Lower interest rates may boost Brazil’s real estate market

. Feb 06, 2020
Lower interest rates may boost Brazil’s real estate market Photo: Gustavo Frazão/Shutterstock

The Brazilian Central Bank’s Monetary Policy Committee has once again lowered the country’s benchmark interest rates, to a record-low 4.25 percent a year. It is the latest effort to stimulate the economy, amid growing uncertainty in the global landscape caused by fears of a Chinese slowdown due to the coronavirus outbreak.

But even though basic interest rates have been at all-time lows since March 2018, the real estate market shows there’s still room for stimulus in Brazil.

“Liquidity is not yet typical of times of bonanza, we still see some hardships. We are still expecting measures [of monetary easing] to come into effect,” said José Augusto Viana Neto, president of the São Paulo real estate agents association (CRECI-SP) to The Brazilian Report.

</p> <p>Indeed, selling prices of residential properties have shown little recovery in Brazil, according to statistics from FipeZap. Over 2019, the residential properties selling index was stable in absolute terms; however, consumer inflation measured by IPCA reached 4.31 percent and IGP-M, the index used to adjust property rentals, increased 7.30 percent in 2019—making 2019 the fifth consecutive year of devaluation for residential properties. </p> <p>The same trend is seen in commercial real estate, which has seen values fall 2.61 percent in absolute terms. Of all the state capitals analyzed, only Brasília had a positive performance last year.&nbsp;&nbsp;</p> <div class="flourish-embed" data-src="visualisation/1348932"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p>In Mr. Viana’s view, better trust levels in the monetary policy will be crucial to foster the growth of the real estate market. He also reckons there are opportunities, but they must be analyzed carefully.</p> <p>“I’d say [finding good opportunities] is a matter of research. Sometimes the property is underpriced, but investors must see the reality; they may charge a good rent for it, but if there is no liquidity, who are they renting to?”, he said, adding that the sentiment is worse with commercial properties, which are more connected to economic dynamism.</p> <p>Good rental opportunities may be also related to the market in question. The FipeZap Index for home rentals reached 4.39 percent, overcoming inflation by a small margin for the first time since 2013. But in some cities such as southern state capitals Florianópolis and Curitiba, there has been steep increases of 14.79 and 12.39 percent, respectively. In São Paulo, the biggest real estate market in Brazil, the increase was 7.6 percent. In all cases, performance has surpassed the returns of traditional financial investments, such as savings accounts—up 4.26 percent in 2019—making it more attractive to investors.</p> <h2>Signs of recovery and perspectives</h2> <p>Economists warn that it takes at least six months for monetary stimuli to show effects. Therefore, the Brazilian economy is still feeling the impacts of 2019’s initial cuts. And other data suggests that confidence may be slowly returning.</p> <p><a href="https://www.abecip.org.br/admin/assets/uploads/anexos/data-abecip-2019-12.pdf">According to Abecip</a>, Brazil’s association of home equity and savings entities, banks lent BRL 78.7 billion to companies and individuals using savings accounts funds in 2019, a 37.1 percent increase from 2018 levels. In fact, December 2019 was the best month since May 2015, reaching BRL 8.66 billion in funding. This money led to the acquisition and construction of 297,960 properties in 2019, a 30.5 percent increase on a year-on-year basis.</p> <div class="flourish-embed" data-src="visualisation/1348984"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p>While construction companies are preparing for increased demand, changes in funding are on their way, led by Caixa Econômica Federal, the main lender for real estate acquisition in the country. As of August, the state-owned bank <a href="https://caixanoticias.caixa.gov.br/noticia/20134/caixa-divulga-novas-taxas-de-juros-dos-financiamentos-imobiliarios-com-recursos-do-spbe">announced</a> funding plans adjusted by the official consumer inflation index (IPCA); interest goes from 2.95 percent to 4.95 percent, plus inflation for the year. The bank has also reduced its interest rates for traditional funding (interest rates plus reference rate) to the 6.75 to 8.5 percent zone.</p> <p>In January, Caixa’s CEO, Pedro Guimarães, <a href="https://g1.globo.com/economia/noticia/2020/01/02/caixa-avalia-lancar-credito-prefixado-para-casa-propria-em-marco-diz-pedro-guimaraes.ghtml">announced </a>the bank intends to launch a fixed rate for real estate funding. The idea is to provide predictability to homeowners, so they know how much they are going to pay until the end of their contract—which could take up to 35 years, in some cases. It will be possible, he said, because Caixa will acquire federal government bonds adjusted by inflation, protecting the bank’s investment.</p> <p>“I think Caixa’s plan is very attractive”, said Mr. Viana Neto. “IPCA-related funding is also interesting. But it is important to remember that interest rates are incredibly low. Years ago, I remember a bank decided to do fixed-rate funding, but people who chose it ended up paying more because now interest rates are lower.”

Natália Scalzaretto

Natália Scalzaretto has worked for companies such as Santander Brasil and Reuters, where she covered news ranging from commodities to technology. Most recently, she worked as an Editor for Trading News, the information division from the TradersClub investor community.

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