Real Estate Fund, Brazil, Asset Management

Brazil’s Construction Boom

by manoj on August 6, 2010

Brazil offers a large opportunity. It is the world’s fifth largest (in size) and most populated (190m)country, It has  immense resources (agriculture, minerals, iron, oil)  and buoyant economy (projected to grow by 5%+ in 2010) give investment in Brazil enormous potential. And

Real estate represents one of the biggest opportunities.

Is Brazil’s property market is on the brink of an unprecedented boom.

Many view this because of a number of  major construction and development activities.

1.   the 2014 World Cup,

2.  the 2016 Olympics

3. The Minha Casa Minha Vida (My House My Life) Programme

4. Oil Exploration

5. Growth in investment in Energy and Infrastructure Projects

According to the Brazilian Association for the Construction Materials Industry (ABRAMAT), investment in infrastructure and services for the two sporting events will run to almost R$60 billion.

The World Cup needs R$30 billion for the construction of stadiums, upgrading of airports, transport systems and increasing Brazil’s network of hotels.

 The Olympics require a similar amount.

ABRAMAT also points to the residential housing sector as a major driver behind the forthcoming boom in civil construction in Brazil. In their Macro-economic Scenario 2009-2016 report, ABRAMAT describes the current housing shortfall and the forecast increase in population.
ABRAMAT reports that the current population of around 190 million is expected to increase to 209.3 million by 2016. The number of families in Brazil will grow by 2.5% to 74.1 million and the number of homes by 2.7% (from 57.7 million to 71.4 million).
Using what it describes as “conservative estimates”, ABRAMAT expects an annual growth of 2.7% in the number of homes built between 2009 and 2016. During this time, annual average investment in residential construction will run to R$227.2 billion – R$147.8 billion for the construction of new homes in Brazil and R$79.4 billion for refurbishing existing stock.
Over this 8-year period, Brazil is set to see an unprecedented real estate boom. ABRAMAT’s “conservative estimates” quote the construction of 13.7 million homes. In a country where, according to Reuters, 27 million homes are needed over the next 15 years, the chances are that many more will actually be built.  In the short term there is enough domestic funding to support the building of 1-2 million homes per annum for the next two years funded by the FGTS element alone.

This boom has already started with the government social housing programme, Minha Casa Minha Vida (My House My Life), leading the way. With a budget of R$34 billion, My House My Life has the ambitious goal of building 1 million homes this year. The programme plans to eventually reduce Brazil’s housing shortage by 14%. The President of the Brazilian Chamber of Construction Industry (Câmara Brasileria da Indústria da Construção), Paulo Simão, believes that much of 9% growth forecast for the civil construction industry this year will be due to the My House My Life programme.

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