As one of the most affected activities during the economic recession, Brazil’s construction sector had to reinvent itself in order to survive: cutting costs, changing forms of land banking, launching fewer new real estate developments—but, above all, looking out for new opportunities. This time, hope lingers in the tiniest of spaces: the market of compact apartments.  

In the world’s largest cities, such as New York City and Tokyo, studio apartments have been a reality for decades.

In São Paulo, Brazil’s biggest construction market, apartments smaller than 45 square meters are now leading sales in every aspect, <a href="https://www.secovi.com.br/downloads/pesquisas-e-indices/pmi/2019/arquivos/201906-pmi.pdf">according to Secovi</a>, the trade union for the construction sector. While two-bedroom apartments remain the flagship model, increasingly small apartments have been popping up all over the city, especially near subway stations and other transportation hubs.</p> <p>According to <a href="https://cbic.org.br/wp-content/uploads/2019/08/2%C2%BA-Trimestre-2019-Indicadores-Imobili%C3%A1rios-Nacionais-APRESENTA%C3%87%C3%83O.pdf">CBIC</a>, the Brazilian construction industry chamber, one-room apartments already make up 9.4 percent of the total properties on offer in the Southeast region, which includes the city of São Paulo. In the country&#8217;s South, they already make up 15.1 percent—the largest share of all areas.&nbsp;</p> <p>According to Alexandre Frankel, the CEO of Vitacon, a construction company specializing in compact homes, the move reflects a combination of lifestyle and demographic changes, coupled with a drop in the population’s purchasing power after the economic crisis.&nbsp;</p> <p>“We have more single people, and people being remaining single for longer, as well as a high number of divorces and higher life expectancy. There are also people whose demands were not attended by the market, such as students and people who came to live in the city,” he told <strong>The Brazilian Report</strong>.</p> <p>Indeed, from 2005 to 2015, the share of the population living alone has risen <a href="https://brasil.estadao.com.br/noticias/geral,aumenta-o-numero-de-pessoas-que-moram-sozinhas-no-brasil,10000092053">from 10.4 to 14.6 percent</a>, especially among people who are above 50 years old. Combined with the fact that the Brazilian population is getting older faster, this results in a long-standing demand.&nbsp;&nbsp;</p> <p>Compact apartments are also a way to pay less to live in <a href="https://brazilian.report/society/2019/08/25/pinheiros-river-sao-paulo-puerto-madero/">desired locations</a>. A search on Brazilian real estate website Zap Imóveis shows studio apartments smaller than 30 sq m on the market for between BRL 200,000 to 300,000 in downtown São Paulo.&nbsp;</p> <h2>Wishes and necessities</h2> <p>Compact apartments aim to fulfill the wishes of two distinct audiences: new homeowners and investors. According to Mr. Frankel, the former require mobility, which makes them willing to sacrifice more space in exchange for an improved location—living close to transport options, universities or commercial centers. In fact, looking at Secovi’s map of properties, neighborhoods such as Sé—at the exact center of downtown São Paulo—Pinheiros and Vila Mariana have the highest concentration of one-bedroom apartments. All three fit the bill for transport, university, and commerce.&nbsp;</p> <p>Investors, meanwhile, are aiming for longer-term profits to serve as their own private pension system. As the country’s benchmark interest rate <a href="https://brazilian.report/newsletters/daily-briefing/2019/08/01/lower-interest-rates-revive-brazil-economy/">reaches its lowest level ever</a> and is set to decrease further, buying properties becomes a more attractive option than fixed-income investments, whether owners choose to lease the apartments or wait for them to become more valuable.&nbsp;</p> <p><a href="http://fipezap.zapimoveis.com.br/wp-content/uploads/2019/08/raio-x-fipezap-2019t2-1.pdf">FipeZap research</a> found that 24 percent of property buyers in the 12 months prior to H1 2019 were property investors. Among them, 74 percent expected to gain income from renting the property to tenants, while 26 percent intended to wait and sell the apartment at a higher price later.&nbsp;</p> <p>At Vitacon, where investors make up 80 percent of customers, the decision to join both audiences’ necessities came in the shape of “software to make the hardware work better.” That’s why they created Housi, a property rental platform. It came first as an arm of Vitacon, and by January 2019 it became a stand-alone company. It allows homeowners to list their properties for <a href="https://brazilian.report/money/2019/03/25/short-term-rentals-airbnb-brazil/">short-term rental</a> while offering services such as maintenance, cleaning, taxes, and insurance. </p> <p>It costs, on average, BRL 2,500 to list the property, plus up to BRL 1,200 for the services. The returns for investors vary according to the property, but Housi aims to deliver a net return of 10 percent of property value, plus IGPM (an inflation index linked to real estate in Brazil) each year.&nbsp;&nbsp;</p> <p>According to Mr. Frankel, Housi already has more properties not related to Vitacon than internal. The idea is to continue expanding the service to other Brazilian cities over time.

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MoneySep 15, 2019

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BY Natália Tomé Scalzaretto

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