Brazil remains a buyer’s market

Figures for the first quarter of 2015 show that Brazil’s gross domestic product (GDP) has dropped by 0.2% and the country’s downward economic spiral shows no sign of bottoming out just yet. With a 1.2% fall predicted over the course of the year, the South American nation finds itself in a deepening recession. The government has implemented tough austerity measures and overall household spending is down by 1.5%, the worst figure since 2008.

Inevitably the real estate market has cooled along with the overall economy; however, this could be good news for investors with ready foreign currency, as the declining Brazilian real increases its buying power and property in Brazil is almost certainly bound to increase in value in the long term. In the immediate future the 2016 Olympics, scheduled to be held in Rio de Janeiro next summer, are sure to have a positive impact, particularly on hotels and rental properties.

Price drop

‘Our situation, our economy is not good,’ admits Frederico Judice Araujo of Rio luxury property firm Judice & Araujo. ‘We always have these cycles. After booming for a couple of years, we are at the lower end of the cycle. Brazil wasted a great opportunity; our economy is huge, but right now we have high inflation and high interest rates, and unemployment is growing in our country. All forecasts for 2015 point to the economy contracting by 1%.’

Mr Judice Araujo claims that foreign investment is still steady, however, particularly in the north-east of the country. Rio remains popular for its restaurants, beaches and nightclubs, yet property prices in the best neighbourhoods such as Leblon and Ipanema have dropped by about 10% in the past 12 months.

‘Prices are going down,’ he says. ‘We see clearly some foreigners who were not that interested in our market for two or three years coming back because of this situation. We see this as a good moment for foreigners to analyse some investment options in Brazil.’

Slowing growth

2008 to 2012 saw huge growth in Brazil’s property market, with residential prices more than doubling in Sao Paulo and almost tripling in Rio; however, since then, over-development and the tumbling price of oil have caused the market to slow considerably. The value of the Brazilian real has also plummeted.

The discovery of fresh Atlantic oil fields in 2007 increased the demand for office space in Brazil from the energy industry, and construction work went into overdrive for the 2014 World Cup and latterly for the 2016 Olympics; however, this led to supply overtaking demand as the economy slowed.

Fernando Faria, director of global corporate services for Brazilian real estate firm CBRE, claims that the weakening economy, high interest rates and the imbalance between supply and demand has led to a buyer’s and tenant’s market. “Not just with offices but industrial and retail and residential [real estate] as well, supply has exceeded demand, so prices have gone down,” he said, adding: “Many investors who have been studying our markets for a while now … they are all aware that this is a good moment now.”