Website counter

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.”

No comments:

Post a Comment