Another massive economic boost for the real estate market in Brazil

Brazil has taken steps to cut the current housing deficit of over 8 million homes by as much as 14 percent by injecting R$ 34 billion ( £ 10.3 billion) into the construction of residential property around the country.

It is important to remember that the 30 year mortgage only became available to the general public in Brazil on the 15th of October 2007. Brazil has the 5th largest population in the world and with a stable economic and political outlook, domestic consumer confidence is increasing in leaps and bounds. Financing for the purchase of  residential real estate increased from R$ 24.910 million ( £ 7.648 million) in 2003 to R$ 76.466 million (£ 24.034 million) in 2008 and 
still only represents a minute fraction of GDP compared to countries like the UK and the US so growth is not likely to slow any time soon. 

In addition, an extra 28 million homes will be required to meet the  growing demand and eliminate the housing deficit by 2020, according to official estimates.

It’s understandable why consumer confidence amongst the Brazilian population is booming - only five years ago, Brazil owed the International Monetary Fund £ 23.295 million – in April 2009 Brazil, having paid off their loan, has agreed to lend the IMF as much as £6.871 million. “Isn’t it chic” quipped Brazil’s President - Lula Inácio da Silva

John Broad, sales manager at Grup Immobiliari Natal Brasil, explains that investors can purchase a property at the construction stage and receive a discount to market value, allowing them to resell those units to the local market on completion  “We set up the process for buyers so that they continue to invest with us – we want the investors to remain with us through our five year plan and then move with us into our new ventures. The demographic targeted by the new “My house, My life” plan are Brazilian families earning up to a maximum of 10 times the minimum national wage – (currently R$ 465 per month). Our Sonhos do Mar development (under construction) and Capim Macio (launch 
planned for June 2009) are targeting exactly this domestic market!” Mr Broad adds that a lack of competition in the low-income housing sector, particularly in the north-east of Brazil, puts investors at an advantage, explaining that because it is a tourist area, construction companies have previously focused on building high-end, expensive, luxury properties. Even if more companies start to enter this market, competition is unlikely to be detrimental to prices, he says, as the housing deficit is so massive that there is plenty of business to go around.

In addition to financing the construction of adequate housing in capital cities, the properties of the participants of “My House My Life” will automatically be insured. Participants can register their properties at the local notary with discounts of between 80 percent and 100 percent, and will have their mortgages guaranteed by a “Guarantee Fund” which will cover their mortgage payments in the event that they lose their source of income;

With property prices between R$ 70.000 (£ 21.668) and R$ 200.000 (£61.909) for a two bedroom house, target families may apply for funding of up to R$ 23.000,00 per family towards the purchase of their home and will be eligible for hefty discounts on interest rates for mortgage products. Interest rates on mortgages have already been lowered; for families earning up to 6 minimum wages, interest rates were as high as 8.16 percent p.a. however these are now reduced to 6 percent p.a. 

The amount of families who could claim a maximum interest rate of 5 percent has also been extended - yet another incentive for the vast domestic market to purchase their own homes. Brazilian banks are investing heavily into expanding the mortgage market in the country.

The government is also offering significant stimuli for developers to focus on this segment of the market. The processes by which developers apply for building licenses and funding have been de-bureaucratized for the construction of developments of this type. This applies for developers not only of primary residential developments but also developers of the infrastructure within the developments and in surrounding areas. Tax on many raw materials required for the construction of these residences have been significantly reduced to further encourage developers to increase the quality of the houses being built and therefore increase their longevity.