What’s the outlook for the housing market in Brazil in 2016? Brazil’s hot housing market is not so hot anymore, even as the country prepares to host the 2016 Summer Olympics at Rio de Janeiro. We discuss why in this article. Whether you plan to sell property Brazil or buy property Brazil, you will find the information given here to be very useful.
Brazil’s economy has been down for the last 2 years, ever since the Petrobras scandal broke out, in which many senior politicians and government officials were found culpable of corruption. This has led to a policy paralysis in the country, with the government simply refusing to take any decisions. President Dilma Rousseff has an approval rating of just 10%, which just goes to show how unpopular her administration has become currently.
Indeed, the housing market in Brazil has witnessed a sharp correction from the level it was at 4 years ago. It wasn’t so long ago that we had a major economic boom in Brazil that lifted millions of people out of poverty and into the middle class. This led to a huge home buying frenzy, which continues to this day, despite the fall in the economy. Home prices in Brazil are down by at least 30% since 2012.
As Josh Pristaw, the co-founder and senior managing director at the New York based GTIS Partners says, “Brazil real estate is entering a distressed market now. One of the benefits that helped save Brazil in 2009 was the fact there is so little mortgage debt. What causes distress in capital markets is leverage. It takes a while in Brazil for there to be pressure on people to sell assets, but we are starting to see it.”
There are in general two major trends in Brazil to watch out for in 2016.
Strong Demand for Low Cost Housing
Not everyone in Brazil is suffering from lower house prices. In fact, for those looking to buy their first home, this is a welcome development. So developers such as MRV Engenharia SA and Gafisa SA's Tenda division that have a strong focus on the low-end of the housing market in Brazil have reported booming sales.
There is a huge demand for low-income and middle-income apartments in Brazil and many buyers have realized that this is an opportunity of a lifetime. As there is no reason not to believe that housing prices will start rising again in a few years, as the Brazilian economy gets back on track in the near future.
Right now, because of economic decline, high inflation and rising mortgage rates, more people are buying low cost housing. But generally, Brazilian developers have slowed down construction activity and virtually stopped building luxury apartments for the wealthy and the loaded. There are a lot of luxury apartments targeted at the upper class and the rich that remain unsold and are collecting dust.
A Reality Check
Many real estate analysts have predicted for the slowdown in prices to continue for the short term in Brazil. People have recognized the fact that investing in real estate may not be the right thing to do under the current circumstances. So a lot of investors have held back from investing in Brazil, especially rich, overseas investors.
Sellers need to understand the reality of the housing market in Brazil – prices are not the same as they were in the past. Buyers today are in a position to demand discounts of 30% and more, which most sellers are unwilling to give on their properties. So a lot of high-end apartments in Brazil remain unsold. As Sao Paulo broker Milena Moreira says, "We have to explain the reality of the market to sellers nowadays. Some just don't believe it."