The Brazil Property Market – An Overview of Residential Property in Brazil For Investors

The Brazilian property market is enjoying more activity than most at present, domestic demand for property in Brazil remains strong despite the global liquidity crisis, and the volume of overseas buyers coming into the market is increasing month-on-month. In this article we will look at the factors fueling demand locally, and the general economic climate that is pushing Brazil property to the forefront of interest within the investment community.   In broad terms, residential property in Brazil can be split into two sectors – 1st homes in metropolitan areas such as Sao Paulo and Rio de Janeiro, and 2nd homes in touristic regions such as Fortaleza and Natal in the North East of the country. For the purposes of this report we will use the terms; Metro Zone and Touristic.

Demand for property in Brazil in Metro zones is being  fuelled by a number of sound fiscal reforms from the government of President Lula; for example the introduction of a $15 billion housing stimulus plan, increasing the national minimum wage by 50%, and turning a slow economy with a budget deficit into a booming economy with a budget surplus within two years. The government is aggressively re-investing profits from state owned oil company Petrobras, back into the economy, with a focus on GDP per capita, increasing the wealth and spending power of each individual Brazilian.

Brazilians have more money to spend, and they are spending it on homes. In 2007 6 million Brazilians left poverty, and the opening of credit markets allowed those on a reasonable wage to swap their higher incomes for mortgage payments and buy their first property in Brazil. Banks can now hold title deeds to property on which they lend, reducing their risk of mortgage lending. Interest rates have dropped to around 11%, from previously inhibitive levels of around 16%, making borrowing cheaper. Lula has also introduced a scheme that subsidies 50% of the mortgage for 1st time buyers. All of these factors combined have effected such a huge leap in demand for property in the low to middle-income sectors, that Brazil currently has a housing shortfall of around 7 million units.  

The population of Brazil is growing at a rate of around 0.584% per year which means there are 1.8 million new Brazilians to house annually, and the number of people per household is decreasing, again increasing the need for more Brazilian property as there is now a need for three properties per ten Brazilians instead of just one.  

This increase in wealth is also bolstering property markets in the North East, as the rising middle class search out holiday homes and investments along the un-spoilt coastline around Fortaleza. Land values are increasing month-on-month, with large developers buying up huge swathes of beachfront land, either to bank for the future, or to build super-luxury resorts. Overseas buyers are also fuelling demand for luxury property, as prices remain cheap by European and North American standards.  

One great example is The Coral Lake and Beach Resort in Ceara, north of Fortaleza, where savvy investors and those looking for a 2nd home in the sun can pick up a luxury 2 bedroom beach front villa on a five star resort for around $120,000 (US). The same property in Rio would cost more than triple, leaving ample room for capital growth over the next five years. I would suspect that by completion of this super-luxury development by BRIC Group and MD-Concept, 85% of the properties on the resort will be owned by Brazilians.  

Property in Brazil remains, in my opinion, a safe bet for the overseas property investor with a stable political climate, economic growth outstripping that of most other countries, economic stability, and a population growing both in number and in wealth. I would personally rate Brazil as nine out ten for property investment purposes right now, and property investors who take a short or midterm view, will surely profit, provided the relevant amount of due diligence is undertaken.