Property bubble and burst unlikely in Brazil
With prices continuing to rise in Brazil and the country’s economy booming there is concern that something might crash at some point but real estate experts do not believe that the property market will burst.
Spain, Bulgaria, Dubai, Ireland and the United States have each experienced a severe property boom and crash but Samantha Gore, sales manager at Brazil property specialists uv10 believes there are few fears for the real estate market.
‘There have been some significant double digit percentage price hikes in Brazilian property over recent years but, instead of crashing, the consensus is that values will take a more modest path of growth,’ she explained.
When Reuters polled 15 banks, research groups and business associations at the end of 2011, nine said prices would rise between 5 and 10% in 2012 and one other said they’d exceed 10%. And, while most concurred that price hikes would cool as 2012 progressed, none of those surveyed believed prices would fall.
‘Brazilians are buying homes to live in, not to speculate on, which eliminates many of the factors that caused property crashes in other parts of the world,’ said Gore.
There are few fears surrounding Brazil’s rapidly growing mortgage market and the country is unlikely to fall into the toxic subprime lending trap of the United States. One reason is that despite growth Brazil’s mortgage market is still minuscule. According to the Brazilian Association of Home Loan and Savings Banks, outstanding loans make up just 4.8% of GDP versus a figure of 95% of GDP for the US in 2010. Banks will not end anything as high as 100% and non residents are still excluded from securing finance in Brazil.
Since 2003, more than 30 million Brazilians have officially entered the middle class enhancing their ability to afford housing and the finance it entails. Minimum wages have risen sharply, social housing programmes such as Minha Casa Minha Vida have taken effect and unemployment is at an all time low of 5%, compared with 23% in Spain.
Those who have historically rented are now buying and demand is so great, estimates of Brazil’s property shortfall range between 5.6 and 10 million homes, that prices are naturally and reasonably moving upwards.
Gore pointed out that the economy is also holding up well and, after a brief period of contraction in 2011, the Central Bank predicts GDP growth to be 3.27% in 2012 and 4.2% in 2013.
Most experts agree that the 2014 FIFA World Cup and 2016 Olympics will boost the economy further. ‘Property investors would be hard pushed to find such stability and potential for growth elsewhere,’ added Gore.