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What is Driving the Affordable Housing Boom In Brazil?

Todays Date: December 12, 2018

Figures just announced by Caixa Economica Federal, Brazils government-owned savings and mortgage bank show a marked increase in housing loans in Latin Americas largest and most stable country. 2009 saw in excess of R$17.4bn of home loan lending, an impressive 340% increase over 2005s figure of R$5.1bn.

With Brazilian interest rates have falling steadily over the last few years, reducing from 19.75% per annum in August 2005 to 8.75 per cent in July 2009.

This is a result of the Brazilian Governments series of anti-cyclical measures to boost growth since the onset of the global economic crisis. The most important of these is Minha Casa, Minha Vida (My House, My Life) which at a time when Brazils construction industry was heading into decline after several years of strong growth has reinvigorated the housing.

Minha Casa, Minha Vida will pour an impressive R$60bn into Brazils housing market, and with the construction industry accounting for 5 per cent of Brazils GDP this will give a valuable boost to employment and earnings.

The Brazilian contractor, Goldfarb Construction, says his company will build 12,000-14,000 properties with this scheme in mind over the next year. Their President, Milton says This will provide about 70 per cent of our business this year.

However, the projects of Minha Casa, Minha Vida are not the only indicator of a construction boom in Brazil. Of the 23 new listings to the Bovespa, Sao Paulos Stock Exchange, this year, 11 are property developers, many of whom have aimed at the top end of the market. Yet it is widely recognized that this sector may be reaching saturation for the domestic market, while the real demand is among the middle and lower income groups.

It is Caixa Econmica Federals role to encourage the development of this property sector and it does so at subsidised interest rates which commercial banks cannot match. The Bank allows people earning up to three times the national minimum wage of R$465 a month to buy property up to a value of R$52,000.

The level of these subsidies varies in line with earnings, so for example a family earning one minimum wage can expect the scheme to contribute a whopping R$46,000 ” leaving the purchaser to provide just R$6,000. This R%6,000 is borrowed from the Caixa and repaid in 240 highly-manageable installments of just R$46.50 a month.

Douglas Munro, Sao Paulo president of US-based developer Hines, explained that one of the major reasons for this important advance in lending was the approval in 2004 of a new law providing increased protection for lenders by allowing them to foreclose on non-payers and seize their property in lieu of payment.

Hines is one of the few large developers already concentrating on the lower and middle income bracket, building homes costing on average R$100,000, for families with a monthly income of around R$2.500. Whilst these families are certainly not poor by Brazilian standards they are far from wealthy.

Both Caixa and Hines say There is no bubble ready to burst, but investors need to be aware of the future outlook and not be blind to the pitfalls of doing business in Brazil.

Eduardo Collins is a consultant to Urban Land Brazil and is a consultant to Urban Land Brazil and wrote the article Affordable Housing in Brazil and recommends you visit Urban Land Brazil for more in depth information information about land investing in North East Brazil.

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