Can Brazil’s Property Market Continue to Boom?

From the outside the Brazilian economy is doing something of a crazy dance at the moment.  On the one hand the currency has risen to great heights of strength on the back of investor confidence, and on the other hand stocks have crashed because traders are concerned about the knock on effects of America’s dire economy.  Inflation is rising sharply and causing concern, but President Lula is well known for his inflation busting attitude.  So this all begs the very important question, can Brazil’s property market continue to boom?

Stacey (of Gavin and Stacey fame) thinks so – according to an interview with the actress who plays the part of Stacey in the Sunday Times this week, she has invested in a property in Brazil.  Many media and property sources are now using her as testimony to the health of the market!  Sorry, what a load of rubbish – is she a real estate investment tycoon?  No she is not.  Does she have greater insight than the next man or woman into which way the Brazilian real estate market will go?  No she does not.  Me thinks one needs to look a little more closely at Brazil before one jumps in actually…

So, in terms of currency price rises, is this a reason to buy in?  Well, commercial and institutional investors who have bought in to Brazil in the local currency and invested heavily into significant projects may indeed have done very well in recent months thanks to the significant currency improvements in Brazil.  However, for individual investors thinking about buying one or a few property units in Brazil as fly to let investments, the currency expansion in Brazil will have had little or no effect on their purchases.  This is because the projects being targeted by such buyers are priced in pounds sterling!

Increasing construction costs on the other hand will have an effect.  Increasing construction costs are just part of the reasons behind advancing inflation in Brazil which many analysts see as a very real concern.  For the medium-term we at Amberlamb would be worried about inflation in Brazil undermining what is otherwise a very strong economy.  For fly to let investors who already own property in Brazil, the fact that construction costs are rising means that future releases of projects they have bought into will likely be priced higher, as will other similar developments in the immediate vicinity.  If demand remains intense in Brazil, it basically means those who have bought in ahead of any significant price rises could stand to benefit from overall price expansion in the real estate industry.  However, if prices rise too fast, this could stall the market altogether and prevent those who have made a gain from selling.  So, don’t get too excited!

Next up we have the likes of Nubricks stating that “in South America’s largest country there are no signs of economic decline and ‘credit crunch’ is an unknown term among Brazil’s fervent consumers.” The article we have taken that quote from was published a day before Brazilian stocks fell, sending Latin America’s biggest share exchange into a bear market.  You see, Brazil may still be affected by the global knock on effects of the American economy melting down!  Brazilian stocks fell because analysts and traders became concerned that credit losses in the U.S. could stifle growth in Brazil and also lower demand for exports.  Any nation that has any connection to the US in terms of imports, exports or direct investment runs the risk of being impacted by the sorry state of their economy. 

Brazil is certainly not immune.  In addition to this fact, taking it down more closely to the property market and in particular the small fly to let market fuelled by British, Irish and European buyers, this part of Brazil’s property market is heavily reliant on these foreign buyers having access to the funds to buy in.  If things get any tighter in the UK, Ireland and across Europe for the likes of you and me, we are not going to have the ready cash available to buy property in Brazil.  So no, Brazil has not survived the effects of the credit crunch…we will have to wait and see what happens.  Even the most optimistic analysts are concerned that if there is a global sell off, investors may well start with their best returning instruments in their portfolio and these would include Brazilian stocks and commodities.

But the good news is, you can still bag a bargain in Brazil because property prices are much more affordable in Brazil because of a combination of demand, underlying land costs, construction costs and risk.  Demand is relatively low at the moment, but as it increases, so costs should rise.  Land prices are also cheaper compared to many locations across Europe for example, construction costs and commodities have so far been affordable but are now rising, and anywhere where there is risk and a market is not tried and tested, prices will reflect this.

So, can Brazil’s property market continue to boom?  Yes, because Brazil has incredible potential – possibly unrivalled potential at the moment.  It has an incredibly astute and tough government that is doing all it can to maximise and stabilise the economy.  Brazil has a great wealth of natural resources and commodities such as oil that form a great foundation upon which an incredible economy can be built.  The middle classes in Brazil are growing in wealth and number as a result of the nation’s economic advancement and demanding properties for sale and rent…this all bodes well for the long term stabilisation and affluence of the nation.  Buyers who buy in now could well ride this wave of success.  However, naturally Brazil is not tried and tested in this way, therefore there is risk.  So where there is huge hope and great risk, there is naturally the chance to make huge gains or spectacular losses – that’s what makes Brazil very exciting for many property investors!  For others it’s more about the weather and the lifestyle!  Brazil is a fabulous place for a holiday, and because great investment is being poured into the advertisement of this fact internationally and also into infrastructure to ease accessibility to the nation and to improve amenities and facilities, Brazil offers property owners a double bonus.  On the one hand a property could be a fabulous investment and on the other hand a property makes for a great place to stay in a fantastic nation!

Special Reports: Property News for Brazil

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Brazil real estate offers fantastic medium term investment potential now that the government are committed to long term economic development.