Brazil’s property market is on the way up, reaching an all-time high in 2013, according to an industry body.
Brazil’s real estate market has been slowing since 2011, from a vertiginous 13.7% rise in the final quarter of 2011 alone; but the rate of its rise is such that even so, it’s been putting many other nations’ markets to shame. The Brazilian market hit a record high at the end of 2013, seeing an 11.6% year-on-year rise. In June of 2013, the FIPEZAP, Brazil’s main property market data source, said that the average price per square metre of Brazilian property was R$6, 824 (€2,117). But that’s the figure averaged out across the country’s 16 disparate regions. Home in on Brazil’s premium market, in Rio de Janeiro, and the figure rises to R$8, 300/ m2 (€2,575).
The rate of rise is even more arresting when it’s viewed spread out over several years. Since 2008, while most of the rest of the world’s housing markets have struggled, the Brazilian market has risen by 200% – about 188% in Sao Paolo, and 230% in Rio. According to realtor Elite International Realty, an apartment in Sao Paolo or Rio could now be up to 60% more expensive than an equivalent apartment in Miami.
While that doesn’t reach the heady heights of the world’s most expensive markets – Hong Kong, for instance, is about €14,600 per square metre – Brazilian prices are accelerating beyond the reach of the country’s middle class.
In part, the property boom is fuelled by credit. Brazilian consumers traditionally bought homes with cash money down, according to Kenneth Rapoza,’ Brazilian contact. Since about 2009, though, they’ve increasingly bought through the mortgage market.
Brazil does seem to be avoiding the worst of the Northern countries’ mistakes, though; mortgages are offered to Brazilians who can show that the repayments make up only 30% of their incomes or less and as a result, the Brazilian mortgage market is worth around 8% of the country’s GDP, with only 20% of the country’s population having mortgage debt. Compare those figures with the USA, where the level of mortgage debt in 2013 – after a crash and readjusted rules to prevent further subprime collapse, and after a long period of economic recession – ran at 76% of GDP. Before you roll your eyes, reflect that the UK’s mortgage debt the same year was 80% of GDP.
What’s most confusing about the Brazilian non-bubble isn’t that housing prices have been able to rise stratospherically without triggering major instability; it’s that the country’s real estate and development firms don’t seem to be doing very well on the deal. When property prices more than double in five years, you’d expect to find real estate companies and developers meeting that jump in price with more supply and experiencing a boom of their own. But they’re not. Homebuilder Rossi Residential lost R$206m in 2012, and PDG Realty said goodbye to R$2.17bn that same year.
A booming market with suffering producers, increasingly run on credit and increasingly attracting first time buyers (74% of Brazilian loans are now to first time buyers) amid stalling incomes and falling savings rates. That should sound familiar, despite Brazilian firms cautioning onlookers not to mistake a price boom for a credit bubble; it looks all too easy to segue from one to the other.
If you’re considering investing in the Brazilian market, most onlookers think it hasn’t peaked yet, but Luke Smith, managing director of Crystal Investments and Real Estate Brazil, suggests focussing on the North-East corner of the country, where appreciation is likely to be highest, and paying particular attention to due diligence when buying off plan or purchasing land. More than anything, make sure your vendor has a proven track record and your contact is fluent in English.