Brazil’s housing market remains healthy

Brazil’s housing market continues to grow, buoyed by surging property demand and improving construction activity. 

In Q1 2024, Brazil’s FIPEZAP house price index rose by 5.54% from a year earlier, following y-o-y increases of 5.13% in Q4 2023, 5.29% in Q3, 5.72% in Q2, and 5.66% in Q1, according to figures released by Fundação Instituto de Pesquisas Econômicas (FIPE). However, when adjusted for inflation, nationwide house prices rose by a meager 0.99% over the same period.

Quarter-on-quarter, nationwide house prices were up by 1.5% in Q1 2024 but down slightly by 0.47% in real terms.

Brazil’s house price annual change

The national figure conceals large variations in local house price movements. During the year to Q1 2024:

  • In São Paulo, house prices rose by a modest 4.77% (0.26% inflation-adjusted), at par with the prior year’s 4.8% growth. On a quarterly basis, Sao Paulo prices increased slightly by 1.12% but fell by 0.84% in real terms.
  • In Rio de Janeiro, house prices rose by just 1.61% and actually fell by 2.77% when adjusted for inflation. The city’s y-o-y house price growth has never exceeded 3% since early 2015. During the latest quarter, prices rose slightly by 0.53% q-o-q (fell by 1.42% in real terms).
  • In Brasilia, house prices rose by a modest 3.01%, an improvement from the previous year’s 0.1 growth. But when adjusted for inflation, prices actually declined by 1.43%. Quarter-on-quarter, Brasilia prices increased 0.84% in Q1 2024 but fell 1.11% in real terms.

Brazil FIPEZAP House Price Indices graph

Demand continues to grow strongly. In the first two months of 2024, there were 12,204 residential sales recorded in São Paulo, up by a huge 34.6% as compared to the same period last year, according to Secovi-SP. Sales have been increasing continuously in the past seven years, growing by an average of 26.4% annually from 2017 to 2013.

There is also a renewed interest by foreign investors in Brazilian real properties recently, which is expected to boost the housing market further in the coming years. Foreign individuals and nonresidents may invest in urban and rural properties in Brazil through direct ownership from abroad, or 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.

Overall, the housing market is projected to grow further this year and property prices will continue rising in the coming months.

“We can expect property prices to follow a positive trend of stabilization in 2024,” said Pedro Tenório of DataZAP. “We predict a slightly higher rise this year than in 2023, but not necessarily in line with the uptick seen in 2021 and 2022.”

During 2023, Brazil’s economy grew by a modest 2.9%, at par with the prior year’s growth but a deceleration from the annual expansion of 5% seen in 2021. The growth was mainly attributed to robust private consumption, a strong labor market, and fiscal stimulus for social transfers, as well as to a favorable external environment benefiting exports.

Both The World Bank and the International Monetary Fund (IMF) expect the Brazilian economy to grow by a meager 1.7% this year. The Finance Ministry is more optimistic, projecting a real GDP growth rate of 2.2% this year.

Local house price variations

All of Brazil’s 16 large towns saw house price rises in Q1 2024 as compared to a year earlier.

Maceió saw the highest nominal house price increase out of the 16 large towns at 14.78% (9.84% inflation-adjusted) year-on-year in Q1 2024, followed by Goiânia (13.87%), Florianópolis (11.12%), and Curitiba (10.76%). Strong house price growth was also seen in Belo Horizonte (9.7%), João Pessoa (9.52%), Vitória (8.86%), Manaus (8.58%), Campo Grande (7.87%), and Recife (7.12%).

Modest to minimal house price rises were recorded in Salvador (5.8%), Fortaleza (5.35%), São Paulo (4.77%), Brasilia (3.01%), Porto Alegre (2.14%), and Rio de Janeiro (1.61%).

However, when inflation is taken into consideration, real house price increases were more moderate and 3 out of the 16 large towns saw falling house prices during the year to Q1 2024.

  2008-2015 2015-2019 2019-2021 2021-2023 Q1 2024 (y-o-y)
FipeZap HPI 209.38 -0.17 9.15 11.60 5.54
São Paulo 224.74 5.98 8.07 9.99 4.77
Rio de Janeiro 259.08 -11.83 3.80 3.65 1.61
Belo Horizonte - 8.67 7.66 16.23 9.70
Brasilia - -5.73 19.23 3.58 3.01
Salvador - 3.17 5.24 12.09 5.80
Fortaleza - -12.41 8.44 14.11 5.35
Porto Alegre - 2.06 8.27 4.67 2.14
Curitiba - 6.82 24.75 20.91 10.76
Florianópolis - 14.06 23.87 25.00 11.12
Vitória - 9.60 28.80 25.47 8.86
Goiânia - 1.60 19.15 38.86 13.87
João Pessoa - - 13.10 21.08 9.52
Campo Grande - - 12.23 28.41 7.87
Maceió - - 27.86 31.34 14.78
Manaus - - 19.08 19.03 8.58
Recife - -1.87 3.81 17.14 7.12
Sources: FIPE, Global Property Guide

Residential sales in São Paulo continue to increase strongly

Demand continues to increase strongly. During 2023, the total number of residential sales in São Paulo rose by 9.9% to 76,145 units from a year earlier, according to Secovi-SP, following y-o-y growth of 4.9% in 2022, 28.5% in 2021, 4.5% in 2020, 64.5% in 2019, and 26.7% in 2018.

It was the highest residential sales ever recorded in the city.

The trend continues this year. In the first two months of 2024, there were 12,204 residential sales recorded in São Paulo, up by a huge 34.6% as compared to the same period last year.

Brazil New Residential Sales in Sao Paulo graph

Supply improving

During 2023, residential launches fell by 3.2% y-o-y to 73,249 units in 2023, following a decline of 7.5% in 2022, based on figures from Secovi-SP.

However, with strong demand, supply is improving again. In the first two months of 2024, launches surged by 107.7% to 7,355 units as compared to the same period last year.

Brazil New Launches in Sao Paulo graph

The selic rate was cut several times amidst easing inflation

From an annual average of 3.5% in 2017-20, nationwide inflation surged to 8.3% in 2021 and further to 9.3% in 2022, as the reopening of the economy, coupled with global supply issues, a weaker currency, and severe drought, pushed up prices. After slowing to an annual average of 4.7% in 2023, the overall inflation eased further to 4.5% in February 2024, prompting the central bank to reverse its monetary policy.

Inflation is expected at 3.5% for the full year of 2024 and 3.2% in 2025.

As such, the Banco Central do Brasil’s Monetary Policy Committee slashed the Selic rate by another 50 basis points to 10.75% in March 2024, its sixth consecutive rate cut since August 2023.

“Considering the evolution of the disinflation process, the scenarios evaluated, the balance of risks, and the wide range of information available, Copom decided to reduce the basic interest rate by 0.50 percentage points, to 10.75% and understands that This decision is compatible with the strategy of inflation convergence around the target over the relevant horizon, which includes the year 2024 and, to a greater extent, 2025,” said the central bank.

The continued reduction in interest rates is expected to stimulate housing demand in the medium term. Beginning early 2021, the benchmark rate had been raised multiple times from a record-low of 2% to 13.75% in August 2022 to rein in inflationary pressures. Now the direction of interest rates is downward once again.

Brazil Selic Interest Rates graph

Real estate credit falling

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 reach a record-high of BRL 205.41 billion (US$41 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. It was also the highest ever recorded.

However, real estate credit has been slowing since, despite strong property demand.

The total value of real estate loans fell by 12.8% y-o-y to BRL 179.16 billion (US$35.77 billion) in 2022 and by another 14.8% y-o-y to BRL 152.68 billion (US$30.48 billion) in 2023. Similarly, the number of loans fell by a huge 30% y-o-y to 499,149 in 2023, following a 17.7% decline in the prior year.

Brazil Loans for Real Estate Acquisition and Construction graph

The weakness of the real estate credit market continued this year. In the first two months of 2024, the total amount and number of loans fell by 10.4% and 25.1% y-o-y, respectively.

  • Construction: the total amount of loans for the construction of properties dropped 17.6% y-o-y to BRL 3.88 billion (US$773.6 million) in the first two months of 2024. Likewise, the number of said loans plummeted by 32.1% to 16,271 over the same period.
  • Acquisition: total loan value for the purchase of real estate fell by 8.5% y-o-y to BRL 16.19 billion (US$3.23 billion) in Jan-Feb 2024. Also, the number of loans declined 22.1% to 42,513.

Outstanding home loans represent more than 10% of the country’s gross domestic product.

Brazil Number of Real Estate Loans graph

Good rental yields

Brazil’s big cities offer good rental yields  - what you can earn from an apartment before tax and other expenses. In Q1 2024, the average gross rental yields on apartments in Brazil stood at 6.24%, according to research conducted by the Global Property Guide in January 2024.

In Brazil’s major cities:

  • In Sao Paulo, apartments offer rental yields ranging from 4.47% to 9.27% in Q1 2024, with a city average of 7.11%.
  • In Rio de Janeiro, apartment rental returns ranged from 4.53% to 10.66%, with a city average of 7.51%.
  • In Fortaleza, rental yields are very low ranging from 2.02% to 3.36%, with a city average of 2.9%.
  • Recife apartments offer rental yields of around 5.78% to 8.9%, with a city average of 7.35%.
  • In Vitoria, gross rental yields ranged from 5.33% to 7.31%, with a city average of 6.32%.

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 program also offers lower interest rates as compared to the MCMV program. For instance, families with a monthly income of at most BRL 2,000 (US$396) and live in the North or Northeast region will see a reduction of up to 0.5% in annual interest rates while those with a monthly income between BRL 2,000 (US$ 396) and BRL 2,600 (US$ 515) 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$ 396) – subsidy up to BRL 47,500 (US$ 9,401), interest rate of 4.5%
  • Range 2.0: families with a monthly income of up to BRL 4,000 (US$ 792) – a subsidy of up to BRL 29,000 (US$ 5,740), interest rate of 4.75%
  • Range 3.0: families with monthly income from BRL 4,000 (US$792) to BRL 7,000 (US$1,385), 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.

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). Beginning in 2015, national house prices began to fall in real terms.

Year Nominal Inflation-adjusted
2009 21.58 16.55
2010 23.99 17.08
2011 26.96 19.21
2012 15.78 9.39
2013 13.91 7.55
2014 7.33 0.87
2015 2.51 -7.38
2016 0.41 -5.53
2017 1.40 -1.50
2018 1.79 -1.89
2019 2.26 -1.96
2020 3.79 -0.70
2021 4.13 -5.39
2022 5.06 -0.68
2023 4.69 0.07
Sources: FIPE, Global Property Guide

The crisis and its aftermath, 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.