Increased foreign interest in Brazil

Last Updated: Mar 05, 2007

Increased foreign interest in Brazil

Brazil’s tourism is undeniably doing well, and as more people come into the country, demand for short-term rentals increases. There is also a noticeable increase in interest in foreign property ownership. Some of the tourists opt to buy vacation homes for their frequent visits, or even buy to move into the country.

Rio de Janeiro still remains the more popular city for foreigners. This former capital of Brazil is world-famous for the samba-filled Carnival that ends on Mardi Gras Tuesday. Other known spots in Rio de Janeiro are Copacabana, Ipanema, and the Corcovado Mountain, on top of which stands the giant statue of Christ the Redeemer.

According to Global Property Guide research, apartments in the centres of Sao Paolo and Brasilia can cost around US$1,000 per sq. m. On the other hand, apartment prices in Rio de Janeiro are more expensive, at US$1,250 to US$1,600 per sq. m..

Despite the influx, foreigners still make up a small portion of property buyers in the market. This could be caused by the several restrictions on foreign property ownership in Br azil, which include restricted areas and limited property sizes. Foreign nationals need the approval of the Brazilian government when acquiring property. A tax registration number from the Cadastro de Pessoa Fisica (CPF) is required.

Hungry for growth

With a GDP per capita increase of 8.32% for the last five years, Brazil is growing much slower than its neighbors. Nevertheless, it has a well-maintained GDP per capita, which is estimated at US$5,518 for 2007. Brazil has been successful in fighting inflation as well, decreasing it from 14.8% in 2002 to 4.1% in 2006.

The Brazilian currency is surging, now almost 2-to-1 to the US dollar. The real has shown impeccable performance in the last few years, with a 69% increase against the US dollar in four years. This is impressive growth from an exchange rate of R$4 to the dollar when President Lula da Silva won office in 2002.

Salvaging the housing market

The government is still continuing to address the excessive housing deficit in the country. The recently re-elected Lula announced a “growth-acceleration package”, which includes housing and infrastructure investment of around US$236 billion for the next four years.

Mortgages are increasing together with the expansion of the housing market. However, mortgage loans still occupy a very small part of Brazil’s GDP.

The reduction in interest rates also greatly helps with the growth of mortgages. The government lowered the rates after inflation was tamed. The overnight federal funds rate was brought down from an average of 23.35% per annum in 2003 to 16.25% in 2004. The rate was 16.45% in April 2006.

About 14% of the 42 million housing stock is rented; home ownership is at 75%, while other categories make up for the remaining 11%.

Overpopulated cities

Rio de Janeiro and Sao Paolo are two of the world’s largest cities, with an estimate of 15 million and 40 million people respectively. Other well-known cities are Fortaleza, Brasilia and Foz do Iguaco.

With the widely diverse and large population, Brazil has the highest level of inequality in Latin America, and one of the highest in the world. This is very visible in the favelas on the hilly outskirts of Rio de Janeiro and other cities.

Favelas are squatter settlements named after the first such settlement on the slopes of the hill Morro da Favela near the centre of Rio de Janeiro, where the affluent and elite live. It is estimated that about one-third of Rio’s population lives in favelas.

The situation is the same in other major cities such as Brasilia and Sao Paolo; some estimates show that 40% of the cities' population lives in these squatter settlements.