Boom in Brazilian Real Estate Here to Stay

The booming Brazilian real estate market is here to stay for the short and medium term. General consensus is that high demand will continue to drive property in Brazil.

The Essential Property Guide featured recently in Revista Epoca, a current affairs weekly, looks at the Brazilian property market. The article examines the drivers behind the current boom in real estate and asks if it's here to stay.

The good news for investments in Brazil is that the current cycle of fast-expanding sales will be around for the short and medium term. One developer interviewed in the article sums up general sentiment in the Brazilian real estate business when he says, "The feeling is that we're at the start of the party, not the end".

Reasons Behind Brazil Property Boom

Epoca begins by looking in depth at the drivers behind real estate in Brazil. According to the magazine, four factors are behind the current boom. The consolidation of the economy in Brazil over the last 18 months has allowed many people to make long-term financial plans and these include buying a property. Brazil has also seen big increases in employment and salaries, which has pushed up demand for real estate.

Thirdly and linked to more jobs and better wages is the inexorable rise of the middle classes. Numbering over 95 million, the middle classes in Brazil are now the dominant social sector. The final factor in the Brazilian property boom is the huge increase in mortgage lending. The number of loans in 2010 was 13 times higher than in 2005.

Rise in Brazilian Property Prices

The combination of these factors has put great pressure on the Brazil property market as more and more Brazilians are in the position to purchase a home for the first time. Added to this are Brazilians in the upper-income brackets whose increased wealth means they want to upgrade.

This pressure has pushed prices up. New property in Sao Paulo has experienced an increase of 175% in the square metre price since 2000 (32.8% in 2010 alone). Prices of new construction in Brazil's capital, Brasilia, have gone up 25% a year since 2005. In Alphaville, one of the most sought-after districts in Salvador, property prices have risen by 54% since 2007.

The Future for Real Estate

Brazil's property experts generally agree that the future for real estate is bright. Most analysts consulted in the Epoca article believe the current situation is "healthy growth" after a long period of stagnation in the Brazilian real estate market.

The notion of a bubble in the market is dismissed since high demand will continue to drive property. Cyrela, the second largest developer of real estate in Brazil, sees lack of supply as another main driver. Cyrela calculates Sao Paulo needs 90,000 new units every year just to keep pace with population growth.

Obelisk also believes that the combination of high demand and short supply is the principal driver behind the property market in Brazil. And as statistics show, we are convinced this driver is here to stay for the medium term, making real estate investment in Brazil a compelling opportunity.

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