Brazilian housing bubble? When will it burst?

283POSTS

12 years ago

I'm moving to Brazil later this year and will be getting married to my fiance who has been a permanent resident of Brazil for 30 years. We are considering buying an apartment in Campinas, but based on everything I've read, the Brazilian real estate market seems to be experiencing a housing bubble with home prices in Rio and SP having jumped over 250% and 200%, respectively since 2008. While I know that a lot of the excitement surrounding Brazil is over this year's World Cup and the 2016 Olympics, beyond these two events, has there been enough economic growth and investment to justify such an increase in home values? What are the prospects for continued growth in the future after the Olympics? Is Brazil really caught in a housing bubble? If so, when will it burst?

As I understand it, the rise in homes values seems to have slowed in recent months - while values are still increasing, they're increasing at a much slower rate. Also, interest rates are sky high at the moment - to curb economic activity and inflation. I don't know too much about what's going on in Brazil, but common sense tells me that now is not the time to buy (Housing prices are at an all-time high, interest rates are high). If we do buy in the near future, we'll most likely pay in cash and only take out a mortgage if we need to, so interest rates don't concern us as much, however, since high interest rates are used to deter investors, I'll take this as a sign to wait...until the market collapses.

But will it collapse? Or will it just slow down? I'm an American and after having seen the devastating consequences of our 2008 housing crisis and the ripple effect in other countries around the world, I am very cautious. While I don't think the current Brazilian housing market is in as bad shape as the 2008 American housing market, I still think that waiting is best unless we find a killer deal.

My fiance tells me that many are predicting a fall in prices after the Olympics, but even he's not sure when it will happen. What are your thoughts?

Victoria

Some of my sources:

http://www.bloomberg.com/news/2013-09-0 … razil-cred http://www.bbc.com/news/business-27202147 http://www.bbc.com/news/business-27218510 http://www.forbes.com/sites/kenrapoza/2 … pace-all-c[link under review]http://www.brazilinvestmentguide.com/bl … le-brazil/

The Brazil expat guide

Comprehensive and free

Read it now

VictoriaChandler Serial expat

283POSTS

12 years ago

So you don't think that home values will drop after the Olympics and that it's better to wait? The Brazilian housing market may not collapse, but even many Brazilians are predicting a fall in prices. My fiance may not be Brazilian but he and his family have lived in Brazil for 30 years and have many Brazilian co-workers and friends, and many of them also seem to be be waiting things out. I am only interested in prospects for Sao Paulo and Campinas because this is where we will be living. Thank you.

Victoria

James ViP

11272POSTS

12 years ago

Well, Campinas is far enough removed from Metropolitan São Paulo that it's not going to be as effected by the real estate market in São Paulo. The city is also a university and industrial center that has an economy driven by those and other factors too that will probably keep the market more stable there than you may imagine and while prices will probably drop slightly after the Olympics I'm sure they'd recover rather quickly. What you might possibly economize by taking a "wait and see" attitude toward buying would probably be eaten up by what you'll put out in rent, condominium fees and IPTU (if those are applicable) for the next two to two and a half years. So unless you plan on living with your in-laws during that time I don't see a great deal of benefit in it.

Of course, that's only my opinion and what I'd do if I were the one thinking of buying. It is however your decision to make and you've got to do what you believe is right for you. While real estate markets do have their cyclical ups and downs we all know that the long-term trend is for appreciation rather than devaluation so if you're looking at a home purchase as a long-term investment, as opposed to something you intend to flip, then I don't see that some small fluctuations in the market right now are going to hurt you much either way.

Obviously this all kind of depends on the outcome of the federal elections this year. Right now there may be some instability in all sectors of the economy including housing, but depending on the election results there may be a tendency to a short burst of rapid growth in the price of housing too.

Good luck on your plans for the future. Sounds like you've got your head screwed on pretty well and it looks like you'll do well in adapting to life here in Brazil; something that many others have not been able to do with great success.

Cheers,
William James Woodward, EB Experts Team

paulopereirra ViP

1322POSTS

12 years ago

@ VictoriaChandler
yeap, i would agree with you.
The French section of expat living and working as entrepeneurs there also share that point of vue.
http://www.forbes.com/sites/kenrapoza/2 … on-brazil/
market is crazy, looks just like spain back in 08.

http://noticias.r7.com/economia/terceir … o-31052014
The average street man cant believe how expensive real estate has become, and thats a sign.

Macro economics prediction guru´s cant always be right.... here in Europe we are now sure of that....

1 member reacted to this post

Bardamu Serial expat

607POSTS

12 years ago

There is a serious risk of slow down. You do not need to wait until the Olympics, just wait a few weeks after the football world cup. If it is getting very dirty : huge demonstrations, riots and overreacting repression, this could worry professional foreign investors (who actually are still investing hugely in Brazil which is still worldwide 5th in foreign investment) and market could slow down.
Actually slow down is already happening: prices are now stagnant and with a 6.5% inflation (officially), this is like prices were going down.
I believe if you buy a place to live in for some years and you see a good deal, you should still think about it. Just don't buy in a new condo; this is totally overrated and 30-50% more expensive than older flats without justification (and very often of lower quality). If location is good, 2 parking spaces, condominio charge reasonable, without default, there is no big risk. People in Brazil do not have loans on floating rates or interest rates only. Generally people pay cash or in 3-5 years (for new flat) with a loan arranged with the building company. So there will not be a credit bubble explosion. Then, there is the growing population which is continue to move to big cities in modest houses then in more comfortable flats (a fact for a country in development) . It put pressure naturally on property availability; meaning higher prices. So there will not be a snow ball effect where all fall apart like it happened in US in 2008.
As I wrote, just wait a few weeks after the world cup.

1 member reacted to this post

James ViP

11272POSTS

12 years ago

Actually unlike the USA housing bubble which was the result of over extending credit, the situation in Brazil is much different. The increase in the price of housing is as a result of the imbalance between supply and demand. This is why the increases have been greater in larger cities in Brazil like São Paulo, since the new housing starts have skyrocketed while the demand is still low. This was compounded by the fact that builders have grossly overestimated the type of buyer that is out there looking for homes. They've concentrated their efforts in constructing home in the over R$500 thousand range (72.2% of all construction) while the average buyer fall into the under 10 minimum wages family income range (79.29% of the buyers), thus pricing units well out of reach of the majority of potential buyers in those cities. This is not the case in smaller Brazilian cities were supply and demand are relatively stable / balanced and thus the decrease in property values has been relatively low in the 1.5 to 3.5% range. So while prices have slowed down, they are certainly not plunging as many of those predicting gloom and doom thought they would. Purchasing in large metropolitan centers may not be wise right now, but in smaller cities real estate continues to be a good long-term investment. Not the time to buy if you intend simply to flip properties trying to make a quick buck, but if you're buying a home to live in there still isn't a lot to worry about.

Cheers,
William James Woodward, EB Experts Team

Lighthand Active member

72POSTS

12 years ago

I may be the new kid on the block. But for my two cents worth, this is what I think:

1. Direct implosion like what happened to US in '08 is very unlikely (note I did not say it definitely will not). As I understand the local public lending limit, over leveraging is not permitted. Meaning to say most of the homes are fully paid or 70% paid for. Unlike what happened in US where by leading was loose, and people with bad credits are allow to borrow close to the full amount.

2. With the expansion of offshore oil fields and other resources, a lot of overseas companies will be investing or expanding operations in Brazil. Hence this will mean a higher in flux of expats who will need housing. So rental yield will be quite stable, if not tread higher.

James ViP

11272POSTS

12 years ago

You're right LIghthand. Banking regulations here in Brazil wouldn't allow for events like the US sub-prime crisis in housing. That's one of the main reasons that Brazil was less effected by the crisis, recovered from it before any other country and came out of it in a much stronger position than any of the others did too.

The fact remains that the perceived "housing bubble" in Brazil really only is taking place in the biggest cities, São Paulo, Rio and Belo Horizonte mostly. Builders grossly overestimated the demand for high-end housing and when it didn't materialize they got stung. In those cities, yes housing prices will probably drop drastically because they're completely out of line with reality. Other cities aren't going to be so badly off.

Cheers,
William James Woodward, EB Experts Team

1 member reacted to this post

paulopereirra ViP

1322POSTS

11 years ago

#10

i really dont believe the expat comunity "per se" means some kind of pressure on the housing segment, when compared to the overall population.
Back in spain banks would give credit for 40 years long,with reduced or almonst no apport at the time of purchase.
Even if brazilian housing credits are not as long, purchase power when reduced turns into problem to meet credits responsability, thus an increasing risk. That´s what one can read on a few articles.

moreto62 Guest

0POSTS

11 years ago

#11

There is no good answer to your question . No one knows , same as no one knew it will happen in USA .

1 member reacted to this post

bubblebee77 Member

1POSTS

11 years ago

#12

In my opinion, I agree with William in the point of Bank regulation here so there is no sub-prime like in US crisis that Bank and non-bank over estimated in demand of housing and stock prices but there are other points that you have to concern high investment of government, high taxes and protest etc. Even Brazil now will look like rapidly developing in this recent years but all of huge investments come from expenditures of government to support world cup football and Olympic only that means it is only short term growth in economics. I gave you example of my own country (Thailand) in year 1997. Thai government at that time invested a lots in infrastructures, created good management performance but 80-90% of goverment revenues came from taxes and public domestic and international debts. House prices increase more than 300% and stock prices were highest in the history because of over estimated from investment sector which made Thailand had crisis.
I am not sure what gonna happen in Brazil in next few years but if I were you, I will wait until end of this year to see how is going on after world cup football (how government will manage current problems) and you will have time to collect more information (where is suitable and worth of money).
Anyway don't be serious, investment comes with risk and benefits...cheer up

Virgilio22 New member

8POSTS

11 years ago

#13

My opinion as a 44yo Brazilian is: I 've never seen prices going down in this country. From the early 80's up to the moment prices just spiraled out of control. I make the same amount of money I used to make in the mid 90's and prices went up about 400%. I could say I was rich then because I could go out for dinner whenever I wanted to and currently I can just pay bills and hardly do essencial shopping. This is the reality here. I think house prices have gone up so much due to expectations on the international events, but there is something else. The population is growing out of control, the government does nothing to build homes, people get stuck in slums more and more. No one wants to live nearby a slum or in it, it's hell there, no respect to life (don't believe in those foreigners that come to live in a slum and find it a paradise. It can only be a paradise if you do not work and don't bother to be listening to other's music, violence and at loud volumes everyday). Since no one really wants to live in a slum, and the housing offer is so little, the prices invevitably go up. I have my doubts on prices decrease because of this last fact, there's no room to everybody here. The governments have not invested in decent plublic trasport for ages, it's chaos on traffic here. Living in a strategic area near work might get expensive as well. Currently, a good option to invest in real estate lies on the possibility to buy a brand new flat, investing when it's still on the construction plan. When it comes to the point of getting the keys, normally a good profit is made. In this case, if the bubble burts at any time, chances are you re not gonna lose your investment or at least equalize.

1 member reacted to this post

GringogGene Active member

31POSTS

11 years ago

#14

Been here since 86. Agree with your observations.

Won't rant....does no good. :-)

1 member reacted to this post

moreto62 Guest

0POSTS

11 years ago

#15

it was the same in USA for the last 30 years never went down..only up up up ...i know US is not BR and BR is not US .....

Virgilio22 New member

8POSTS

11 years ago

#16

Yes, everywhere is like a jungle where we need to outperform to survive, making more money every year. If one does not make it, he is pushed to the borderline of society.

1 member reacted to this post

paulopereirra ViP

1322POSTS

11 years ago

#17

thanks for sharing Virgilio22, foremost for beeing "native" of the place.
I always find much amusing "Gringos" sharing story about finding hapiness on the favelas, and others saying they made real good real estate operations , opening bed and breakfast, flip an house etc on the favelas,
Back home they did not wanted to live in favelas, why do it abroad?

Virgilio22 New member

8POSTS

11 years ago

#18

In my opinion is something about the culture. For example Europeans when coming to Rio they love the sense of liberty, in other other words: Because there is no active government, no rules, no inspectors , people just can gather anywhere make noise all night, in the open air, hot temperatures all night long. It's something they just can't do in most places in the North Hemisphere. The point is, Brazil has this kind of noisy culture where there is no respect to neighbours. When someone is in a party sometimes he does not realize there are people living around, specially under the influence of alcohol. For a tourist or the party organizers it's just great, all night noise out. But for a regular citizen who works and needs to wake up early it's hell mate. The city hall keeps the city under control in nice areas, talking about Rio de Janeiro, I 'd say The South Zone (From Flamengo to Barra). Apart from that it's like zombieland. That is exactly why living here is getting so expensive, there is no room for everybody in decent living areas and whoever pays gets it. I can understand when someone comes from a rich country to live in a Favela, write a book on it, comes back home one day. i can positively corroborate with empirical evidence, in case statements from ordinary people who live in slums, how hard life is. It's not difficult to see, with the world cup, Brazil's problems are on the spotlight. Yes I m sure there was a time when profit was made on real estate, currently prices are too high and the market does not move, I mean people dont buy and sell. Buying brand new properties straight from the constructors is still a good business tough. Normally foreigners when coming to Rio they live in the South Zone which is not bad, I think that is why many will always have a good impression.

1 member reacted to this post

James ViP

11272POSTS

11 years ago

#19

Hi Virgilio22,

While you might think that buying a home or apartment directly from the construction company is OK, I'm sure there are thousands of Brazilians who would disagree strongly with you. The lack of regulation and government oversight means that there are presently thousands of cases in the court system in this country of homes not being turned over to their owners for occupancy for years after the promised delivery date. We see new cases every week in the news where buildings were started and construction stops before completion, leaving everyone who purchased holding the bag. Just last week I saw on the news about a couple living in a wooden shed on the building site because they couldn't move into the apartment they had purchased (paid in full) because it hadn't been finished and they had no place to go.

Regarding the noise issue, it's not just tourists by any means, Brazilians are among the noisiest people you'll ever find. They hate silence, are absolutely phobic about it, they have to make noise in order to feel comfortable and have no sense whatsoever how it can bother those around them.

https://www.expat.com/forum/viewtopic.php?id=184765

Cheers,
William James Woodward, EB Experts Team

1 member reacted to this post

Virgilio22 New member

8POSTS

11 years ago

#20

Hi William,

I totally agree with you on both issues. About the housing bubble, it's true there is a risk buying from a construction company. Before doing that a lot of previous consultations must be done. I reckon I should have said "If at the end you successfully complete a flat purchase and manage to get the keys* it might be a good business". I m aware of the court cases, there are also a lot of delays to deliver the properties. Another issue about house prices in Rio, if at any point the UPP project fails and violence parallels to the levels of the late nineties, then prices probably will go down - except in the South Zone.
Yes, again about the noise, definitely the origin of the crazy noise is the brazilian people. Anyone just set up a bar near houses with no sound-proof doors, people cant rely on authorities (they will never help in these cases). I ve seen some surreal things here, a total lack of respect. I feel for the tourists who eventually get involved in such situations thinking everybody is happy. Lapa in the centre of Rio is probably the best example, locals are getting organised in order to take the city hall and state government into court procedures regarding the negligence in cases of noise pollution. In the early nineties there were these Funk parties on top of the hills, slums, favelas...It was so loud that windows' glasses of houses kilometers away were shaking all night. This is definitely not fair, if someone works and needs to sleep. So many issues, i could be writing a book...have a good night gentlemen, V.

VictoriaChandler Serial expat

283POSTS

11 years ago

#21

Hmm...after reading through all the replies in this thread, it seems that no one knows the answer. That is, we all have our predictions about the Brazilian real estate market, but only time will tell. Interesting discussion though...thank you for sharing all your perspectives!

GringogGene, you've lived in Brazil for nearly 30 years...would you mind sharing your detailed thoughts on the matter?

GringogGene Active member

31POSTS

11 years ago

#22

I don't know.

Gut feeling is, yes, the bubble will burst, but I have no clue as to when......6 mths, 12 mths.... who knows?

The Government is very interventionists, so normal economic principles do not apply. :-)

Throw in the exchange rate factor and it complicates even more ones ability to read the market.

This is why the poor guy you met today, was once rich and the rich guy you meet tomorrow, may will be a poor guy next year.

It is not a stable economy so there is no "feel good" answer to your question. :-)

1 member reacted to this post

paulopereirra ViP

1322POSTS

11 years ago

#23

Hmm...after reading through all the replies in this thread, it seems that no one knows the answer.

Prediction of macroeconomic & forecast is not a bullet proof science. But if you wish proper analysis for decision making process, in deth analysys can be acquire :

researchandmarkets.com/reports/2622807/brazil_real_estate_industry_outlook_to_2017#pos-0

researchandmarkets.com/reports/2779585/brazil_real_estate_report_q2_2014#pos-15

ask your fiance to conduct a research in Portuguese on the gov statistical and reporting entities.
What else ?

VictoriaChandler Serial expat

283POSTS

11 years ago

#24

It seems that things have somewhat changed since I wrote my original post in this thread about four months ago. From what I hear, at least here in Campinas, no one is buying right now - properties just aren't selling. My fiance and I currently have a "Let's wait and see" attitude.

How is the real estate market in other parts of the country?

James ViP

11272POSTS

11 years ago

#25

Economists and real estate experts are making 6 basic predictions for the balance of this year regarding the real estate market.

1. Real estate prices will drop slightly in some areas due to a much greater supply on the market than the demand. Manaus, Vitória, Brasília, Salvador and some cities in the West Central region of Brazil.

2. São Paulo and Rio de Janeiro will continue to have high real estate prices.

3. Generally speaking land prices will continue to be the major factor influencing prices of homes and apartments.

4. The profile of new home starts will probably continue the same as last year.

5. The pace of sales will be a bit slower.

6. Real estate financing should mirror 2013 almost exactly.

sambasp Banned

275POSTS

11 years ago

#26

No burst in Sao Paulo, just look for a good deal investment...
Good luck, take your time

moreto62 Guest

0POSTS

11 years ago

#27

Many people are suffering trying to sell . The think that their imoveis ..''''''''VALE''''''' 30% more than what the buyers are offering . so it will take 6mo to 1 year for seller to realize the the Party is OVER . I am in Balneario Camboriu and here the sales are down 300% according to real estate people i know . NOTHING SELLS ..only 30% discounted apartment sell .

VictoriaChandler Serial expat

283POSTS

11 years ago

#28

moreto62 wrote:
Many people are suffering trying to sell . The think that their imoveis ..''''''''VALE''''''' 30% more than what the buyers are offering . so it will take 6mo to 1 year for seller to realize the the Party is OVER . I am in Balneario Camboriu and here the sales are down 300% according to real estate people i know . NOTHING SELLS ..only 30% discounted apartment sell .

I was in SP over the weekend, and I saw people with signs and flyers trying to sell apartments for 30 - 40% off at intersections all over the city. My fiance said, "Wow, the real estate developers must be getting desperate."

VictoriaChandler Serial expat

283POSTS

11 years ago

#29

Just wanted to bump this thread. How are prospects looking for 2015? Will housing prices continue to rise? Will prices fall? If so, when?

The news doesn't offer any "new" information.

http://www.nasdaq.com/article/brazil-ho … 0106-00075 http://www.forbes.com/sites/kenrapoza/2 … ite-large/

frank4000 New member

5POSTS

11 years ago

#30

Well the exchange rate is more favorable now, as such the amount money to purchase from the US and EU will be a lower figure

VictoriaChandler Serial expat

283POSTS

11 years ago

#31

UPDATE: For the last month, my husband and I have been working with a real estate agent here in Campinas to try to find a property to buy. We have been looking at both houses (exclusively in gated communities) and apartments in Campinas and nearby Paulinia. For those of you that are looking to buy, I'd say that now is a good time to shop around. In my experience, sellers, at least here in Campinas, are more willing to negotiate these days because the real estate market has cooled considerably since the same time last year - according to one source, home sales have dropped by 11% since last April - and my agent told me that housing prices have dropped approximately 10% across the board (though the asking prices are still gasp-worthy). As a buyer, I'm hoping that prices will drop even more.

Also, I just don't see how the average middle class Brazilian can afford to buy property at these outrageous prices...even with financing. Between 2008 and 2014, the price of real estate in Brazil rose 200% on average...the highest increase of any country in the world. Did the growth of the Brazilian economy during those years justify this increase?

Well, currently, it seems that we have an inflated real estate market in the middle of an economic crisis...and while the "housing bubble" didn't burst overnight, I think it is slowly deflating.

How are things looking in your respective cities?

VictoriaChandler Serial expat

283POSTS

10 years ago

#32

What a difference a year makes! When I started this thread in May 2014, some of us on this forum predicted that the Brazilian real estate market would be fine...while others had a "wait and see" attitude...and still others, predicted doom and gloom. A year later, it should be obvious to everyone in every Brazilian city that the Brazilian economy is in deep trouble and that the housing market (at least in the major cities) has taken a hit. Just how bad are things? Well, speaking from personal experience, today during lunch, my in-laws in SP said that a number of small businesses in their neighborhood have recently closed.

My husband's company, which is a very large multinational electronics company with offices in Campinas, SP, Rio, and Manaus, will lay off approximately 10% of its employees by the end of this year...and my Portuguese teacher's husband's multinational auto company will also do the same.

My husband and I are still shopping around for a home here in Campinas, but at the moment, we are in no hurry to buy. We're taking our time until we find the right place at the right price because it's quite obvious that actual asking prices -which have fallen by around 10% or so- will fall even further. I've read every article written in English that there is to read concerning the Brazilian real estate market, and most sources say that the market is roughly 30% overvalued in many major cities throughout the country. For example, if you're looking at a place that's on the market for R$ 700,000...guess what? It's only really worth about R$ 500,000. Your real estate agent might try to convince you that the owner won't accept anything less than R$ 650,000...and the whole negotiation process might prove frustrating, but at some point, the agents and homeowners will have to wake up and smell the coffee.

If you are shopping for a house right now, you need to use this information to your advantage when you're negotiating. Remember, it's a buyer's market right now...houses aren't selling, people don't have money, banks aren't lending out money like they used to, and interest rates keep rising! Before things get better, things will definitely get worse, so as a buyer, please don't overpay for your house!

Just my two cents! Good luck to all the house-hunters out there!

James ViP

11272POSTS

10 years ago

#33

Yes, unfortunately the housing market all over Brazil (just like the rest of the country's economy) is reflecting the current level of dissatisfaction and concern about the present government which has been ridden with scandal upon scandal from the very outset twelve years ago.

Foreign investment has dried up, especially money coming in from the USA because American investors won't risk getting caught up in the Foreign Corrupt Practices Act, which could see them jailed for paying the bribes that are almost a necessary part of doing business in this country.

This is just one of the reasons that large multinationals are laying off employes and idling plants. Obviously this is going to effect the housing market bringing the prices down. I'd actually say that 30 percent is a reasonable, if not conservative, estimate of just how much house values are overpriced.

If you're buying, stick to your guns on prices. Don't ever pay the asking price and don't even accept the first counter offer made by the seller, unless of course he/she drops at least 30%. Also bear in mind that money talks very loud here and since most expats are purchasing homes with cash (as opposed to financing) that means a quicker, more hassle free transaction for the seller and that means money in his/her pocket. That alone is worth a discount on the selling price, over and above the inflated market prices.

Cheers,
James Expat-blog Experts Team

ClaudioD Active member

85POSTS

10 years ago

#34

I both an apartment last month , I paid for it 210 000 R$ , the initial price was 220 000 R$ . Hurts like hell but I was tired to wait for the prices to drop and in the meantime spending good money with the rent .

Cabo Frio Active member

55POSTS

10 years ago

#35

The downturn in the housing market has just started - if the asking price is 1.000.000 it will be 3-400.000 one year from now. There are houses/apartments for sale everywhere but most of the sellers seem to think we still have a sellers market and unfortunately the brokers are no use at all - they just ask the seller what he/she would like for the property without any guidance on what the market is.

Any expat has to remember that the statistics are not to be trusted and that the Imobiliares are just listing as many properties as possible without any guidance - it does not work as you are used to in your home country !!!

And dont forget that the reais is still dropping - it stopped for a short while due to the very high interest rates from the central bank - which they keep to tame the inflation - as soon as this start dropping the reais will continue dropping.

VictoriaChandler Serial expat

283POSTS

10 years ago

#36

Cabo Frio wrote:
The downturn in the housing market has just started - if the asking price is 1.000.000 it will be 3-400.000 one year from now. There are houses/apartments for sale everywhere but most of the sellers seem to think we still have a sellers market and unfortunately the brokers are no use at all - they just ask the seller what he/she would like for the property without any guidance on what the market is.

Any expat has to remember that the statistics are not to be trusted and that the Imobiliares are just listing as many properties as possible without any guidance - it does not work as you are used to in your home country !!!

And dont forget that the reais is still dropping - it stopped for a short while due to the very high interest rates from the central bank - which they keep to tame the inflation - as soon as this start dropping the reais will continue dropping.

Hi Cabo Frio,

I'm just curious...what are you basing this prediction on? "The downturn in the housing market has just started - if the asking price is 1.000.000 it will be 3-400.000 one year from now." Statistics? Gut feeling?

I also think that the Brazilian housing market will look very different a year from now...however, please excuse me because I can't help but be skeptical of your prediction of a 60 - 70% drop in values. As I stated in my previous post, the housing market in most of the major cities seems to be roughly 30% overvalued at this time...I don't know what the market will look like a year from now, but I think that a 60% drop could be devastating for the Brazilian economy (though good for home buyers) and personally, I don't think the Brazilian government would allow it. I haven't been in Brazil long but I have learned one thing very quickly: the government here is very manipulative (as well as incompetent), therefore, one cannot expect natural forces in the market to dictate prices in this country! I think GringogGene said it best in his post above: "The Government is very interventionist, so normal economic principles do not apply."

I wholly agree with you about Brazilian real estate agents. I think that most of the corretors/corretoras here have absolutely no clue about anything. A capable real estate agent in the United States would temper the expectations of the seller and buyer according to the current market, but Brazilian agents are just listing properties like crazy at last year's prices without regard to the market. As someone who is looking for a home at the moment, working with our corretora has proven to be a frustrating experience. She is a nice woman, however, she knows zilch about nada!

Personally, what's even more frustrating is that back in the States, we have websites like Redfin that tell prospective buyers everything about a property:

When was the home last sold? For how much?
How long has it been on the market at the current listing price?
Was the price recently adjusted? If so, when? By how much?
Is there an offer pending?
Has the home recently been repossessed by the bank?
How many bedrooms and bathrooms? Square footage? Year built?
How much are the property taxes?

Also, sellers can use the same websites/resources to check how much their home is worth based on recent neighborhood sales of other homes that are similar to theirs. This wealth of information...this "transparency" is such an invaluable resource to both buyers and sellers in the U.S. Here, in Brazil, when I ask questions to my corretora (beyond the standard questions such as how many square meters, beds/baths), she either doesn't know the answer or she tells me that she will have to get back to me.

1 member reacted to this post

Bardamu Serial expat

607POSTS

10 years ago

#37

Market slowed down 2 years but did not crash...and I do not know why. And now it is getting worse. Word Cup did not change things. Corruption scandals stop big investment. Internatioanl investors returned in their country. Nobody care anymore about Rio Olympics because they know it will only cost a lot and it will nothing. To resume: economy parameters are all red (no grow, unemployment countinue to grow, huge stock of flat, no credit). In a develpped country, it would signal a crash, not here.
Cleary there is a demographic presure: Brazilians leaving poverty and buying property for the first time.
But I am puzlled how a lot of investors seem happy to keep property price high and leave flats unocuppy for years...I do not know how it is possible but it is. Arround me in Fortaleza, new flats do not see well and I see a lot of unocuppy flats. I believe a lof of properties come from non-declared businesses which is 20% of the economy in Brazil and much more in the Nordeste (without speaking about crime). So these people still prefer to buy properties than keeping their cash under their matress or at the bank.

1 member reacted to this post

spanishpete Serial expat

772POSTS

10 years ago

#38

the Housing bubble seams to be dropping here in Iguaba Grande, I was told the other day someone sold one acre (4500smts) of land with a house on it for R$70,000, and that's cheep
and have you seen the Pound real rate today £1. to R$4.98

VictoriaChandler Serial expat

283POSTS

10 years ago

#39

Bardamu wrote:
Market slowed down 2 years but did not crash...and I do not know why. And now it is getting worse. Word Cup did not change things. Corruption scandals stop big investment. Internatioanl investors returned in their country. Nobody care anymore about Rio Olympics because they know it will only cost a lot and it will nothing. To resume: economy parameters are all red (no grow, unemployment countinue to grow, huge stock of flat, no credit). In a develpped country, it would signal a crash, not here.
Cleary there is a demographic presure: Brazilians leaving poverty and buying property for the first time.
But I am puzlled how a lot of investors seem happy to keep property price high and leave flats unocuppy for years...I do not know how it is possible but it is. Arround me in Fortaleza, new flats do not see well and I see a lot of unocuppy flats. I believe a lof of properties come from non-declared businesses which is 20% of the economy in Brazil and much more in the Nordeste (without speaking about crime). So these people still prefer to buy properties than keeping their cash under their matress or at the bank.

Bardamu, in the past few months, my Brazilian real estate agent has shown me several properties that had been built anywhere from 6 months to 5 years ago. Some of these properties had active wasp nests the size of a big beach ball and had cobwebs and dead insects littered throughout the house.

I assume that the owners were just sitting on these properties hoping that their values would continue to rise, and now that the market is in trouble, they are trying to get these properties off their hands. While I'm no expert, I noticed that some owners seemed more desperate to sell than others. I met one guy who was trying to sell 4 units in the same apartment building. I don't know how much he bought each unit for, but I'm certain that he purchased them before the building was built. Anyway, the poor guy looked pretty desperate.

Another problem in Brazil is inflation. I just read an article that said inflation is now at 8.89%!
The government's target is 4.5%! So, basically, the economy is in the dumpster, people are losing their jobs...and yet, the cost of living keeps rising! Higher inflation - among the major countries, only Russia has a higher rate of inflation - also means that the money we have in our accounts is losing its value every single day that it continues to sit in the bank! So, this country doesn't even reward the people who work hard to squirrel their money away in their savings accounts. What sort of f*ckery is this? Basically, we are being screwed on both ends. It's no wonder that many Brazilians think that buying property is their only safe bet. However, most Brazilians can't afford to buy property at today's prices...and even if they could, they wouldn't be able to afford sitting on their property until the economy improves.

My sources:

http://www.tradingeconomics.com/brazil/inflation-cpi http://www1.folha.uol.com.br/internacio … 2003.shtml

The Brazil expat guide

Comprehensive and free

Read it now

Cabo Frio Active member

55POSTS

10 years ago

#40

Hi again

I am basing my prediction on the same as you - i keep reading and talking to people. According to the statistics i have read - 60% of households use 2/3 or more of their monthly income to service debt and 46% is more than 2 months behind on their payments.

Any dowturn in brazil will be much more severe than in us just because there is no safety net. Then some will argue that this will not happen because a large part of the economy is outside of the official statistcs. Maybe, but there is a lot of people who used to be out of the official economy who have been using credit cards and buying houses/cars the last few years.

I am from northeren europe myself but i have been working in a management position in the offshore industry here in brazil a few years and all of my brazilian colleagues are very afraid - all of them have many stories of colleagues who have taken on to much debt and are unable to repay - and among the so called new middle class it is much worse.

1 member reacted to this post