Interview to Money and Business Show with Samuel Ezerzer
Interview to Money and Business Show with Samuel Ezerzer
Radio Shalom- Montreal Canada – May 9, 2012 th 4 pm – 5 pm
www.radio-shalom.ca
By: Marcelo Sicoli- Executive Manager at Enterbrazil
Brazilian Real Estate market Questions and Answers – May 2012
No dia 9 de maio 2012 demos uma entrevista sobre economia e mercado imobiliario no Brasil pra uma radio no Canada. "Curta" minha publicação no facebook para fortalecer o feito. OBRIGADO!
Listen at: http://www.radio-shalom.ca/mp3/Programs/1042/2012-05-09-Real-Estate.mp3
1- In
order to understand the Brazilian Real Estate market, it's important
to have an overview about the current political and economic
situation of the country.
Can
you briefly paint this scenario ??
Brazil
is the fifth largest country in the world in terms of territory, with
almost 200 million inhabitants. Portuguese is our official language,
unlike many of our neighbors which speak Spanish. The largest cities
are Sao Paulo (business capital of the country), Rio de Janeiro,
Salvador (in the northeast of the country) and Brasilia (political
capital and where i'm based). Good
investment opportunities are not restricted to these cities.
Brazil in 2011,
surpassed the UK, to become the sixth largest economy in the world.
The
2012 A.T. Kearney FDI Confidence Index ranks Brazil in the third
place in terms of willingness to investment by top global executives,
ahead of the USA and only behind China and India.
In 2010,
Brazil jumped to 5th place ranking in attracting foreign investment
from 2009 to 2010, or 10 positions, according to report of UNCTAD.
The Country received U.S. $ 48.4 billion and attracted 3.9% of direct investments in the world, a figure 86.7% higher than the $ 25.9 billion attracted in 2009.
Brazil
only lagged behind the United States, China, Hong Kong and Belgium in
the ranking of preferred destinations of the flows global foreign
investment.
In
2011, we received US$66,6 billion placing Brazil in the 4th
position worldwide.
We have a
Woman as a president now. Ms. Dilma Rousseff who replaced president
Lula who stayed in power for 8 years or two terms.
Although
at a slower pace, the class C has continued to grow in Brazil in
2011. The participation in this social stratum total population was
54% last year,. In 2011 class C received 2.7 million Brazilians in
2011. Today, 103 million people are part of this class.
To
belong to the class C in Brazil an individual needs to have an
monthly income of R$1115(around US$620) to R$4800( US$2670).
Today
in Brazil 54% are in this middle class, 11% in upper middle class,
24% in lower middle class and 11% are considered extremely poor.
Brazilian
economy is expected to grow at 4,0% from 2011 to 2014, from a small
growth of 2,7% in 2011
Most
importantly four major events/trends tend to attract huge investments
or to propel development in infrastructure:
1-
Pre-salt
exploration. Brazil is a world
leader of extracting oil from deep waters. Many foreign companies are
willing to explore this market directly or to be a service or product
provider to PETROBRAS, the largest company in Brazil.
2-
Brazil has a housing deficit of 8 million residential units.
In
2009, under president Lula a program called “My house, my life”
was launched aimed at building 1 million homes for low income
individuals. After 2 years they were able to build just half of this
and in 2012 president Dilma launched “my house, my life 2”, with
the goal of building 2 million homes at this time. The housing
deficit in Brazil nowadays is roughly 8 million units.
Most of this deficit in the poorest income bracket (below two
minimum wages). The minimum wage in Brazil R$622( is equivalent to
US$345)
3-
World cup
of soccer in 2014. The event will be
held in 12 different cities.
4-
Summer Olympic
games in Rio in 2016. In 2007 the
Pan-American games were in the city with great success so part of the
infrastructure is already prepared.
All
these 4 events or trends if you wish will generate
and demand billions of investment in
transportation, sanitation, housing, stadiums, telecommunication,
security and infrastructure in general. Airports and ports in Brazil
in general are not very good. Maybe the work will not be completed on
time for the events. Nowadays, the construction sector accounts for
20% of the Brazilian GDP,
So summing
it up: Pre-salt oil exploration, millions of houses that have to be
built(8 million) , especially for the poorest Brazilians, World cup
of soccer in 2014 and Summer Olympic games in 2016 in Rio de Janeiro.
2-
Marcelo, Foreigners (here I say Canadians and Americans) many times
tend to see Latin American countries as being the same thing. How
would you differentiate Brazil with other neighbouring countries like
Chile, Bolivia, Argentina etc.
Samuel,
inexperienced
international investors tend to see Latin American countries as being
the same thing. Actually, countries are very different. With
different levels of development, and with huge differences in terms
of political organization and economy.
Since we
are talking about the Brazilian Real estate, I would tell your
listeners that as far as safety is concerned Brazil is a very safe
country. Laws are respected (unlike things we saw recently in
Argentina and Bolivia that I don’t want to detail here).
In the
Real Estate market, either in the eyes of a small family who is
buying its first property or through the eyes of a big corporate
investor, they will deal with big companies. Usually companies with
stocks in the Brazilian stock exchange, who tend to be very serious
and professional. There are no hidden fees, paying off officials or
any kind of bribery involved.
Very
important information is that historically interest rates in Brazil
(for loans in general, or for remunerating the Brazilian bonds) were
among the highest in the world.
President
Dilma, is making serious efforts to start a constant decrease in the
interest rates. A lower basic interest rate will result in lower
remuneration for investors in fixed income or Brazilian bonds, and
also increase consumption in general (electronics cars etc) as well
as because it becomes cheaper to finance a house or any consumer
good. Nowadays the interest rate on a loan for residential properties
will range from 8% to 12%.
3-
Talking more specifically about the construction sector in General.
What are the most important trends? How the Government is acting
towards this?
Pre-salt
oil exploration, millions of houses for the poor, World cup in 2014
and Olympic games in 2016 are important elements to foster
development and investment.
The
construction sector in Brazil, especially the one focused on the
housing market has been growing constantly in the last decade. This
generates an increase in prices of land. Also increase in prices of
machinery and heavy machinery and inputs (concrete, material in
general) which reflected in an increase of prices of houses in
general of course.
Due to
the shortage of specialized labor in the civil construction (here
including very qualified professionals like engineers and managers as
well as blue collar workers) salaries in the construction industry
have grown substantially.
It's
interesting to note, that While Brazil makes up about 40 000
engineers a year, Russia, India and China make up 190,000, 220,000
and 650,000, respectively.
According
to estimates by the Federal Council of Engineering Brazil has a
deficit of 20 000 engineers per year. In the country's 600,000
engineers, equivalent to six workers per thousand workers. In the
United States and Japan, the proportion is 25 engineers per thousand
workers, according to publications from ministry of Education.
In
the recent years one could see the IPO of many construction companies
or companies directly linked to them like real estate companies.
Nowadays in BOVESPA (the Brazilian stock exchange) there
are 5 companies selling construction material, 23 in properties
construction (including residential, corporate buildings and shopping
malls), like Cyrela, MRV, Brmalls, Gafisa, Tecnisa, Brookfield etc
and few others in construction retail, consultancy, commercial
brokerage and so on.
So from
2006 , on these companies raised a lot of money in the stock
market(through IPOs), a great part of this money coming from
international investors(around 75%). These companies went to the
market to buy land to build their projects and started many
constructions at the same time. The companies then realized they were
not capable of having so many projects simultaneously (due to lack of
material, workers, management skills, etc) many buildings ended up
not being delivered on time……….. People got mad because of
these delays…..and even moved a few lawsuits on these companies
etc.
Finally,
it's important to mention that although Brazil is facing this
“so-called” real estate boom, the stocks of these companies in
general were not performing well in the market. Their prices lost a
lot of value recently.
4-
Going more in details about the real estate market in Brazil, I
understand that prices have increased a lot recently. In cities like
Sao Paulo, Rio de Janeiro or Brasilia even an upper middle class
family is not able to finance most of the new residential buildings.
How is that?
As I told
in the beginning The housing deficit in Brazil nowadays is around 8
million units. Most of this deficit (let's say 90%) in the poorest
income bracket (below two minimum wages).
The
minimun wage in Brazil R$622( is equivalent to US$345)
Dilma
lauched “my house, my life 2”, with the goal of building 2
million homes at this time. However, when you are talking about homes
for the middle class the prices of houses and apartments grew a lot
recently. Although, in my city (brasilia) for example you can see an
immense offer of units. There are huge neighborhoods with those high
buildings which were born no more than 10 years ago with hundreds of
units available. Despite of that, prices still are going up.
Last
year( 2011) our country had a real estate valuation on prices of 28%
compared to 2010, only behind India, whose index was 35% . From 2009
to 2010 the increase on average stayed at 24%. However, the growth
will be more modest in 2012.
In
the last year three years an increase of more than 50%.
So
when you think of Real estate as a form of investment, it was indeed
a good one. Very few financial investments (like stocks, funds, gold
etc could generate this kind of return). But these huge jumps in
prices are not expected to be seen this year neither in the following
years.
Sometimes
when you think of an average income of an upper middle class family
and the price of some apartments in good neighborhoods in Sao Paulo,
RIO or Brasilia, it is just impossible for them to think of buying
them. So a few families find a better deal to rent apartments instead
of buying.
Although,
recently the basic interest rate in the country (regulated by the
Brazilian central bank)
has been lowered again, making loans in general cheaper for
consumers.
In
Brazil a long term loan for buying properties, will have a interest
rate ranging from 8% to 13% per year. One
individual can compromise up to 30% of its income and finance the
property up to 30 years.
Just
opening a quick parenthesis, Brazilians in the last years have
invested A LOT in the American real estate market, especially in the
State of Florida, city of Miami. I have even written an analysis
about it. Brazilians would see a price of a luxury building in Miami
and compare it to options available in Brazil, to be shocked by the
difference. Miami was much cheaper than most major Brazilian cities.
So a few people (of course rich Brazilians) decided to buy a second
home in Florida for leisure only.
5-
Marcelo, as we every now and then say in our program, 2 jews, 3
opinions. I know that you are not jew, but of course in the Brazilian
Real Estate market there are two ways of seeing this recent spike in
the prices.
Could
briefly tell us why some think there is a bubble and why some think
that there isn’t?
Is
there a real estate bubble in Brazil ??
There
is a big debate over this here in Brazil Samuel.
A few analysts believe that prices just underwent a phase of
readjustment, since they stayed low for many years. Besides,
considering the recent economic stability of the country, which
enables people to make long term plans and well as more money
available for loans and an increase on the purchase power and income
of families, there is not a bubble.
Another
fact worth mentioning is the most of purchases of real estate in
Brazil (either residential or commercial) are done by final users.
Investors
represent no more than 15%. Besides, when you compare the Real estate
credit as a proportion of GDP, Brazil has a still a lot of space for
development.
In
Brazil, only an equivalent to 5%(repeat 5%) of the GDP goes to
housing credit,
while in countries like Mexico you have 11%, Chile 18,5%, UK (87%)
and in the USA, who has an economy 7 times larger than the Brazilian
around 81%. So there is as I said considerable room for increasing
the credit in Brazil, which represents only 5% of its GDP.
6-
What the pessimists say about it?
Well,
the pessimists don’t believe that the bubble will burst as you saw
in the USA with properties losing a lot of their value.
However, as I said in many regions prices are so high that regular
families are not able neither to buy nor finance them. Besides, a
regular and very conservative financial investment in Brazil, like a
savings account will pay you free of taxes a net 0,5% per month, many
apartments in major cities we have mentioned are not being rented by
0,5% per month of its
price. So in a few cases, it's a good moment to sell properties and
invest your money in something else.
I have already told my parents about this. They have always invested
in properties to earn rents. I told them to choose one or two and
sell but I was not able to convince them so far.
Besides, when you invest in Real Estate you might end up dealing with
payment defaults, you must do repairs, painting etc. On the other
hand, the price of the asset can go up, and in some moments very
aggressively as we have mentioned before.
7- For
big foreign investors, interested in investing in the Brazilian Real
estate market in Brazil, what would you recommend?
There are basically three ways:
Number
one: In the stock exchange. As I
said there are around 30 stocks of construction companies or
companies directly linked to them. If one is interested in
recommendation of a brokerage company I can suggest a few names.
There are other financial instruments available in the market, that I
don’t want to discuss in details right now.
These
investments (usually acronyms CRI, FII LCIs) are tax free.
Number
two: Real Estate funds.
Although they have existed for decades in other countries they are
beginning to be known by Brazilians recently. These funds as you
probably know, is when a financial institution buys or builds a
building and rents it to this particular company. The rent will them
be divided to the members of the fund discounting all taxes and
management costs.
I see this
as a very interesting alternative for individuals of for companies.
You can be
part of this fund, or “quote and quote” owe a building or part of
it with little capital (let's say US$1000 ) or you can invest even
millions of dollars in this fund if you wish.
Finally,
number three: I think more restricted to big investors, is to buy a
whole building or floors on a building and then rent it.
Corporate buildings in cities like Sao Paulo and Rio for example, can
generate to its owners incomes of 0,5 % up to 1% per month.
According to the Brazilian legislation, foreigners will have to pay
15% on its earnings.
So as far
as I can see in the developed economies, it's not easy to have a
monthly return of 0,5% let alone 1% per month. I believe the real
estate market in Brazil it's a good alternative to diversify
investments.
Rio de janeiro: (barra
da tijuca e Recreio, Freguesia-Jacarepagua)
Brasilia:
Hotels and commercial (plano piloto e lago norte).
Brazilian Real Estate market Questions and Answers – May 2012
Tags: Brazil, Real estate market in Brazil, Brazilian Economy,
Economy, Brasilia, Sao Paulo, Rio de Janeiro, Investment, Investing
in the Real Estate market, Real estate, properties, buying properties
in Brazil.
Otimo trabalho
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