The rise and rise of Brazil over the last few years has been nothing short of startling, moving from South American basket case to a country which is attracting international investment on all levels. So what prompted the change in Brazil? Why it is so popular amongst the international property investment fraternity?
The truth is that Brazil has always been a giant waiting to jump out of the box but because of a number of different factors it has been kept out of the headlines and off the international investment map for some time. There were a number of issues which for many years made Brazil a no go area for international investors which included :-
To say that Brazil had a volatile political scene is a massive under statement as the political arena seemed to be changing from year to year. Policies were introduced but never followed through and slowly but surely the international investment markets lost patience. Why invest in a country which had been flip flopping between different economic policies for years and was unstable to say the least?
While high inflation has been, and continues to be, a major problem for some countries in South America it seems that Brazil has finally left the high inflation regime of yesteryear and joined a more controlled environment. When you consider that consumer price inflation was running well in excess of twenty percent just over a decade ago and producer price inflation spiked at over forty percent in early 2003 you can see how far the country has come. The current rate has been between three percent and five percent for that last two years, something which is very much comparable to places such as the UK.
Dependence on the US
Like so many of the struggling countries in South America, Brazil was very much dependant on the US for both trade as well as financial support. The country went further and further into debt to its powerful neighbour which meant that when the US economy sneezed, the Brazilian economy caught a cold. This ever growing dependence on the US was one of the many factors which had put investors off the country.
Massive government over spending
Prior to the $30 billion bailout by the IMF (International Monetary Fund) in 2002 Brazil had been on the verge of bankruptcy on a number of occasions. However, 2002 turned out to be a major turning point for the country and saw it standing on its own two feet, controlling internal finances and reducing its reliance on the US. Prior to this turning point there was a feeling that Brazil would never break free and become the growing powerhouse that it is today.
So how did Brazil manage to turn itself around?
As we mentioned above, the 2002 IMF bailout turned out to be the major turning point for the future of Brazil and gave it the power to look after its own destiny. Some additional factors to consider include :-
Improvement in credit rating
For many years Brazil was literally an outcast in the money markets with a credit rating which actually prevented many investment funds from even looking at the country as a possible investment location. However, over the last couple of years there was an increase in productivity in the country, national debt was lowered and the political scene was much calmer. The improved prospects for the country resulted in the credit rating for Brazilian debt being increased which meant it was ‘investment’ grade, i.e. it was now a legitimate investment location for investors around the world.
Blossoming tourist trade
While cities such as Rio de Janeiro have always been seen as the centre of the Brazilian tourist market, and for many years took the bulk of the tourist traffic, there has been a major shift in trends over the last couple of years. We are now starting to see new and exciting areas of the country opened up to the tourist market and direct air flights becoming more and more common. This has led to places such as Natal taking on a whole new life and attracting both tourists and property investors in substantial numbers.
Increased infrastructure spending
One of the main benefits of the 2002 IMF bailout was the fact that finally Brazil was able to introduce a workable infrastructure spending plan which saw major improvements in road transport, utilities and a number of new airports appearing in different areas of the country. This massive country was now starting to open up to the outside world moving the bulk of the tourist traffic away from Rio de Janeiro and into other areas of the country.
The Brazilian economy has been booming for a couple of years now and while there is some debate as to whether there needs to be a period of consolidation there is no doubting the influx of new and exciting business ventures to the region. Finally the economy has managed to break free of the clutches of the US (although US industries are still very active in Brazil) and plan a path for the future.
The above factors have all come together at the right time to literally give Brazil a new lease of life after flirting with bankruptcy on a number of occasions. New technology is being embraced and new contacts are being made, with the country now able to finance its own debts and not depend upon outside parties for financial assistance.
The change in Brazil over the last decade has been nothing short of startling and it has not taken international property investors long to appreciate this. While property laws are still being developed, and have some way to go, there is no doubting the international appetite for property investment in Brazil is growing stronger as the economy expands.
However, the government still maintain a tight control of money flows in and out of the country and there are a number of issues such as this which need to be appreciated when looking to acquire property in the flourishing country of Brazil.