Property prices in Sao Paulo fell in the final months of 2010 but there is little cause for concern, especially given the rapid growth preceding the minor falls.
In Brazil’s emerging market there is no such thing as an official indice, or even an indice as well respected as those of the UK lenders like Nationwide. However, real estate agents and others involved in the industry are slowly but surely organising themselves into large enough bodies that we can get a picture of what is going on.
The Regional Council of Realtors for the State of Sao Paulo (CRECI-SP), which currently represents 529 estate agents and/or agencies recorded a 3.53% drop in prices year on year for October, as well as a 25.6% sales contraction for the period.
The drop in sales is backed up by the Sao Paulo State Housing Organisation, which recorded a 23.5% drop in sales of new apartments in October.
We can take heart in the fact that this is being called a correction. Sceptics will pick up on the fact that the UK crash is still being called a correction by estate agents and market bulls, but in the case of Sao Paulo 1 bedroom apartments grew in value by 100% between 2008 and 2010 according to the regional realtors association EMBRAESP, and 2-4 bedroom apartments by 40-60% during the same period.
That kind of growth represents that of a very young emerging market and is not sustainable over the long term.
With the Brazilian economy still so strong, a population growing rapidly not only in numbers, but so rapidly in affluence that 12 million people were added to the middle class in the last 8 years, not to mention a government dedicated to helping its middle class onto the property ladder, it certainly does look like this cooling will be looked back upon positively. Most likely it will be seen as the point where the runaway growth in the Sao Paulo property market turned into sustainable annual growth.
This is a view shared by Joa Crestana, president of Sao Paulo SECOVI, who says the falls are a sign that the market is returning to normal after a period of unsustainable that was boosted by a greater supply of housing credit and falling interest rates. ‘My perception is that prices are where they should be, with supply more adjusted to demand,’ he said in an interview.
Investors should remain bullish says Ruban Selvanayagam, of the Brazil Real Estate Investment and Land Guide, who points to rising incomes, lower unemployment, an Asian-driven commodity boom, and gigantic oil discoveries, as fuelling strong mid-long term growth in the Brazilian economy and its housing market.