Brazilian housing bubble? When will it burst?

Hi
it seams to me Brazilians don't want to talk about the way things are going on here, I base this on, every Brazilian ive spoken to and this included my wife who's Brazilian never want to talk about bad things and what will be
its a case of head in the sand mode
estate agents always only look after themselves, they will try to talk you into buying what ever the selling, that's there job
I know this from buying the house I live in, the estate agent was trying to sell me land here in Iguaba Grande, for more money that I can buy land in England,, but once he realised I was not stupid, 
i believe, that what's going on with the property market at the moment has gone on before, And agene where i live, their is loads of dilapidated and rundown property's where has started to build and could not pay to finish, and have just run away,

The reason that most Brazilians can't manage debt and get themselves into deep trouble is that they've never had the chance to learn how to managed debt.

Only recently personal credit of any kind was made available, yes you could get credit cards with their astronomical interest rates if you were fortunate enough to have a decent job and a checking account. However, personal loans of any kind, consumer loans, cars even mortgages were almost unheard of and if you could get one through the Caixa Econômica Federal you were very fortunate indeed.

This is why ALL of the major chain stores, Casas Bahia, Ricardo, Americanas..... all of them have their own credit departments where you can buy on installments (carné), they finance the purchase themselves. People end up paying twice the selling price for the item if purchased in cash.

I'm sure if you ask the average Brazilian if a bank financed his car, the answer will be a resounding NO in most cases, the vast majority of banks won't finance cars simply because they're too risky. Private Finance Companies exist and trive on this risk, and unless you total off your car, they can always resposess it if you default on the payments.

As a result Brazilians, especially the poorer ones, who see and want what everybody else has don't think about tomorrow, they purchase on installments and end up with debts that they can't handle. In most cases they just walk away from those debts and wait the number of years for it to be automatically wiped off their credit history.

Cheers,
James   Expat-blog Experts Team

Cabo Frio wrote:

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.

Yes, I also know some Brazilians that are seriously in debt. I don't think they're in danger of defaulting on their home loans or credit cards, but I do think that they're feeling the squeeze in this current economy as the cost of living continues to rise because as James said in his post, a lot of Brazilians "have never had the chance to learn how to manage debt."  In the United States, I knew very few people who paid all cash for their car or home even if they had the money in their banks because managing cash flow and financing is a way of life in the States. However, from what I understand, financing/personal credit is a fairly recent advent here in Brazil.  I hope that our Brazilian friends will do a better job of managing their personal credit than some American friends that I know...because not everyone is good at it. 

The latest news on the Brazilian real estate market...

http://riotimesonline.com/brazil-news/r … o-decline/

"The effects of an ailing economy and slowly rising unemployment rates have led average prices of residential real estate rentals in Brazil to decline by 1.30 percent over the past twelve months, according to the FipeZap index for July. This drop is happening despite a steady increase in inflation, which is forecasted to reach over nine percent by Brazil's Central Bank."

http://www.bloomberg.com/news/articles/ … ebt-relief

"Home sales in Latin America's biggest economy tumbled 14 percent in the first half of 2015, according to data from the national real estate institute. Builders cut new projects by 20 percent during that span, while available financing shrank by about a quarter."

Now, if only housing prices would fall in line with home sales and tumble as well. (Potential homebuyer here!)

But then again, this is Brazil...anything can happen here. Home sales are down by 14% but due to 10% inflation, homeowners may think their homes are worth more than they were last year. 

Yes bad news again and again but real estate market is not crashing. I believe prices are flat for some years (which mean reduced relatively to inflation) but difficult to know exact sold price, how many are sold and how many flats are unoccupied. There is no transparency about that like we could see in developed countries. We see more people in the streets distributing flyers about new condo projects so this is certainly a sign.
Where slow down is much clearer is for commercial real estate. I can see a lot of unoccupied shops in main Fortaleza streets. And not any new shopping (malls) are occupied at 100%.
If it is for long term and because the Real is so low (vs USD, Euro or Pound), I believe it is a good timing to look for opportunities. Looking at best location in priority and old/semi-old. Brazilian cities continuing growing, public transport underdevelopped, so a an appartment in a nice and central bairro not far from work can be only a great investment.

JUST FYI. I live in Campinas, and in the last 6 months, I've personally looked at the following properties and have seen their prices slashed. Also, even though the prices have been lowered, I'm positive that the owners would be willing to negotiate even further because even at the lowered prices, the market is way overvalued.

1. An older 3 bedroom, 2.5 baths house in a gated community with 190 square meters of indoor space (that needs to be completely remodeled for R$ 100,000 MINIMUM) was listed at R$ 720,000 when we saw it back in July... is now listed at R$ 680,000.

2. A brand new 3 bedroom, 3.5 baths "bare bones" house in a gated community (needs everything except toilets and sinks in the bathrooms) in nearby Paulinia was listed at R$ 730,000 and then fell to R$ 690,000 when we saw it in May and is now listed at R$ 650,000.

3. A 2 bedroom, 2.5 baths apartment with 88 square meters (that needs very little remodeling) was listed at R$ 580,000 when we saw it back in April...but was listed at R$ 560,000 as of August 30.

4. A brand new 2 bedroom, 2.5 baths "bare bones" apartment with 90 square meters (needs everything except toilets and sinks in the bathrooms) in an upscale neighborhood was listed at R$ 640,000 when we saw it in April...but was listed at R$ 620,000 as of September 6.

I'm neither an expert nor a genius, but based on all the information I gathered from the Internet (even before the Petrobras scandal erupted), I had been predicting a drop in property values since May 2014, which was 5 months before I moved to Brazil. I moved to Brazil in September of last year, and though a few Brazilians speculated that prices might go down AFTER the 2016 Olympics, almost every single Brazilian I met told me, "Nope...housing prices won't go down. Nothing ever goes down here in Brazil."    I guess they were wrong.

there's a hell of a lot of property's for sale, much bigger then what your talking about, cheaper that what your talking about and at a much equipped  then what your saying, in Iguaba Grande, but don't ever go by the estate agent price

spanishpete wrote:

there's a hell of a lot of property's for sale, much bigger then what your talking about, cheaper that what your talking about and at a much equipped  then what your saying, in Iguaba Grande, but don't ever go by the estate agent price

I'm sure you're right - I don't doubt it.

However, Campinas is not a cheap city - it is the "Silicon Valley" of Brazil  and is almost on par with SP in terms of the cost of living, especially in its nicest neighborhoods.

it will all end in tears,
the country side is where to be or very small towns

Camboinas SP the southern hemistphere San Francisco !  - you did not beleive that did you ? There is a few neighbourhods in SP that probably will sustain a downturn but Camboinhas is not one of them.

What would make Camboinhas similar to San Francisco ? Why would this city avoid the general dowturn ?

Cabo Frio wrote:

Camboinas SP the southern hemistphere San Francisco !  - you did not beleive that did you ? There is a few neighbourhods in SP that probably will sustain a downturn but Camboinhas is not one of them.

What would make Camboinhas similar to San Francisco ? Why would this city avoid the general dowturn ?

Umm...I never said that Campinas will avoid the general downturn. (If you read my other posts, I've actually been predicting a drop in prices for awhile now and in my last post, I even gave you price drops for houses and apartments that I've seen with my own two eyes.) What I did say is that currently, prices in Campinas are practically on par with SP's prices. Hope this clear things up for ya! 

My husband and I are in escrow on an apartment right now. We managed to negotiate the asking price down, and while I don't think we got a great deal on it, I think the price was fair considering the condition of the place and its location. (It's a beautiful apartment that doesn't need any renovating and is located on a lovely street in the most desirable neighborhood of our city, so we didn't want to pass it up.) If everything goes smoothly, we'll be homeowners by the end of October. Wish us luck!

I wanted to share the following story:

I know another couple who is also shopping around for an apartment in our city. A month ago, they looked at an apartment that was listed at R$ 820,000 and fell in love with it. They put in an offer for R$ 800,000 and the owner countered at R$ 810,000 but said that she would take all the air conditioners.    My friends said, "Thank you, but no thank you," and moved on. (In reality, my friends realized that they couldn't afford the apartment even at R$ 800,000.) A month later, the owner contacted them and dropped her asking price to R$ 770,000.    She is still asking for too much, so my friends will pass...but this just shows that homeowners are starting to wake up to the reality that it's currently a buyer's market right now. I don't think the owner of this particular apartment will find a buyer who's willing to pay over R$ 720,000 (and even at this price, it's not a fabulous deal) - in fact, I think that savvy buyers could get away with even less.

Not a lot different with the rental market either Victoria.

In Greater São Paulo, most rentals are administered by real estate agencies, simply because the owners don't want to be bothered with looking for tenants, collecting rents, working out contracts, maintenance, etc. Of course they pay a monthly fee for this service and in many cases a front-end load to the administrator as well.

I've seen houses and apartments that were priced well over the market for the neighborhood that have sat empty for months on end, in some cases even years as a result because the agent won't drop to a price that decent tenants are willing to pay. They don't want to accept a lower administration fee that a lower rent brings with it, and since they get paid the fee whether the property is rented or not they're intransigent.

Meanwhile the owner of the property, who is sleeping at the switch, and probably is as greed motivated as the realtor loses a small fortune waiting for that sucker that P.T Barnum says is born every minute to come along and take the overpriced rental. Sometimes they do and sometimes they don't, but the owner always comes out on the losing end because of inflexibility and lack of savvy.

Cheers,
James     Expat-blog Experts Team

Just remember the prices for houses on the internet can be overpriced as high as 50% to 70% .It's called "The Gringo price".It's crazy how much foreigners will overpay for a property. You have to buy in person and it's great to know a local .

rc206 wrote:

Just remember the prices for houses on the internet can be overpriced as high as 50% to 70% .It's called "The Gringo price".It's crazy how much foreigners will overpay for a property. You have to buy in person and it's great to know a local .

Yes, I agree that one should NEVER buy a property over the Internet.

A lot of well-to-do Brazilians also overpay for real estate...it seems that the more one has, the more one needs to flaunt his wealth by overpaying for real esate, cars, etc. Here in Campinas, we have a lot of fancy apartments in gated communities that are going for R$ 1,500,000 a pop...and they're selling, too! Granted, these apartments are HUGE (182 square meters), and they come with all the amenities that Brazilians like: high walls and gates to keep out unwanted "guests," 24-hour security, a state-of-the-art gym, a heated indoor swimming pool, etc.  If you've got A LOT of money, Brazil can be your playground. But that's the problem, isn't it? In this country, we have a small percentage with too much money, and too many with too little.

One of my students lives in this building in a similar apartment...she also attends a private American school that costs R$ 4,400 a month in tuition.

http://www.vivareal.com.br/imovel/apart … -56497539/

Oh.....you mean not everyone has a heated pool like that....I know there's one downstairs where I am staying right now

stevefunk wrote:

Oh.....you mean not everyone has a heated pool like that....I know there's one downstairs where I am staying right now

Yup, that's what I meant.

This is what the heated indoor pool at Galleria Wonders looks like...this isn't the actual pool, but the real pool is just as nice.

in brazil the property price is not too much expensive but it depent on location to.

Reporting from São Paulo, Capital

Prices have taken a considerable drop from 2-3 years ago.

Those folks who held prices, stating the value of their properties are starting to feel the pínch  on  paying  to keep the property at asking rate.   Condo Fees, Taxes, maintenance costs. 

And then there is the inventory oversupply in some areas, thanks to developers' insane desire to build on cheap money, in hopes to cash out on sales.

The rise of condo fees and property taxes in São Paulo also have influenced sellers in getting rid of their apartments and look for places where it is cheaper  to live and to untangle themselves from the burden of paying a higher cost of living in a prestigious neighobhood or a larger apartment / house.

The lack of available cheap money has forced entrepreneurs to sell off their assets to have access to cash. 

Also new neighborhoods, once deemed unworthy of  investing or living, have all the sudden gotten a new lease on life, thus competing with more established neighborhoods for the buyer's  checkbook.

Now it does not mean every seller out there.  is willing to give up the family crown jewels, just as you start to peel off the bills.

What I've witnessed is a change of perception as to what the seller's property is worth. 
I am getting calls from owner to discount the advertised asking price.

Prices are flat for about 5 years. The bubble didn't burst but relatively to inflation, this is serious loss of value. So I don't think it will burst. Overall people are a bit more positive now about the economy.
I bought an appartment in 2017 at the same price that the owner bought in 2011 "na planta".  I bought it actually when the appartment was ready to be delivered and the owner had to pay the remaining 50% to take the official owernship.
For people new to Brazil retail property; bank credit is overpriced, so it is only used for second hand sales, small amount and for short period (2-3 years). For new built properties, Building companies offer quasi free credit (especially during hard time like know). You pay 10-20% of the value at signature, then pay mensuality during 3-5 years, to reach 50% just when the appartment is ready to be delivered. Then you pay the remaining 50% to get proper ownership and occupy the property.
You can find the best deal when people need to sell when reaching the "re-pass" of 50%.

If there's a bubble, it's regional, and not here in Manaus.  We're in the process of buying a very nice apartment, at a reasonable price.  Our opening offer was accepted as soon as we said the magic words, "à vista".
I'm a little concerned about resale, but we plan to be here at least five years.  A lot can happen, good and bad, in five years.

Here's a real one. 
Apartment in São Paulo, Bela Vista, 2BR 1pkg 98m².
Older building, otherwise painstakingly maintained grounds. 
Her unit on the 12th floor, PM Sunlight.  Immaculate kept, just needed some touches from a new owner, livable as it was.
About R$ 980 condo, and R$ 76 yearly tax bill ( I kid you not )
Asking price was R$ 750.000,00 about 10 minutes from Paulista.  Took the Listing in mid 2017.
Call me a few days back, April 2018 , reducing the price for a quick sale at R$ 690.000,00
Sold by a competing broker on May 2nd. 

So, short, simple and sweet, stuff gets bought and sold in São Paulo, for as long as it is on the right price.

Hi James, not sure if this is still open but really hoping to contact you for some advice please. I wish to purchase in a new condominium in Aracaju which I have seen   Just unsure about how one would go about transferring the funds from UK to Brazil and if there is any advice on risks to be mindful off. Also how one would source a good Lawyer to thr due diligence fr the purchase. I do not live here in Aracaju but am here every 2nd month for 3 weeks. I have a brasilan fiancee and soon to be 8 month bany. Also any idea n the taxes due?
THANK YOU MKP