Property prices are skyrocketing in Brazil. The construction sector is booming. And the mortgage market is expanding rapidly. But there is a growing concern that all this is unsustainable. And imbalances in the economy — an overvalued currency and high inflation — are exacerbating the dangers of the looming credit and property bubble.
The average asking prices of new apartments across the country soared by 24.7% in April 2011 from a year earlier, according to Exame Magazine (using data from Ibope Intelligence, the largest Brazilian market intelligence firm).
Based on the Ibope Intelligence figures, in April 2011:
•In Ipanema, Rio de Janeiro’s most expensive district, the average price of new properties rose 36% y-o-y to BRL13,031 (US$8,212) per sq. m., while the price of existing properties increased 25% y-o-y to BRL12,134 (US$7,646) per sq. m.
•In Jardim Paulista, Sao Paolo’s most expensive district, the average price of new properties rose 39% y-o-y to BRL9,120 per sq. m (US$5,747); the average price of existing properties escalated 49% y-o-y to BRL6,959 (US$4,385) per sq. m.
The FIPE ZAP Index of Dwelling Price Offers shows Sao Paolo dwelling prices up 25.9% during the year to April 2011, and up 83.7% over the past 3 years.
In just two years (2008-2010), the average selling price of new one-bedroom apartments in São Paulo almost doubled. Newly launched two to four-bedroom apartments increased in value by between 40% and 60% over the same period, according to Embraesp, a local real estate research firm.
Looking longer term, from 1996 to 2010, prices of newly launched apartments in São Paolo rose by almost 229% (131.6% in real terms), according to Embraesp, as the accompanying graph shows. For all years since 1996 price rises have been strongly positive, except in 2007, when house prices dropped slightly due to Lula’s stringent inflation targeting (Brazil’s inflation rate was just 3.6% in 2007). Prices in Sao Paolo, for instance, dropped by 1.6% in 2007.
Residential prices in Brazil have lagged GDP per capita growth, but not too much should be read into this, because globally, low income countries tend to have higher house price/GDP per capita ratios, than high-income countries. So if Brazilian house prices have been rising in parallel (more or less) to fast-rising GDP per capita, that is in itself worrying.
Factors boosting the real estate market include:
• Rapidly growing income and purchasing power
•Political and economic stability
•Emerging middle class
•Growing population
•Availability of credit
Two major international sporting events are helping to arouse foreign interest in Brazil - the hosting of the 2014 Soccer World Cup, and the 2016 Olympics.
Other most analysts agree that house prices will continue to rise in the second half of 2011. Knight Frank’s Global Residential Market Forecast sees Brazilian residential property prices rising by 5% in 2011.
There are no restrictions on foreign property ownership in Brazil, except for areas near borders, coasts and other areas of national security.
The average asking prices of new apartments across the country soared by 24.7% in April 2011 from a year earlier, according to Exame Magazine (using data from Ibope Intelligence, the largest Brazilian market intelligence firm).
Based on the Ibope Intelligence figures, in April 2011:
•In Ipanema, Rio de Janeiro’s most expensive district, the average price of new properties rose 36% y-o-y to BRL13,031 (US$8,212) per sq. m., while the price of existing properties increased 25% y-o-y to BRL12,134 (US$7,646) per sq. m.
•In Jardim Paulista, Sao Paolo’s most expensive district, the average price of new properties rose 39% y-o-y to BRL9,120 per sq. m (US$5,747); the average price of existing properties escalated 49% y-o-y to BRL6,959 (US$4,385) per sq. m.
The FIPE ZAP Index of Dwelling Price Offers shows Sao Paolo dwelling prices up 25.9% during the year to April 2011, and up 83.7% over the past 3 years.
In just two years (2008-2010), the average selling price of new one-bedroom apartments in São Paulo almost doubled. Newly launched two to four-bedroom apartments increased in value by between 40% and 60% over the same period, according to Embraesp, a local real estate research firm.
Looking longer term, from 1996 to 2010, prices of newly launched apartments in São Paolo rose by almost 229% (131.6% in real terms), according to Embraesp, as the accompanying graph shows. For all years since 1996 price rises have been strongly positive, except in 2007, when house prices dropped slightly due to Lula’s stringent inflation targeting (Brazil’s inflation rate was just 3.6% in 2007). Prices in Sao Paolo, for instance, dropped by 1.6% in 2007.
Residential prices in Brazil have lagged GDP per capita growth, but not too much should be read into this, because globally, low income countries tend to have higher house price/GDP per capita ratios, than high-income countries. So if Brazilian house prices have been rising in parallel (more or less) to fast-rising GDP per capita, that is in itself worrying.
Factors boosting the real estate market include:
• Rapidly growing income and purchasing power
•Political and economic stability
•Emerging middle class
•Growing population
•Availability of credit
Two major international sporting events are helping to arouse foreign interest in Brazil - the hosting of the 2014 Soccer World Cup, and the 2016 Olympics.
Other most analysts agree that house prices will continue to rise in the second half of 2011. Knight Frank’s Global Residential Market Forecast sees Brazilian residential property prices rising by 5% in 2011.
There are no restrictions on foreign property ownership in Brazil, except for areas near borders, coasts and other areas of national security.
Analysis of Brazil Residential Property Market »
RENTAL YIELDS
Last Updated: Nov 17, 2011
Prices have continued to move strongly upward in Brazil in terms of US dollars, in defiance of widespread worries that the Brazilian property market may be becoming overheated.
In Rio de Janeiro, the price movement was strongest, with apartments moving up in price an amazing average of 48%, from an average of US$3,429 per sq. m., to US$5,094. Rio penthouses moved up by less, and apartments in Barra da Tijuca hardly moved up at all.
In Sao Paolo, the prices of 50 sq mt apartments moved up 33% during the year, to US$3,384 per sq. mt; apartments of 120 sq mt moved up 10.5% to US$2,616 per sq. mt. Sao Paolo apartment prices moved strongly up across all size ranges, except for the largest apartment sizes (200+ sq mt).
During this past year, the Real moved 3% up against the US$ (a relevant fact, as we measure real estate prices in US$). Sao Paolo penthouses moved up across the size range, with 120 sq. mt. apartments moving up 37%.
In Rio de Janeiro, the price movement was strongest, with apartments moving up in price an amazing average of 48%, from an average of US$3,429 per sq. m., to US$5,094. Rio penthouses moved up by less, and apartments in Barra da Tijuca hardly moved up at all.
In Sao Paolo, the prices of 50 sq mt apartments moved up 33% during the year, to US$3,384 per sq. mt; apartments of 120 sq mt moved up 10.5% to US$2,616 per sq. mt. Sao Paolo apartment prices moved strongly up across all size ranges, except for the largest apartment sizes (200+ sq mt).
During this past year, the Real moved 3% up against the US$ (a relevant fact, as we measure real estate prices in US$). Sao Paolo penthouses moved up across the size range, with 120 sq. mt. apartments moving up 37%.
TAXES AND COSTS
Last Updated: Dec 07, 2011
Rental Income: Nonresidents earning rental income in Brazil is taxed at a flat rate of 15%.
Rental income earned by nonresidents who reside in low-tax territories are taxed in Brazil at a special rate of 25%.
Capital Gains: Capital gains tax is levied at a flat rate of 15%.
Inheritance: Inheritance and gift taxes are imposed at progressive rates depending on the value of the inheritance. The maximum tax rate is 8%.
Residents: Residents are taxed on their worldwide income. Income tax is levied at progressive rates, up to 27.5%.
Rental income earned by nonresidents who reside in low-tax territories are taxed in Brazil at a special rate of 25%.
Capital Gains: Capital gains tax is levied at a flat rate of 15%.
Inheritance: Inheritance and gift taxes are imposed at progressive rates depending on the value of the inheritance. The maximum tax rate is 8%.
Residents: Residents are taxed on their worldwide income. Income tax is levied at progressive rates, up to 27.5%.
BUYING GUIDE
Last Updated: Nov 30, -0001
Total roundtrip transaction costs, i.e., the amount it costs to buy and sell a property, amount to between 11% and 12% of the value of the property.The real estate agents' fee is usually 6%. Registation fees amount to around 2% of the property's value.
Registration requires no less than 14 separate procedures. The process can be completed in about 47 days.
LANDLORD AND TENANT
Last Updated: Nov 30, -0001
Rents: The initial value of the rent can be freely agreed between the landlord and the tenant under Law 8.245/91, known as Lei do Inquilinato.
The landlord is generally protected by a guarantor i.e., a third person responsible for paying any unpaid rental debts of the tenant.
Tenant Eviction: Evicting non-paying tenants can be difficult, as the courts tend to be saturated. The duration of eviction suits varies by State.
The landlord is generally protected by a guarantor i.e., a third person responsible for paying any unpaid rental debts of the tenant.
Tenant Eviction: Evicting non-paying tenants can be difficult, as the courts tend to be saturated. The duration of eviction suits varies by State.
ECONOMIC GROWTH
Last Updated: Jun 08, 2011
Growing middle class fuels Brazil’s economic growth
Brazil’s fast growing middle class is the key driving force behind the country’s spectacular economic growth and housing boom in recent years.Former president Lula da Silva had been successful in reducing poverty—leading to an expansion of the middle class. During Lula’s 8-year term, he introduced a pragmatic approach that combine the free market with social support for the poor and workers - similar to a European social democracy.
In the last five years, Brazilian’s purchasing power increased by more than 40% and about 34 million people were lifted from poverty to middle class. The middle class now makes up about 74% of the total population from just 49% in 2005, according to a recent report by Cetelem Bank.
The unemployment rate was successfully brought down to below 7% in 2010 from more than 12% in 2003. In March 2011, the unemployment rate stood at 6.5%. From 2003 to 2010, the minimum wage has risen by about 60% (in real terms).
Lula’s spending reforms and sound economic management also led to budget surplus, falling inflation and foreign debt, and within the first two years of his term, lowered Brazil’s credit risk. The government also launched Bolsa Familia, a family grant programme for poor families that has helped more than 44 million people.
To address the severe housing shortage in the country, a social housing program called Minha Casa Minha Vida (My House, My Life) was also unveiled in March 2009 to build 3 million houses.
After a weak 1.15% growth in 2003, the economy grew by an average of 4.3% from 2004 to 2006 before growing by more than 5% in 2007 and 2008. This was in sharp contrast to the average annual growth of 1.7% from 1998 to 2002.
The Brazilian economy grew by an impressive 7.5% in 2010, its fastest GDP growth rate in 25 years, making Brazil the 5th largest economy in the world. The economy did not avoid recession in 2009, but contraction was minimal at -0.64%.
The government expects economic growth to slow to about 4% in 2011.
Dilma Rousseff, who assumed office last January 1, 2011, is the first female elected President of Brazil. The newly-elected president is expected to follow the footsteps of former president Lula, who was responsible for reform packages like the Minha Casa, Minha Vida, and Bolsa Familia (an anti-poverty programme).
“With the election of Rousseff, the Brazilian property market has at least another ten years of growth,” said Flavio Cabrera of Lopes Real Estate Consultants.
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