REAL ESTATE IN BRAZIL

An Emerging Property Market Powerhouse

Real estate prices in Brazil have doubled over the last year. Brazil’s economy and emerging real estate market has strong fundamentals which indicate good short term investment gains and sustained growth into the medium to long term.

Brazil Rated No.2 in The World for Capital Appreciation in 2009

The 17th Annual AFIRE (Association of Foreign Investors in Real Estate) Foreign Investment Survey published in January 2009 placed Brazil 2nd in countries offering the best opportunity for capital appreciation.

The survey was conducted in the fourth quarter of 2008 among the association’s nearly 200 members. Respondents hold approximately one trillion dollars of real estate, including $371 billion in the U.S. Brazil leaped 10 placed in the survey claiming 16% of the votes pushing China off the number 2 spot. Brazil and India were named as the top 2 emerging markets. The association survey hinted towards a significant upswing in foreign real estate investments in 2009.

Foreign direct investment in the country grew by 20.6 per cent in 2008. Foreign investment in Brazil amounted to $41.7 million last year compared to $34.6 million in 2007, according to figures from the United Nations Conference on Trade and Development.

The North East of Brazil is an Emerging Market

The emerging property investment market in the North East is catching the eye of the latest wave of foreign investment thanks to Government investment, international tourism and infrastructure.

The accessibility of the North East from other parts of the world combined with the value it represents when compared with other destinations make this emerging market very appealing for tourists and property investors. Fortaleza is currently a hotbed in the emerging property investment market.

Improved Credit Rating Means More Growth

Brazils Standard & Poor credit rating has been upgraded too triple B minus (-BBB) enabling the government to raise more funding with lower rates. These lower borrowing costs normally lead to reduced construction costs and a surge in demand for real estate from property investors and domestic property buyers. Added to this policy, in place since 2006, allows for up to 32 percent of fiscal surplus to be ploughed into real estate investment.

Since President Lula took office in 2003 exports have tripled and Brazil is a self sufficient nation with a large supply of skilled professionals and unlimited natural resources. Brazil’s economic success over the past few years has led to a rising middle class who are purchasing more homes and taking more vacations. The majority of Brazil’s tourism is domestic.

Morgan Stanley Advise - Buy in to Real Estate

As well as the obvious investment in vacation property there is growing interest from companies and investment funds in land purchases and construction companies.

'We're advising investors to own land, buy into real estate brokers, construction firms and suppliers of raw materials,' said Jonathan Garner, head of emerging markets strategy at Morgan Stanley.

Unlike their counterparts in developed economies, banks in most emerging markets are largely unaffected by the liquidity squeeze set off last year by huge subprime mortgage defaults in the United States, he pointed out. 'The credit crunch has very limited relevance to many emerging markets,' Garner said. 'Not only are the banks in good shape, you've also got households that are not overextended.

'The ratio of household debt to gross domestic product in these countries ranges from 5% to 10%, compared to more than 100% in Britain and 90% in the United States.

Interest Rates Become More Favorable

While interest rates still have some way to go to conform with the norm in developed economies they continue to drop. Once mortgage borrowing becomes more reasonable one can expect to see further leaps in real estate pricing. This is comparable to many of the once emerging property markets in Europe; before mortgages became available the prices remained low.

Examples of this are Cyprus and Turkey. Both were popular foreign markets for the UK and Russian investors. In 2000 it was almost impossible to get an overseas mortgage on a property as a foreign national and prices were low. Once finance became available prices started to track up as the market opened itself up to more buyers looking for that dream place in the sun.

Brazil Attracts More Foreign Real Estate Investors

According to a new study commissioned by EMBRATUR, a division of the Ministry of Tourism, the beaches and the sun are the main reasons foreign investors are attracted to Brazil. Since 2007 they have invested a staggering $646 million in buying property. The study by economics professor Fundação Getúlio Vargas also shows the United States invested the most ($102 million). The study enables the government and the private sector to target investment and better set policy according to the Association for Real Estate and Tourism Development in the Northeast of Brazil.

'It is immensely helpful to know the profile of these investors. This will allow our country to set public policy for the sector. The Northeast is a region of great attraction for foreigners,' said spokesman Felipe Cavalcante.

Jeanine Pires, President of EMBRATUR said, 'President Lula's strategy calls for consumer awareness about Brazil and aims to attract more tourists both foreign and domestic to the country, particularly from the US where the government has set a goal to attract nine million American vacationers per year.' He confirmed that the main government strategy is to focus on five key attributes - sun, beach, eco tourism, sport, business and events. ‘It is encouraging that the majority of foreign investors come here because of the sun and the beach.’

Every year, an estimated 70 million tourists visit Brazil. About five percent of them want to have a second property there. In the North East region alone, 80,000 houses and apartments will be built over the next eight years, primarily for foreigners. To put this into perspective according to the 2000 US Census the number of housing units in Orlando was just over 100,000.

A Bright Outlook for Brazilian Real Estate Market

In summary the outlook is good. The economic stability, the government commitment to growing tourism and improving infrastructure combined with the world’s insatiable appetite for property investments lead us to believe the best is still to come. While the sun has set on many of the developed economies for the foreseeable future, it is shining brightly on Brazil and many people are already enjoying the vast benefits of this beautiful country. You could be next.