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Brazil’s largest real estate developer confident about growth

Speaking at the Reuters Brazil Investment Summit in Rio de Janeiro, PDG chief executive Zeca Grabowsky also said the company should unveil 10 billion reais ($5.83 billion) in new developments in 2011, nearly 33% more than the top end of its target for 2010.
With Brazil growing at its fastest pace in almost three decades and a burgeoning middle class taking out loans and mortgages at a record pace, real estate prices are soaring in Latin America’s largest economy and stoking fears of a bubble in the making.
But in a country where the mortgage market is still in its infancy and millions of people are becoming bona fide consumers for the first time, Grabowsky stressed that demand, not speculation, was driving the boom.
‘It’s far from a bubble. This is real demand, it’s people buying their house for the first time, to live in it,’ he explained.
Brazilian real estate companies have had to structure themselves to deal with sales volumes and activity in the sector that has never been seen before but compared with other markets, the country has room to grow, he added.
Developers in Brazil launched on average 100,000 to 200,000 housing units a year in the 1990s and that has now grown to 800,000. By comparison, with a much smaller population, Mexico’s real estate market has between 700,000 and 1 million units a year, Grabowsky said.
‘The biggest bottleneck is inside developers themselves, planning to meet this demand. In terms of workforce, I don't think there is a lack of people, but because the market is more favourable, they are able to achieve better wage terms, above inflation, which increases costs,’ he added.
The company, which took over rival Agre in a $1.5 billion takeover in May, is sceptical that further consolidation could take place in Brazil’s real estate market. Several of Brazil’s largest developers, including publicly listed ones such as Cyrela and Rossi Residencial are majority owned by one family or shareholder, who may not be willing to implement governance changes, Grabowsky said.
‘Consolidation could happen, but we continue to be a bit sceptical. The matter doesn’t evolve because the discussions are complicated, from the issue of valuation to governance. I don’t see many deals happening,’ he added.
PDG is also considering selling at least $250 million worth of 10 year bonds denominated in reais in global markets, taking advantage of demand for emerging market securities to lengthen its overall debt maturity and improve its debt profile.
An overseas bond sale would help the company raise long term funds, compared with the five to seven year maturity it could take in Brazil’s domestic market, Grabowsky said. ‘There is room for us to increase our debt a little bit. This way we would have a very comfortable cash position to sustain our growth. We have no interest in doing anything in dollars,’ he added.