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Thursday, January 27, 2011

International Holocaust Memorial Day

Wednesday, January 26, 2011

January / February 2011 Brazil

As the country adjusts to a revitalised Workers Party cabinet, newly selected president of Brazil’s Central Bank – Alexandre Tombini – stated that he will not allow housing credit to reach a ‘bubble like proportions as was similar to many other nations of the world.’  President of the Brazilian Bank Federation Fábio Barbosa – whilst pointing to expectations of a 40 percent growth in housing credit in 2011 (after a 50 percent growth in 2010) – further stated there was very little chance of a bubble due to net mortgage finance levels forming just under 4 percent of GDP.
The country’s low cost housing sector confronted renewed waves of criticism.  As a result of what was a horrific start to the new year, floods in the state of Rio de Janeiro killed over 800 and displaced 1000’s of families who lived in ramshackle buildings, often on irregular and highly prone land.  The catastrophe has ignited serious political and economic debate with even the new President herself questioning: “when there aren’t housing policies, where are people who earn no more than twice the minimum wage going to live?”  The ‘Minha Casa, Minha Vida’ housing programme also came under fire with one of the initial projects in Bahia receiving a torrent of negative press as a result of a range of problems emerging including arrears; abandoned apartments; squatting and illegal rental agreements / sales.
In other news, the BNDES (Brazil’s Development Bank) reported a 23 percent increase (by R$ 168.4 billion) in disbursements made when comparing 2010 to 2009 with a significant proportion allocated to spending on the development of industry (53 percent – including the growth of the country’s petroleum sector); infrastructure (31 percent) and commerce / services (16 percent).

January 2011 Factfile

This month’s factfile shows general stable growth patterns across all real estate related statistics analysed.  As the SELIC rate of interest was raised to 11.25 percent – one of the highest in the world – Dilma Rousseff and Central Bank heads announced plans to implement a regime of further inflationary control measures.  A survey of leading analysts conducted by the ‘Focus’ organisation nevertheless still expects consumer prices to increase to 5.53 percent by the close of 2011 (above the current 4.5 percent target level).  The survey also estimated a slowdown in GDP growth to 4.5 percent in both 2011 and 2012 (compared to 7 percent in 2010).  According to the Getulio Vargas Foundation (FGV), the National Index of Construction Cost (INCC-M) rose 0.37 percent in January 2011, after increasing by 0.59 percent in December last year. In the last 12 months, the index recorded an increase of 7.42 percent.

Wednesday, January 19, 2011

My house, my life...

As it was announced that the initial ‘Minha Casa, Minha Vida’ (‘My House, My Life’) programme had failed to meet target levels of 1 million units by the close of 2010 (816,268 had been authorised), the Brazilian government has introduced a series of modifications with the aim of accelerating the construction of housing in a sector that remains considerably under- supplied.
In addition to the decision of extending the threshold of the industrial products tax (Imposto sobre Produtos Industrializados) and improvements to the social security finance contribution and social intergration programmes (Contribuição para o Financiamento da Seguridade Social / Programa de Integração Social) – a number of changes have been formally announced, amongst mixed reviews:

Construction on Unregulated Land 

According to the Ministry of Cities, the resolution of allowing the development of real estate on land which is pending regulation is focused on speeding up the current slow moving completion times apparent in even the largest construction projects in the country.  Furthermore, it has an added objective of enabling land which currently house favelas (urban slum communities) to be regenerated and modernised – particularly in the metropolitan regions.
The plans have provoked a series of discussions amongst real estate professionals with the main concern being related to the realism of undertaking such projects.  In an interview with Construção Magazine, Geraldo de Paula Eduardo, executive director of housing APEOP (the São Paulo Association of Public Work Officials) debates: “the case of construction on non-regularised land will create more difficulties than what policy makers envisage – for example, how can delivered housing units be formally registered at the cartório [official localised property / land registration offices]?”  There is also the risk that real estate that is built on unregulated land could be sold ‘under the table’.  In the proposals, the Ministry of Cities has stated it is developing mechanisms that will facilitate the issue of official registration – although this is going through the initial legislative stages and no detailed clarification has been made.

Setting Maximum Limits on House Pricing

Another issue that has long been debated is with regards to the inflationary pressures on the construction industry placing pressure of sales prices.   According to Inês Magalhães, national secretary of housing: “with the policy of valuing wage levels in line with house price ceilings, more families will have access to affordable housing.”
However, as a recent analysis undertaken by the Brazil Real Estate & Land Investment Guide demonstrates, the reality does not seem in line with the minister’s statement.  As part of our business plan in conjunction with EXITUS Construction Brazil for the ‘Fez Tá Pronto’ low income housing development projects, we analysed 18 ‘Minha Casa, Minha Vida’ (MCMV) housing units on the market in the state of Rio de Janeiro (a region, according to the João Pinheiro Foundation, with one of the largest proportions of the housing deficit in Brazil) producing an average sales price of R$ 105,190.  Putting these into the Caixa Econômica Federal (the public bank that administer the housing programme) simulator – a monthly payment for a low income housing unit (assuming the full MCMV subsidy is provided) will be R$ 541.73.  Looking at wage levels, on the assumption that the majority would be working in basic skilled level jobs which – according to Law nº 5.627 enacted on 28th December 2009 – would produce a maximum salary of R$ 665.77, buying a property would not be a feasible option in terms of affordability (please feel free to email me at for more information on our research).  According to José Carlos Martins, vice presidente of the CBIC (Câmara Brasileira da Indústria da Construção, the Brazilian Construction Industry’s Chamber of Commerce) in the Construção Magazine: “the situation has become inconsistent resulting in a significant loss in the purchasing power of low income real estate.”

Commercial real estate construction

Another prominent introduction is the allowance of commercial property development within MCMV projects.  The aim of this is to create business activity within the condominiums which will help with ongoing maintenance costs whilst generating economic activity amongst local residents.  According to Inês Magalhães: “we have had much difficulty in intensifying low income housing construction in centralised areas – this alteration will contribute to assisting this problem.”
The main criticism has been that most development companies are having enough difficulty making projects viable in the first place – adding the costs of developing commercial space would have to be incorporated into the final sales price which is already being pushed beyond the realms of the realistic affordability levels, as discussed above.   José Carlos Molina, vice president of public housing Sinduscon-SP (the Union of Construction Industry, São Paulo) also stated to the Construção Magazine that: “despite being a good business opportunity, it is still unclear whether contractors will pay for these units or not – something that will only be clarified once the buildings are completed.”

Wednesday, January 12, 2011

Brazil House Prices.

January 11th, 2011

With the aim of bring further transparency into Brazil’s real estate market, a new index that will measure changes in property values by type, over time and across geographic regions is in its final stages – initially for commercial property in the country’s major cities but with wider objectives to move into the residential sector.
Developed by the Getúlio Vargas Foundation (a leading academic research institute in Brazil) in coordination with the Brazilian Association of Closed Pension Funds (Associação Brasileira de Entidades Fechadas de Previdência Complementar or ABRAPP), the ‘Index of Profitability of the Brazil Real Estate Market’; also known as ‘IBRI’ (Índice de Referência de Rentabilidade do Mercado Imobiliário Brasileiro); will contain regularly updated information on values, transaction levels, income and expenditure with the primary objective of better monitoring of Brazilian real estate assets –  viewed as a natural progress as the industry continues its maturation process.
In terms of how the index has been compiled, according to coordinator of the project from the Getúlio Vargas Foundation Paulo Picchetti (in a previous interviewed undertaken with the Brazil Real Estate & Land Investment Guide): “the IBRI follows international standards for measuring the overall profitability of investments in commercial real estate [namely shopping centres, commercial offices, industrial units and garages amongst others].  In short, price appreciation is measured through the evaluations and the flow of revenue through rents / other income reported by the informants – during the process, we have:
  • Developed confidential relationships within Brazil’s commercial real estate industry in order to analyse historical performance (on a per state basis);
  • Converged the calculation formulas primarily used by the NCREIF (National Council for Real Estate Investment Fiduciaries) with those specific to Brazil’s commercial property sector;
  • Evaluated unsold commercial properties in the Brazilian marketplaces followed by the subsequent exploration of potential alternatives and their comparative advantages / disadvantages;
  • Ensured that well-defined governance structures are in place that will provide ongoing transparency and credibility to the indices;
  • Constructed a comprehensive database designed to increase information and understanding about the Brazilian commercial property industry combined with the accurate presentation of the various profitability indices.”
According to Carla Safady, coordinator of the technical commission of property investments from ABRAPP, the extension of the index to reach the residential sector will be a “natural progression” with Picchetti stating: “we are in the preliminary stages of creating an index for this sector and currently in the process of evaluating a wide range of potential methodologies – some of which will use the principles of the commercial index and will be dependent on its execution.”  Brazil’s public banking institution, the Caixa Econômica Federal and Getúlio Vargas Foundation have also announced a partnership to mount a property valuation index (tentatively entitled ‘Índice de Valorização de Imóvel’ or ‘IVI’) although it has been stated that the project is in its infancy with no official launch date.
An article in construction magazine PINI showed that opinion amongst Brazil real estate specialists over the IBRI index remains divided.  Celso Petrucci, chief economist at Secovi-SP (the Union of Housing, São Paulo) believes that increased transparency will serve to boost the attraction of investment from both a domestic and international perspective: “with the amount of equity built over the last few years the index will enable it to be possible to have a starting point for a more rational and well-measured investment culture.”  He also highlights that the index involves the participation of serious companies – including Cyrela Commercial Properties, CB Richard Ellis, Colliers International, Jones Lang Lasalle, Banco Brascan and Banco Itaú amongst others – which serves to add further kudos.  Radegaz Nasser Junior, vice president of institutional relations at IBAP (the Brazilian Institute of Evaluation and Engineering Skills), on the other hand, questions the index’s realism with the Brazilian real estate market arguing that the variations are too huge to be evaluated accurately, stating: “even the same type of properties located on the same street may differ by over a double due to the way they are owned amongst a variety of other factors.”  He also moots the possibility of data being handled in accordance with the interests of companies that will integrate into the database of IBRI.  In response, Mr Pichetti stated: ”we have studied how the international real estate market has measured the performance of its assets and adapted these methodologies to the national market;” with Safady adding “there is also an advisory board composed of a variety of industry players to minimize this risk.”

Wednesday, January 5, 2011

Brazil Real Estate & Land Investors 2011 Report

Please click on the link above to access our annual report, aimed at giving a detailed examination into the prominent issues related to Brazil’s property and land investment climate for the year ahead (note you will have to be a free member of the site which can be done quickly and easily by clicking here).
So what’s in store for 2011?  The majority of international investors continue to remain bullish about Brazil – an entirely justified perspective for many reasons including rising incomes, lower unemployment, an asian-driven commodity boom, gigantic oil discoveries, up and coming major sporting / high profile events, oil findings, a vigilant banking system to name a few.  However, as with any inflationary market, business risks need to be taken into account – from a macro-economic perspective, examples include a highly valued currency that is continuing to lose international competiveness (whilst weighing down the trade-weighted exchange rate and boosting consumer costs); a growing current account deficit; low comparative international savings levels; the ever rising need to improve infrastructure as well as low comparative innovatory and education levels.   In 2010, perhaps more than ever before, it has become clear that the key to Brazil’s continued success is for the nation to not become complacent and take advantage of the wave of ‘feel good factors’ that have been sweeping the country in recent years.
For the real estate and land investor – despite possible issues related to over-supply, rising mortgage finance costs and ownership – industry professionals within the country remain positive that, for at least the next few years, the housing market will remain buoyant.  In terms of overseas interest, 2010 events such as the financial turmoil in the Eurozone and the repercussions of the credit crisis in countries such as the USA and the UK have made property / land investing in Brazil a challenge – particularly combined with the fact that real estate finance for foreigners is not available (bar some development finance programmes are offered by some constructors).  Other issues commonly noted include excessive bureaucracy, title protection, exchange rate issues, obtaining a sufficiently valid investment visa and acquiring real estate related assets transparently in accordance with international legal standards.
Nevertheless, as these issues are unlikely to disappear any time soon, investors – including an increasing amount from other so-called ‘emerging’ nations such as China, India and South Korea – have been striving to work through the complex system.  We believe that it is a task that is well worth undertaking considering the wealth of opportunities available in a country with such strong medium to long term growth prospects.
What follows takes both macro and micro based outlooks on factors facing the Brazilian real estate and land industry at the close of 2010. 
Below is the section breakdown:

1.  Welcome
2.  Brazil Under the Rule of Dilma Rousseff
3.  Brazil’s 2011 Economic Leadership Team
4.  Brazil’s Involvement in the Currency Wars
5.  Bringing Down Brazil’s National Interest Rate
6.  Concerns Over Brazil’s Domestic Savings Levels
7.  The Petrobras Phenomenon
8.  The Brazil-China Relationship
9.  House Price Inflation in Brazil
10. Brazil’s Real Estate Finance Market
11. Brazil’s Housing Deficit
12. Brazil State Housing Programme Examples
13. Brazil’s Construction Industry
14. Labour Supply in the Construction Industry
15. Low Income Housing / ‘Minha Casa, Minha Vida’
16. The Regeneration of Brazil’s Favelas (Urban Slums)
17. Brazil’s Low Sanitation Levels
18. Brazil’s Housing Industry Sustainability
19. Brazil’s Retail Real Estate Market
20. Brazil’s Other Infrastructural Challenges in 2011
21. Brazil’s Growth Acceleration Programme (PAC)
22. Relieving Congestion in Major Cities – Case Study: São Paulo
23. Brazil’s Demographic Movements
24. Removing Poverty in Brazil
25. Bolsa Família (Brazil’s Family Grant Programme)
26. Education in Brazil
27. Brazil’s Informal Economy
28. Bringing More Business Transparency into Brazil

Brazil Experts Discuss the 2011 Residential Property Market

Shortly before the Christmas break, a group of Brazil’s leading real estate specialists – including construction company CEOs, engineer / architecture professionals and university professors* – convened to discuss the future of the market as the country enters 2011.
The general consensus was that the residential real estate market will grow in 2011 prompted by the pent up demand formed during the brief downturn of between 2007 and 2009.  This pattern will be fuelled by increased mortgage credit availability, longer terms and lower interest rates as well as a healthy employment market, rising middle class purchasing power and increased international investment interest.
For high income earners, demand levels are expected to remain the same as with 2010.  For middle-income earners, it was stated that the demand should remain broadly buoyant but some noted of a slight over supply in some regions.  For the low income housing sector, demand is expected to be higher than in 2010 and 2009 – yet, whilst viewed as positive news for the industry as a whole, several concerns remain.
As it was announced by Caixa Econômica Federal that the allocation of the ‘Minha Casa, Minha Vida’ (‘My House, My Life’) project had not reached its target rate of 1 million housing units (875,000 units were allocated finance by the close of 2010) – debate was raised about the progress of many of projects currently underway.  Some of the bottlenecks include the lack of defined price ceilings that work in line with affordability levels; off-putting bureaucracy levels; the issue of rising construction costs placing difficulties on making projects viable in line with the market and the lack of suitable land in urbanised areas close to employment, schools, health care and other essential amenities.
We discuss the above issues and more in detail in the 2011 Brazil Real Estate and Land Investor report. 

Please click here to head direct to the introductory blog post and free download.

*Some of the prominent figures present included: Alessandro Olzon Vedrossi (Investor Relations, Brookfield Real Estate Incorporations); Alex Kenya Abiko (Professor at the Civil Engineering Department at the Polytechnic School at the University of São Paulo); Carlos Terepins (Even Constrution and Incorporations); Claudio Tavares de Alencar (Professor at the Civil Engineering Department at the Polytechnic School at the University of São Paulo); Daniel Citron (President of Tishman Speyer Brazil); Eliane Monetti (Professor at the Civil Engineering Department at the Polytechnic School at the University of São Paulo); Eric Cozza (Editorial Director of the Téchne Magazine); Fernando Bontorim Amato (Development Director at Y Takaoka); Marcelo Vespoli Takaoka (CEO of Y Takaoka); João da Rocha Lima Jr. (Associate Professor at the Civil Engineering Department at the Polytechnic School at the University of São Paulo and Director of ‘Urban Systems Brasil’); José Romeu Ferraz Neto (Director of RFM Constructions); Mario Rocha Neto (Operations Executive Officer at Gafisa); Roberto Aflalo Filho (CEO of; Roberto Sampaio (Head of Engineering at HSBC Brazil) and Sergio Alfredo Rosa da Silva (Professor at the Civil Engineering Department at the Polytechnic School at the University of São Paulo).