Brazilian residential property prices expected to rise by up to 10% in 2012

Property prices in Brazil are likely to increase modestly, around 5 to 10%, in 2012 and the real estate sector should avoid a bubble, according to a poll of real estate and financial experts.

The Reuters poll of 15 banks, research groups and business associations downplayed the risk of a sharp downturn, with a recent credit boom underpinned by a steady improvement in wages and affordability conditions.

The rapidly expanding Brazilian middle class is expected to keep a close eye on opportunities to stop renting and move into ownership, holding up prices even after they almost doubled in some neighbourhoods.

‘When the slums disappear and the Brazilian housing sector gets more mature, then prices will stop rising,’ said Andre Perfeito, chief economist at Gradual Investimentos. brokerage.

In Sao Paulo, Brazil's biggest city, average new home prices skyrocketed 85% from April 2009 to October 2011, to 6,019 reais per square meter ($3,250), according to a survey conducted by the Ibope polling firm. Consumer inflation rose nearly 15% over that same period.

‘There are structural factors in place to justify such a strong performance. A sharp fall in prices in 2012 is very unlikely,’ said Paulo Cesar das Neves, analyst for the local research firm LCA.

Brazilian home prices should rise between 5 and 10% in 2012, according to nine of 14 forecasts in the Reuters poll, with one analyst saying there would be a smaller rise. Three saw no change in prices, while one thought they would rise more than 10%.

Overall consumer inflation is expected to hover around 5.5% in 2012, according to market forecasts compiled by the central bank.

That performance turns the Brazilian housing market into a rare bright spot in a gloomy scenario around the globe. Further gains, however, should be smaller than in 2011 as the Brazilian economy cools off.

Brazil's gross domestic product (GDP) growth slowed to a standstill in the third quarter as the eurozone debt crisis hurt global demand and is expected to grow by around 3.5% in 2012, much less than the 7.5% growth recorded in 2010.

Most of 2012's rise in house prices will be concentrated in the first half of the year, added the participants. Seven out of 12 thought prices would stabilise by the end of the second quarter of next year.
There is also a sense that overall levels are a bit too pricey. On a scale from one to 10, where one is extremely undervalued and 10 is extremely overvalued, the poll showed Brazilian house prices at six. Estimates ranged from four to eight. That is not seen as an early sign of a bubble burst, though.

Asked to rate the risks of a sharp downturn in the Brazilian housing market, all but two of the 15 analysts who answered the question said they were low or very low.

For most market watchers, the key factor is that home prices in Brazil had lagged far behind the rest of economy during the lost decades of 1980 and 1990, when Brazil struggled to control hyperinflation and suffered with low growth rates and very modest credit expansion.

Most Brazilian buyers do not enter the property market to make money, but rather to get a permanent residence. That reduces the risk of an abrupt sell off, analysts say.

And, with the unemployment rate near record lows, such demand should remain for some years yet fostered by Minha Casa Minha Vida (My Home, My Life), the government's flagship programme worth nearly 160 billion reais.