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Brazils Booming Housing Market Attracts Home And Overseas Investors

News Posted On: 25 June 2013

According to a new analysis of Brazil’s housing market by Savills, the country is set to become a prime investment site: properties bought there have the capacity to add value without becoming overheated as some South East Asian and other New World real estate markets have.

The report states that Brazil has a relatively high level of owner occupation in its urban areas, particularly in relation to developed, old world economies such as France, the UK, the US and Australia. The higher level of owner occupancy in urban areas is common in emerging economies and is thought to indicate, not greater prosperity or a difference in values, but less mature rental investment or subsidised markets.

As the Brazil market develops, however, more and more international and domestic investors are attracted to the market, particularly in urban areas like Rio de Janeiro. Therefore, rates of urban owner occupancy may fall as rental alternatives become more numerous. Affordable housing is a new sector for Brazil, but it’s one that stands to offer significant investment opportunity.

The evidence does seem to support this idea. The rate of house price growth in Rio has slowed in the last 18 months, after peaking at a vertiginous 45% annual rate in October 2011. According to the Fipe-Zap house price asking index, annual growth stood at 13% in Rio in April of this year. This is the lowest rate since 2009, but it still represents a substantial growth rate by world standards, and is significantly higher than Brazilian consumer price inflation.

While the spectacular growth of Brazilian house prices may look like a bubble about to burst, it’s actually thought to be a correction in action, just upward instead of the direction we’re more used to seeing it. A like for like comparison of the capital and rental costs of residential real estate shows that, despite having a GDP per head of population nearly three times that of India, Brazil’s main cities still offer cheaper real estate than Mumbai.

Although house price growth over the last five years has averaged 23% annually in Rio, and 17% in Sau Paulo, residential rental yields are on a par with many of the old world’s economies and house price to income ratios are far lower than in many of Asia’s emerging economies.

Brazil’s residential markets have been buoyed in recent years by oil discoveries, by the forthcoming FIFA world cup and the forthcoming Olympic Games. The biggest cities are being cleaned up and improved access to credit combines with a rapidly expanding middle class to put more people on the housing ladder, putting upward pressure on prices.

This ‘makes the country very appealing to international investors,’ according to Savills’ report. ‘It is relatively easy for foreigners to buy real estate in Brazil and overseas nationals can buy Freehold without restriction except for very large farms and islands and coastal land tracts.’

However, overseas investors who want to get into the Brazilian elevator will have to hurry, or they’ll be asking homegrown investors to hold the lift for them. Brazilians have been quick to enter the market and the transformation to a fully mature, rental-heavy urban real estate market is likely to be powered by Brazilian money at least as much as foreign investment.

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