Property prices slowing down in Brazil’s largest city

The real estate market in São Paulo, the economic hub of Brazil and South America’s largest city, is slowing as figures from local estate agents suggest the property market may have peaked.

As an emerging market, Brazil does not yet have reliable real estate indices but agents are beginning to put together reports that give buyers and investors a more reliable idea of what is happening.

Figures from the Regional Council of Realtors for the State of São Paulo (CRECI-SP) show that after a sharp escalation in prices in recent years, average prices fell by 3.53% in October last year compared with the previous month.

The data, based on the sales performance of 529 real estate agencies, also shows that there was a decrease of 25.6% in the number of properties sold over the same period.

Another set of figures for new build property from the SECOVI, the São Paulo State Housing organisation, also indicates that the market is slowing. Sales of new apartments fell to 23.5% in October from 26.4% in September.

Most experts are unsurprised with the statistics, seeing them as a predictable correction in a region that has seen rapid prices increases. According to EMBRAESP, the estate agent’s organisation in the area, the average value of one bedroom apartments in São Paulo more than doubled between 2008 and 2010 in comparison with the previous two years. While two, three, and four bedroom properties increased by between 40 and 65% in the same period.

According to João Crestana, president of São Paulo SECOVI, it is a sign that the market is returning to normal after a period of unsustainable that was boosted by a greater supply of housing credit and falling interest rates. ‘My perception is that prices are where they should be, with supply more adjusted to demand,’ he said in an interview.

The majority of international investors continue to remain bullish about Brazil and this is an entirely justified perspective for many reasons including rising incomes, lower unemployment, an Asian-driven commodity boom, and gigantic oil discoveries, according to Ruban Selvanayagam, of the Brazil Real Estate Investment and Land Guide.

Major sporting events such as the Olympic Games and FIFA football World Cup and a vigilant banking system are also boosting confidence, according to its new Brazil Real Estate and Land Investors 2011 report.

‘However, as with any inflationary market, business risks need to be taken into account. From a macro-economic perspective, examples include a highly valued currency that is continuing to lose international competiveness whilst weighing down the trade-weighted exchange rate and boosting consumer costs, a growing current account deficit, low comparative international savings levels, the ever rising need to improve infrastructure as well as low comparative innovatory and education levels,’ he explained.

‘For the real estate and land investor, despite possible issues related to over supply, rising mortgage finance costs and ownership, industry professionals within the country remain positive that, for at least the next few years, the housing market will remain buoyant,’ he added.

The industry needs to address a number of issues, he believes, most prominently the fact that real estate finance for foreigners is not available out with some development finance programmes being offered by developers. Other issues include excessive bureaucracy, title protection, exchange rate issues, obtaining a sufficiently valid investment visa and acquiring real estate related assets transparently in accordance with international legal standards.

‘Nevertheless, as these issues are unlikely to disappear any time soon, investors, including an increasing amount from other emerging nations such as China, India and South Korea,  have been striving to work through the complex system. We believe that it is a task that is well worth undertaking considering the wealth of opportunities available in a country with such strong medium to long term growth prospects,’ added Selvanayagam.