Brazil’s housing market is now showing signs of improvement, buoyed by rising property demand and supply. In November 2022, Brazil’s FIPEZAP house price index rose by 6.34% from a year earlier, up from y-o-y increases of 5.29% in 2021, 3.67% in 2020, and zero growth in 2019, according to figures released by Fundação Instituto de Pesquisas Econômicas (FIPE). The past two months had been its biggest y-o-y price growth since December 2014.
Brazil’s house price annual change
However, when adjusted for inflation, nationwide house prices rose by a meager 0.42% over the same period.
The national figure in fact conceals large variations in local house price movements. During the year to November 2022:
- In São Paulo, house prices rose by an average of 5.19%, the biggest y-o-y rise in more than seven years. However, when adjusted for inflation, prices actually declined slightly by 0.68%.
- In Rio de Janeiro, house prices rose by a modest 2.33% but actually fell by 3.37% in real terms. Yet it is important to note that the city’s y-o-y house price growth has never exceeded 3% since early-2015.
- In Brasilia, house prices rose by a modest 2.38%, but actually declined by 3.32% when adjusted for inflation. It was a sharp deceleration from y-o-y increases of 8.66% in November 2021 and 9.05% in November 2020.
Residential sales and construction activity are rising. In the first three quarters of 2022, the total number of residential sales in São Paulo rose by 7.9% y-o-y to 50,728 units and launches increased by 4.3% to 51,715 units, according to Secovi-SP.
There is also a renewed interest by foreign investors in Brazilian real properties recently, which is expected to boost the housing market further in 2023. Foreign individuals and nonresidents may invest in urban and rural properties in Brazil through direct ownership from abroad, or through resident companies or partnerships. To be able to buy a property, a tax registration number from the Cadastro de Pessoa Fisica (CPF) is required.
However, there are restrictions on investments in rural properties. Foreign individuals who intend to migrate to Brazil may acquire rural properties directly from abroad only if they come to live in Brazil within three years from the date of acquisition. In addition, rural properties acquired by foreign companies must be destined for the implementation of agricultural, industrial, or settlement projects and these activities must be related to the companies’ purposes.
The wider economy continues to expand, albeit at a much slower pace. During 2022, the Brazilian economy is estimated to have expanded by a modest 2.8%, a slowdown from its 2021 growth of 4.6%, based on figures from the International Monetary Fund (IMF).
Local house price variations
All of Brazil’s 16 large towns saw house price rises in November 2022 as compared to a year earlier.
Vitória saw the highest nominal house price increase out of the 16 large towns at 23.15% (16.28% inflation-adjusted) during the year to November 2022, followed by Goiânia (20.51%), Maceió (14.21%), Curitiba (13.91%), Campo Grande (12.57%), and Florianópolis (12.16%). Strong house price increases were also seen in João Pessoa (10.91%), Recife (10.6%), Fortaleza (8.41%), Belo Horizonte (7.07%), and Salvador (6.7%).
Modest to minimal house price rises were recorded in Manaus (5.79%), São Paulo (5.19%), Brasilia (2.38%), Rio de Janeiro (2.33%), and Porto Alegre (2.31%).
However, when inflation is taken into consideration, real house price increases were more moderate and 4 out of the 16 large towns actually saw falling house prices during the year to November 2022.
HOUSE PRICE CHANGE (%)
|2008-2015||2015-2019||2019-2021||Nov 2022 (y-o-y)|
|Rio de Janeiro||259.08||-11.83||3.80||2.33|
|Sources: FIPE, Global Property Guide|
Residential sales and launches continue to rise in São Paulo
Demand and supply are both rising. During 2021, the total number of residential sales in São Paulo increased strongly by 28.5% to 66,092 units from a year earlier, according to Secovi-SP, following y-o-y growth of 4.5% in 2021, 64.5% in 2020, 26.7% in 2019 and 45.7% in 2018.
Likewise, launches also surged by 36.5% y-o-y to 81,841 units in 2021, in contrast to an 8.2% decline in 2020.
The growth continued in 2022, with residential sales in São Paulo rising further by 7.9% y-o-y to 50,728 units in the first three quarters of 2022 and launches increasing by 4.3% to 51,715 units.
The selic rate raised several times to curb inflation
During 2021, nationwide inflation surged to 8.3%, the highest reading in five years, as the reopening of the economy, coupled with global supply issues, a weaker currency, and severe drought, pushed up prices. Inflation had averaged only 3.5% in 2017-2020, a sharp deceleration from an annual average of 7.1% in 2011-2016. In 2022, average inflation is estimated to have reached about 9.4%.
To restrain inflation, the Banco Central do Brasil’s (BCB) Monetary Policy Committee has been raising the Selic rate since last year. In December 2022, the central bank kept the Selic rate at 13.75%, after raising it twelve times with a cumulative rate hike of 1,175 basis points since March 2021.
The continued rise in interest rates is expected to slow the growth of housing demand in the medium term. During 2020, the benchmark rate had been slashed several times to a record-low of 2% in August 2020 to cushion the economic repercussions brought by the pandemic. Now the direction of interest rates is upward once again.
Real estate credit surging
After 2017, the economy came out of the post-2014 economic slump, and loans for real estate acquisition and construction began to rise again. During 2021, real estate loans soared 65.7% y-o-y to BRL 205.41 billion (US$38.84 billion), following strong growth of 57.5% in 2020, 37.1% in 2019, and 33% in 2018, according to ABECIP. Likewise, the total number of real estate loans drawn more than doubled to 866,331 in 2021 from a year earlier.
In the first eleven months of 2022, the value of real estate loans totaled BRL 165.16 billion (US$31.24 billion), down by 12.5% from the same period last year but up by a huge 55.1% two years ago and still the second-highest ever recorded. Similarly, the number of loans fell by 17.2% y-o-y to 663,889 but remains the second-highest level ever recorded.
Outstanding home loans represent more than 10% of the country’s gross domestic product.
Rental yields are low to moderate
Gross rental yields - what you can earn from an apartment before tax and other expenses - have continued to move down in Brazil’s big cities, and in most parts of Sao Paolo and Rio de Janeiro being a landlord generates a much less attractive return on investment than a few years ago.
In Rio de Janeiro, yields are quite low, ranging from just 1.48% to 4.78%. In Sao Paolo, apartment yields are rather higher, between 4.27% and 6.52%, based on a Global Property Guide research conducted in November 2022.
Case Verde e Amarela replaces Minha Casa Minha Vida housing program
The Minha Casa Minha Vida program (MCMV), launched in March 2009, was one of the popular federal government programs introduced during former President Lula da Silva’s 8-year term. Under the program, subsidized mortgage loans were extended to middle and lower-income homebuyers through the state-owned bank, Caixa Economica Federal (CEF). The MCMV program has produced significantly more housing units than any other social housing program in Brazil, having delivered more than one million housing units for the poorest families in the country.
However, after more than a decade, the federal government ended the Minha Casa Minha Vida program (My Home, My Life housing program) in late-2020 to implement the new Casa Verde e Amarela program (Green and Yellow House program, named in reference to the colors of Brazil’s flag). While the new housing program retains its predecessor’s regulations for the construction of new housing units, it adds avenues for land regularization and renovations for existing housing. The government plans to regularize up to 2 million homes and renovate more than 400,000 over the next four years.
The new Casa Verde e Amarela program offers subsidies to more than 1.5 million low-income families, guaranteeing affordable housing financing by the year 2024. The new also program offers lower interest rates as compared to the MCMV program. For instance, families with a monthly income of at most BRL 2,000 (US$373) and live in the North or Northeast region will see a reduction of up to 0.5% in annual interest rates while those with a monthly income between BRL 2,000 (US$ 373) and BRL 2,600 (US$ 485) will have an interest rate reduction of 0.25%.
From four different categories under the MCMV program, the Casa Verde e Amarela program has only three:
- Range 1.5: families with a monthly income of at most BRL 2,000 (US$ 373) – subsidy up to BRL 47,500 (US$ 8,865), interest rate of 4.5%
- Range 2.0: families with a monthly income of up to BRL 4,000 (US$ 747) – a subsidy of up to BRL 29,000 (US$ 5,413), interest rate of 4.75%
- Range 3.0: families with monthly income from BRL 4,000 (US$747) to BRL 7,000 (US$1,306), interest rate of 7.66%
In the first category, families can benefit from reduced interest rates, subsidized housing units, property reform, as well as land regularization.
During 2021, about 345,600 units were granted under the program, benefitting more than 1.4 million people.
Looking back: the amazing Lula housing boom
House prices in São Paulo rose by an amazing 224.74% from January 2008 to December 2015 (106.3% inflation-adjusted), and in Rio de Janeiro by an even more spectacular 266.1% (134% inflation-adjusted).
Pro-market reforms under former President Lula da Silva greatly helped boost mortgage lending, which rose by at least 25% per year between 2007 and 2014. Plus, interest rates were progressively cut from 26% to 7.25% between 2003 and 2012. The rapid growth of the middle class was another important factor. All of these elements contributed to the house price boom.
The 2007 discovery of enormous oil fields deep beneath a layer of salt in the Atlantic seabed boosted the energy industry’s demand for residential and office space. Demand continued to surge following the 2009 announcement that Rio de Janeiro would host the 2016 Olympic Games.
The property had by then become increasingly unaffordable due to the surge in house prices, leading many Brazilians to rent rather than own. “In the major cities, young professionals were struggling to afford the kind of prices now being asked for properties in good areas,” according to Colordarcy Investment.
However, in 2014, nominal house price rises slowed dramatically, ending the year with 6.7% growth (0.3% inflation-adjusted). After 2015 national house prices began to fall in real terms.
ANNUAL HOUSE PRICE CHANGE (%), SAO PAULO
|Sources: FIPE, Global Property Guide|
The crisis and its aftermath – how Bolsonaro came to power
Brazil’s decade-long troubles began with the global recession in 2008. To boost the economy, the Central Bank of Brazil slashed the benchmark Selic rate from 13.75% in December 2008 to 8.75% by July 2009.
Brazil was swamped with consumer credit, and there was a surge in inflation. Even so, economic growth fell to 1.9% in 2012, 3% in 2013, and 0.5% in 2014.
In June 2013 riots exploded, precipitated by a BRL0.20 (USD0.10) rise in public transport fares and complaints about excessive spending on mega-sporting events. Brazil is not a poor country. But tax rates are extremely high, yet many Brazilians spend up to four hours per day in traffic jams, either in their cars or on crowded public transport. The protests were an outburst of popular frustration at corruption – a protest against an intolerable situation.
Alarmed at the inflation the central bank raised the benchmark interest rate nine times from 7.25% in March 2013 to 14.25% in 2015, the highest level for almost six years.
Mortgage lending slowed sharply, with the total value of loans plunging by 33% in 2015 and by another 38.3% in 2016, according to the Brazilian Association of Real Estate Loans and Savings Companies (ABECIP), amidst the ongoing political turmoil in the country. The decline continued in 2017, with real estate credit falling by 7.4% y-o-y.
A slump followed and the currency fell. GDP per capita fell 31.1% between 2011 and 2018, to US$9,194, according to the IMF, though this was largely an artifact of the currency’s decline – in fact, real GDP fell by only 3.5% in 2015 and 3.3% in 2016. Then came a corruption scandal involving oil giant Petrobras and the country’s largest engineering and construction firms. The investigation has implicated politicians, mostly from President Dilma Rousseff’s Workers’ Party.
Protests in the streets escalated, worsening the country’s already ailing economy. In August 2016 Rousseff was removed from office and Michel Temer was sworn in as Brazil’s new president.
Although the public did not hit the streets to protest against Temer, his approval ratings remained in single-digit figures. Corruption controversies led him to become even more unpopular, and after his term of office ended Temer was arrested in March 2019 on corruption and money laundering charges. Worse, the massive bribery scandal involving Brazilian construction giant Odebrecht exploded. Odebrecht was behind the construction of venues for the 2014 World Cup, the 2016 Olympics, the metro systems in Caracas, and other huge infrastructure projects.
The crisis helped right-wing candidate and retired army officer Jair Bolsonaro sweep to victory during the October 2018 presidential election on a populist, anticorruption platform.
Bolsonaro’s defeat and Lula’s return to power
Bolsonaro, a free marketeer, has very worrying anti-environmentalist and anti-human rights views. He has failed to deliver on most of his promises. During the onset of the pandemic, Bolsonaro had been widely criticized for his handling of the health crisis, refusing to support measures to halt the spread of the virus.
The economy contracted by 3.9% during 2020, following annual average growth of 1.4% in 2017-19. It was the biggest annual decline since 1990.
In July 2021, tens of thousands of people have taken to the streets to protest amidst the recent allegations of corruption involving the purchase of vaccines by the government. In October 2021, a Senate investigative committee found that Bolsonaro committed nine crimes related to his administration’s handling of the health crisis, amidst delayed vaccines, oxygen shortages, and ineffective treatments.
With the incumbent president’s poor approval ratings leading to the October 2022 general elections, it is not surprising that he lost to his leftist rival, ex-president Lula da Silva, who is due to be inaugurated as president on January 1, 2023. However, in November 2022, Bolsonaro filed a petition with the country’s election authorities formally contesting the results of last year’s fiercely contested general elections.
The economy continues to grow, and unemployment falling
Brazil’s economy advanced by 3.6% y-o-y in Q3 2022, following annual growth rates of 3.7% in Q2 and 2.4% in Q1, according to the Instituto Brasileiro de Geografia e Estatística (IBGE). It was the seventh consecutive quarter of y-o-y growth. Over the same period:
- Private consumption rose by 4.6%
- Government spending rose by 1%
- Gross fixed capital formation was up 5%
- For net exports, exports increased 8.1% while imports grew 10.6%
On a seasonally-adjusted quarterly basis, real GDP increased slightly by 0.4% in Q3 2022, following expansions of 1.% in Q2 and 1.3% in Q1.
The Brazilian economy is estimated to have expanded by a modest 2.8% during 2022, a slowdown from its 2021 growth of 4.6%, based on figures from the International Monetary Fund (IMF).
Labor market conditions continue to improve. Nationwide unemployment dropped to 8.3% in the quarter ended October 2022, the lowest level in about seven years. From an annual average of 7.7% in 2010-15, the jobless rate rose to 12.6% in 2016-21.
There were about 9 million unemployed people in Brazil in October 2022 – the lowest since 2015.
Inflation eased to 5.97% in November 2022, after reaching a 19-year peak of 12.47% in April 2022, after the central bank hiked its benchmark Selic rate several times to rein in inflationary pressures.
Since the onset of the pandemic, the Brazilian Real (BRL) has weakened sharply. In December 2022, the average monthly exchange rate stood at BRL 5.2478 per US dollar, losing nearly 22% of its value against the dollar from three years ago.
- FIPEZAP Residential Index (Fipe): https://www.fipe.org.br/pt-br/indices/fipezap/#indice-mensal
- Secovi-SP releases data on launches and sales of residential properties in September 2022 (Secovi-SP): http://www.secovi.com.br/pesquisas-e-indices/pesquisa-mensal-do-mercado-imobiliario
- Mercado imobiliário divulga resultados de dezembro de 2021 (Secovi-SP): http://www.secovi.com.br/downloads/pesquisas-e-indices/pmi/2021/arquivos/202112-pmi-3.pdf
- Selic interest rate (Banco Central do Brazil): https://www.bcb.gov.br/en/monetarypolicy/selicrate
- Real estate financing (Brazilian Association of Real Estate Loans and Savings Companies): https://www.abecip.org.br/credito-imobiliario/financiamento
- The Most Attractive Market for Property Investors (Colordarcy Investment): https://www.colordarcy.com/wp-content/uploads/2014/08/The-Most-Attractive-Market-For-Property-Investors.pdf
- Crédito imobiliário tem virada promissora em dezembro (Brazilian Association of Real Estate Loans and Savings Companies): https://www.abecip.org.br/imprensa/abecip-na-midia/credito-imobiliario-tem-virada-promissora-em-dezembro
- Former Brazil president Michel Temer arrested on corruption charges (The Washington Post): https://www.washingtonpost.com/world/the_americas/former-brazil-president-michel-temer-arrested-on-corruption-charges/2019/03/21/74e9a92a-4be7-11e9-8cfc-2c5d0999c21e_story.html
- Brazil: rental yields are moderate (Global Property Guide): https://www.globalpropertyguide.com/Latin-America/Brazil/Rental-Yields
- Brazil At a Glance (International Monetary Fund): https://www.imf.org/en/Countries/BRA
- Unemployment remains in decline and reaches 8.3% in the quarter ended October (Instituto Brasileiro de Geografia e Estatística): https://agenciadenoticias.ibge.gov.br/en/agencia-news/2184-news-agency/news/35653-unemployment-remains-in-decline-and-reaches-8-3-in-the-quarter-ended-october
- “Green and Yellow House” Program: 1.2 million houses delivered (Government of Brazil): https://www.gov.br/en/government-of-brazil/latest-news/2022/casa-verde-e-amarela-1
- Housing for vulnerable communities: Casa Verde e Amarela (Government of Brazil): https://www.gov.br/en/government-of-brazil/latest-news/2022/casa-verde-e-amarela