Brazil Real estate market:
Market Need:
Standard & Poor’s analyst Eduardo Chehab estimated Brazil has 8 milion unit housing deficit....
Home Builders:
Cyrela Brazil Realty: nations largest home builder...
Gafisa SA, the nation’s second-largest real estate developer. Gafisa agreed in September to buy a controlling stake in competitor Construtora Tenda SA, aiming to boost its share of the low-income housing market. Gafisa now owns 60 percent of Tenda.
All Brazilian home builders: Market cap: approx $20 million (about same as US home builders)
Lending:
Caixa Economica Federal savings bank - 30 year mortgages.
From 2005 to 2007 the number of houses bought using financing from Caixa Economica Federal (Brazil's state-run savings bank) doubled from 400K to 800K. Amount lent in USD also nearly double from close to $5b to roughly $9b (NY Times)
Mortgage loand Brazil approx 2% GDP (vs 69% in US, and 11% in Mexico)
Securitization?
mortgages are being provided by big retail banks who retain an ownership stake in them, rather than securitise them as in America
Stimulus:
Early this year, the Brazilian government announced it will spend 34 billion reais ($15.1 billion) to build a million homes as part of President Lula’s plan to spark growth in a slumping economy. Families earning less than 1,395 reais a month will have to make only symbolic payments in exchange for home ownership, while those making less than 2,790 reais will be eligible for subsidies. source: RGE Monitor
Impact of Credit Crisis:
my comments from Linkedin discussion:
You say that higher inflation + a depreciating currency = desirable investment location? Yikes, Im not sure I agree with your theory...If that were true, then Argentina would be a wonderful place for investment right now (which it clearly is not).
Plus, your assuming that exports will take off if the currency depreciates. Not sure about this one either. Sorry....
If the currency were just falling due to the collapse in commodities markets, then I might be inclined to agree with you...but, since the currency is falling due to concerns about a global economic slowdown, I do not.
The only time a depreciating currency = more exports ...is when there is demand in the marketplace...but, if the US and Europe (and Japan, etc) are all going into a recession...then where is the big market opportunity for Brazilian exports from a depreciated currency (vs. the dollar)?
In this global crisis, I would actually prefer to be in a position like the USA or Japan...with an appreciating currency....indicating that foreigners have confidence in your country, in your banks, and in your economy.
As far as inflation goes...Lets assume that inflation does the opposite, and actually slows down rather than accelerates. This is highly possible because commodity prices are falling, and global economic output is falling. So, it would be reasonable to assume that inflation might actually fall,and give the Brazilian central bank room to actually cut rates (in attempt to spur growth).
If that does happen,and if the BC is able to cut rates, then it might be possible that the real estate market in Brazil could get a boost (from more demand),and be a good investment. But, even with a potential easing of rates, there is still likely to be a contraction in the availability of credit to the consumer. So, construction finance will be hard to come by, and unless buyers have cash...dont expect to continue seeing consumer credit for homes in the 12-18 month horizon.
In the long run...all depends on how quickly Brazil exits from this latest round of global economic turmoil with their economy in tact.
Affordable housing for the poor: government programs
About a quarter of Brazil’s population of more than 160 million was living without water and sewage service in 1999, the most recent data available from IBGE, the Brazilian National Statistics Agency.
2009 program:
Brazilian President Luiz Inacio Lula da Silva’s administration wants to expand the housing stock for low-income families by about 1 million homes, Amaral said. The government is considering measures including direct subsidies and reduced down payment requirements, Amaral said.
The government’s worker compensation fund, or FGTS, is the main financing source for lower-income, first-time home buyers in Brazil. Brazilian law requires each employer to deposit 8 percent of an employee’s monthly salary in a separate, FGTS account, which can be withdrawn by the worker only to buy a house, for retirement or if the employee is dismissed.
The government also is considering proposals to change the way monthly mortgage payments are calculated to reduce them, and to create a guarantee fund for workers in case they lose their job, Amaral said.
Resorts / condos in the Northeast region of Brazil
The increasing interest of Europeans in buying houses in the summer of northeastern Brazil has given rise major real estate projects in the region and attracted new investors. Among other changes, one of the most prominent businesses, is played by ex-chairman of investment bank Morgan Stanley in the country, Rodrigo Lowndes. Along with two Spaniards, Lowndes set the Qualta, company for the development of condominiums and resorts, and launched two projects, with total sales of more than 4 billion reais, one in Pernambuco and the other in Rio Grande do Norte. The condominium will pernambucano 4000 homes, two hotels and structure of leisure with golf course, spa and sports court. The Rio Grande do Norte, on the beach of the Pipa, will be less. They will be 2500 homes and a resort has 320 apartments.
The Importance of a Title Search When Buying Real Estate
By Jose Santiago
January 14, 2008
An opinion of title is one of the most important documents in a Brazilian real estate transaction. It is an attorney's professional opinion of the condition of title, based on examination of the recorded documents pertaining to the property. If the title to the subject property is later found defective, the buyer may find it difficult to be reimbursed for damages unless the attorney was negligent in the search and did not follow the standards. In Brazil, real estate agents lack knowledge and experience, thus their opinions are not binding and do not guarantee against any future legal issues.
Today, attorneys acting as closing agents may order title insurance just as a title company does.
The reason title insurance has become the dominant method of protection for a buyer is that it will pay for losses sustained by the new owner. The two basic types of title insurance are owners' title insurance and lenders' title insurance, in this article we will refrain from elaborating on the lender‘s policy, not common in Brazil.
…click here to read the rest of the article>>
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