic strength and stability have led to greater prosperity for all Brazilians. And for the first time ever, many Brazilian families can seriously aspire to homeownership. Not for nothing does the government social housing programme Minha Casa Minha Vida mean “My house, my life”.

Stable Future

For the majority of Brazilians, the purpose of buying a property is to live in it. Property investment rarely comes into the picture and Mr Nogueira points out that most speculative Brazilian investment is made in the financial sector. He believes that because Brazilians are buying a home, they have much more at stake personally and financially, which adds stability to the Brazilian property market.

Further stability is added from the Brazilian mortgage sector. Mr Nogueira dismisses the idea of a credit crisis in Brazil because of the strict lending criteria in place. Most properties need a deposit of up to 40% and bank regulations mean borrowers may only allocate 30% of their income to spend on rental or a mortgage for their property in Brazil.

Obelisk International shares this positive outlook on the Brazilian real estate market. Company in-house research suggests sustainable long-term growth conditions are now in place. With this mind, Obelisk International believes that investment in Brazil property also has a long-term future.

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