Wake Up And Smell the Currency, it is for Real!

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Is this too good a chance to miss?

There is a very interesting post in the Brazilian section of the Property Community Forum which covers the subject of currency variations between the US dollar and the Brazilian Real. Many people may have missed the fact that the Brazilian currency has weakened substantially against both the US dollar and the British pound for instance. This may surprise many because both the American and British currencies have been under substantial pressure themselves over the last few months.

So what is going on in Brazil?

The last few years has seen a substantial improvement in the Brazilian economy which for decades had depended upon the US for direction and employment. The Brazilian government has slowly but surely pulled away from the periods of ultrahigh inflation, substantial unemployment and high national debt, which has in the past required the assistance of international agencies such as the International Monetary Fund. However, the Brazil of today is almost unrecognisable against that of just 20 or 30 years ago which for many investors had become the “basket case of South America”.

Over recent times we have seen a substantial interest in the Brazilian property market from all areas of the world which has seen the creation of various property hotspots. Natal is one such hotspot which has received substantial press coverage over the last couple of years and seen the emergence of a lucrative property market in the region. This particular situation has been replicated in many regions of Brazil touching some of the more relatively unknown areas of the country which have so much to offer.

The Brazilian property market

The property market in Brazil has performed very well in recent times but like so many property sectors in South America, the last 12 months has taken some of the shine off the recent performance. However, the substantial weakness in the Brazilian currency against such counterparts as the US dollar and the British pound has the potential to revive interest in the country and the property market in particular as and when the worldwide economy begins to pull out of recession.

The post on the Property Community Forum entitled “Wake up gringos…..” offers a very interesting insight into the potential benefits of an investment into the Brazilian property market in the months and years to come. When you consider that Brazil has attractions such as Rio de Janeiro and Brasilia to bring in an ever-growing number of overseas investors and tourists we should slowly but surely see interest spread into other regions of the country, as we have seen in Natal.

Brazilian infrastructure

It is common knowledge that the Brazilian government has been very proactive on the infrastructure front over the last few years, with a number of airports built and more planned, vast improvements on the country’s roads and a growing international and domestic commercial flight market which has opened up so many different areas of the country. Brazil is also in the throes of preparing for the 2014 World Cup finals which will again put the country in a prime position to attract overseas investors and overseas visitors.

It would be wrong to suggest that the infrastructure of Brazil is anywhere near finished but compared to the infrastructure available only a decade ago there has been substantial improvement. Thankfully, the government has already committed itself to further infrastructure investment and this has prompted a serious improvement in transport links with other countries around the world.

It must also be recognised that a serious number of international businesses are now located in Brazil where a number of specialised industrial sectors have emerged of late. When you consider the likes of finance, telecom and many technology related industries have a substantial exposure to Brazil this bodes very well for the future of the economy.

General consensus about Brazil

A quick look at that thread offers a very interesting insight into the reputation which Brazil has overseas and in particular in the US. A number of posters to the thread are now seeing the attractions of the Brazilian property market and country in general when compared to the dire US economic climate. It would appear that many US citizens have grown tired of the difficult situation at home and more and more are looking to relocate to Brazil in the future. Whether this is just a short-term trend because of the difficult situation at home or a significant change in opinion remains to be seen.

Since the bailout by the International Monetary Fund some years ago, the Brazilian political and economic scene has changed markedly. There is now a trust factor with regards to Brazil which was never been there before and the recent improvement in the country’s credit rating with the likes of Moody’s has not only opened up access to new streams of finance but has also allowed the government to refinance old loans on much better terms.

Property market prices

There is a feeling among some property investors that the domestic pricing structure for property can vary somewhat to that offered to international prop investors. While this may be a little “tongue in cheek” there are some posters on the thread suggesting that there is a difference although whether this is true is debatable. Surely any international property investor would first of all have access to local property experts who should, if they are experienced enough, be able to negotiate the best terms available?

Conclusion

While much of the focus in the foreign exchange markets has been on the demise of the British pound and the US dollar, many international investors will be surprised to learn that these two currencies have increased in value against the Brazilian Real. Whether the Real has been trading at inflated levels for some time, or this is something of a short-term “blip”, remains to be seen but it does offer significant opportunities for international investors on the whole to increase their exposure to Brazil or enter the market for the first time.

The forthcoming 2014 World Cup should put Brazil back in the spotlight and even now a number of property investors are waiting to find out which of the 17 cities put forward to participate in the World Cup will receive the go-ahead.

The Brazilian economy has never been more stable than it is today and the political scene has never been as calm for many years. These two factors alone bode well for the future and Brazilian property is sure to register on the radar of many domestic and international property investors in the short, medium and longer term.

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