Real Estate Fund, Brazil, Asset Management

Brazilian Residential Market

The Brazilian Housing Market

Introduction

Brazil has a high level of urbanization. IBGE statistics show that from 1940 to 2000, the urbanization level increased from 30% to 81%. This growth led to a level of urbanization in Brazil higher than that of developed countries, which is 75% according to the United Nations.

The Brazilian construction industry, including infrastructure projects and residential and commercial developments, accounted for approximately 7% of the Brazilian GDP in 2003, according to data published by IBGE.

A survey conducted by the business school of Fundação Getulio Vargas reported that the construction industry supply chain represented on average 13% of the Brazilian GDP from 2000 to 2005. However, Brazil’s total investment in housing construction has not been sufficient to meet the country’s housing shortage needs. According to data compiled by the SECOVI, there was a shortage in Brazil of approximately 7 million housing units in 2000. In addition, a study by Fundação João Pinheiro, a survey institute of the government of the state of Minas Gerais, reported a deficit of 7 million housing units in 2005. This deficit is the sum of the estimated number of families living in low quality homes, new homes required due to increase in the number of family members and families currently without a home. This shortage, however, is particularly acute in the middle and lower-income housing sectors.

Government Initiative    

President Lula’s government has started the Minha Casa Minha Vida programme (in 2009) which aims to build 1 million new homes in 2010.   

The government has targeted residential housing as a key part of its social inclusion project however unlike the US/UK the government is taking a proactive role in providing financing and insurance.   

The main drivers for Real Estate are macroeconomic factors; demographic and socio-cultural factors; credit policies and regulatory.

Market Specific Factors     

The Residential Housing Market offers strong prospects for developers and people involved in the value chain.   

  • It is seeing a period of sustained growth.   
  • Positive Demographics, supported by stable macro-economic factors and strong underlying demand and easier access to credit is translating into growth in the residential construction sector.   
  • Young population with a higher growth rate than in developed countries
  • 0-24 years-old: 90 million people
  • 25-50 years-old: ±30% of the total (~180m+)
  • High demand among the young population for the first/starter home for quality low cost housing
  • Inflation stabilized at historical low levels
  • Falling interest rates
  • Strong growth - GDP expected at 5.8% for 2010.
  • Growth in employment – 1m+ new jobs expected in 2010.
  • Strong cultural preference for home ownership (90% of the country’s households)
  • Low quality housing for the lower middle income segment
  • Large housing deficit
  • Majority of housing deficit is concentrated in families with income below five minimum wages – R$1,750 (±US$800) monthly
  • Lower rates and longer terms
  • Government policies to stimulate the sector
  • Focus on the lower income segments
  • Real estate credit represents 10-20% of the total credit in Brazil, lower than other countries (70%)
  • Growth in Mortgage backed securities (CRIs)
  • The real estate market of the larger cities in the countrysi

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