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Investment in Brazilian property 'like a fever'

Date added: 31st August, 2010 at 10:54
(view all articles from August, 2010)

Categories: Property News, Social and Affordable Housing in Brazil

One investor in Brazilian property has described speculation in the asset as being "like a fever".

Speaking to the Financial Times under the pseudonym Luiz Eduardo Perreira, the treasurer of a multinational company firm said he bought offices "on the plan" - before they have been constructed.

"Whenever people get together in a bar, this is what they talk about," he told the news provider, saying it was tempting to sell property because it is rising in price so quickly, but he intended to keep hold of his assets while banks continue to lend and people keep purchasing real estate.

One example of the fast growth of returns from Brazilian property was the investor's 200 sq m apartment he bought to share with his family three years ago.

It was purchased before it was built at a cost of R$700,000 (£256,327) but now that it has been completed it is worth R$1.4 million.

The government is ploughing R$60 billion into affordable housing projects for low-income families through schemes such as Minha Casa Minha Vida (My House, My Life), the information source reported.

With 400,000 homes planned by 2011 through the state programme, demand is high for property developers.

Chief executive of property developer Gafisa Wilson Amaral told the Financial Times as many as 1.6 million homes needed to be constructed annually to meet the needs of families entering the market and he expects the number of real estate developments required to continue rising.

In fact, should the country's economy expand at its current rate of five to six per cent a year and employment and salary rates keep increasing, he predicts there will be great demand for real estate for the next two decades.

Indeed, a presidential election is to take place in the nation in October and, according to a Vox Pupoli Poll reported by the IG website, Dilma Rousseff is currently in the lead with 45 per cent.

The candidate is backed by current leader Luiz Inacio da Silva and Reuters recently noted she pledged to continue his successful macroeconomic policies such as the affordable housing project Minha Casa, Minha Vida.

Although Brazil's economy is accelerating quickly, not many people believe it will crash in a similar way to the crisis seen in the US, the information source reported.

Mr Amaral explained this was because purchasers tend to have a much larger stake in their assets than in more developed markets, with many paying between 25 and 30 per cent of the full cost of a property in monthly installments before it is even constructed.

Mortgage lending is far lower in Brazil than in other countries but banks have become less reluctant to authorise home loans in recent years, the news provider stated

The property development specialist explained householders borrow the amount of money needed to pay for the remainder of the asset once it is constructed, but the security real estate offers on loans is high enough to make it unlikely buyers will find themselves in negative equity.

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