Prior to the 2008 US mortgage crisis the vast majority of international investment was focused on North America, Europe and the Far East. However the situation has changed dramatically over the years and when you bear in mind that the price of real estate in Brazil has increased by approaching 200% since 2008, can this performance really continue in 2014?
We will now take a look at some of the factors impacting the Brazilian real estate market in 2014 which show that the situation is nowhere near as bad as some may have you believe. Whether we will see growth of 200% over the next five years is debatable but on the face of it there seems little chance of a significant reduction in real estate prices.
Regional real estate markets
To give you a taster of how real estate in Brazil has performed over the last five years, official statistics show that the São Paulo market has increased by over 170% and Rio de Janeiro has enjoyed an increase of 188%. Perhaps the most amazing fact is that these performances are not uncommon across many other local real estate markets in Brazil and while there is concern about the rate of growth in real estate prices, if we look at the credit situation there is reason to be hopeful for the short to medium term.
Quote from PropertyForum.com : “All eyes are on Brazil now as we count down to the start of the FIFA World Cup 2014. Do you think this massive sporting occasion will have an impact upon the Brazilian real estate market? Could Brazil use the event as a showcase to promote what it has to offer to overseas investors?”
There are three major factors which have influenced the rise in real estate prices across Brazil, the ever-growing number of first-time buyers in the country, foreign investors and increased real estate credit flows. Latin America, as many people will be aware, has become something of an international investment magnet especially in light of the 2008 US downturn and the impact it had on the worldwide economy.
Real estate credit in Brazil
While has been a massive increase in real estate finance over the last five years if we put this into perspective it only equates to 7.9% of Brazil’s GDP compared to 76.1% in the US and 80% in the UK. The fact is that even a short-term correction in the Brazilian real estate market would not have a further knock-on impact to the finance industry. While it would reduce economic growth in the short term there would be no long-term impact such as that seen in Europe and North America.
It is also worth taking into account that while the Brazilian economy has slowed of late the authorities were fairly quick to introduce an array of support measures for the future. As a consequence, as the government approaches new elections next year, there are high expectations that recent financial investment by the authorities will lead to economic growth increasing during 2014. Indeed there is a suggestion that the government will need to increase base rates to reduce the flow of relatively cheap finance which has assisted in expanding the economy.
While Brazilian real estate has for some time now been a relatively strong magnet for international investors it is still very much at an early stage of development. The economy has slowed over the last couple of years although measures taken by the government should lead to increased growth in 2014 and beyond. There is some caution about the significant growth in real estate values over the last five years but if you take a step back, and especially look at the credit situation, perhaps these concerns are overdone?