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Should I Invest In Brazilian Property Now

News Posted On: 19 October 2012

Brazil real estate has been one of the hottest stories during the financial crisis. The Brazilian economy suffered only a very short slowdown and has been growing strongly ever since, and then you have the World Cup for 2014 and the Olympics in Rio 2 years later. According to reports property prices in the country have enjoyed scintillating growth in the last 2 years.

However, as we all learned recently – to our peril in many cases – too much growth can be a bad thing, and recent reports have indicated that the Brazilian property market is starting to cool. Meanwhile the press came alive this week to reports of a boom in a previously-little heard of market Florianópolis. What's the truth here?

The truth is that Brazil is still a good place to invest, and will be a good place to invest over the next 30 years as it continues to grow into one of the giants of the global economy. One could say all that has changed is that you need to pick your opportunities more carefully, but the truth is you have always had to choose carefully, and you should always do so when making a real estate investment anyway – a rental market may be growing but that isn't going to help you if that hotel or resort development you buy into turns out to be a stretch to far in a market that has become saturated during its construction. Thinking “Oh darn I wish I had checked into how much construction there was in the surrounding area” isn't going to soothe your bank manager.

Now, as for the reports that the market is cooling. These seem to immediately stir questions about whether that market is still a good investment (guilty as charged on that one), but a slowdown in and of itself isn't neccesarily a bad thing. Indeed, a market like Brazil could stand to slowdown a bit. A self-correcting slowdown is always better than a huge and fantastic POP, well, except on bonfire night that is.

From January 2008-July 2012, real prices increased 92% in São Paulo and 118% in Rio de Janeiro, according to the FipeZap Index. However, in recent months, price growth has fallen in line with income growth. Analysts are calling it a self-correction.

The exuberance for real estate has diminished and demand is weaker some correction is taking place in the market, says real estate investment firm GTIS president Thomas Shapiro in an interview with Bloomberg.

Florianópolis is enjoying strong growth in sales at the moment. It is a market where rentals are driven by tourism, which is totally different to the residential investments which have made investors so much money in Sao Paulo, Rio de Janeiro and even Natal and other cities. There is a massive shortage of quality affordable housing in Brazil, which is being brought to the fore by the rapidly growing middle class. Investors have been able to capitalise on the massive rental demand this has generated, especially thanks to new developments aimed at selling to foreigners and renting to locals in places like Natal, which have been priced so as to allow for rentals on the local market.

Investors can still make money from holiday rentals but it is not for the faint hearted. While those who buy to let residentially can buy, hire a management firm and make a return, holiday lets need a more hands-on approach. For a start you can't let a holiday property unfurnished and the choice of furnishings can have a big impact on rental occupancy and even rates. Then, a rental management firm in Brazil isn't going to be best placed to market to international tourists, so you need to take care of this yourself as well, but that isn't as hard as it could be thanks to the big holiday rental portals.

The overall message is, yes, now is still a good time to invest in Brazil. Prices are still comparatively low in upcoming cities like Natal and areas like Florianópolis and the economy is set for incredible growth in the next 50 years, which will keep rents and prices rising over the long term. But long term, research and choose carefully are the key words to investing in Brazilian property.

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