How Much Will Housing Fall In Brazil?

Just weeks ago, Brazil's housing market was one of the world's most dynamic. But now, the global credit crisis has set up housekeeping, and government efforts to stimulate buying are being trumped by consumers' fears for the future. January-September sales of new houses and condos were up 25% from the same period in 2007, ignited by a rising economy, decades of pent-up demand, job growth, an increase in affordable mortgage loans and legal changes that improved banks' powers to repossess property. Sales slowdown, which isn't reflected yet in official statistics, has hit with sudden force. The nation's largest home builder, Cyrela Brazil Realty, laid off 300 workers last month and lowered its sales estimate for the year by 25% (LA Times)
Builders were encouraged by assessments such as that of Standard & Poor’s analyst Eduardo Chehab, who estimated Brazil had an 8-million-unit housing deficit. That made it appear to be a huge, under-exploited market for construction companies (China Post)

The housing boom was an integral part of Brazil's economic success story that had Lula touting the nation's imminent entrance into the First World. In the first nine months of this year the total value of mortgage loans made rose 89% from the year-earlier period (LA Times)

Even though house prices have doubled in the past five years. The mortgage market has only just begun it did not exist in 1997) and mortgages are being provided by big retail banks who retain an ownership stake in them, rather than securitise them as in America. Interest rates have fallen from around 16% three or four years ago; loan periods have grown from 12 to 30 years; and salaries have soared (Maxcap via Economist)

From 2005 to 2007 the number of houses bought using financing from Caixa Economica Federal (Brazil's state-run savings bank) doubled from 400K to 800K. Amount lent in USD also nearly double from close to $5b to roughly $9b (NY Times)

According to Robusti (president of the Sao Paulo Real Estate Association) total outstanding mortgage loans in Brazil are equal to only 2% of gross domestic product. By comparison, in the U.S the ratio is 69% of GDP and in Mexico 11%. But the broadly bullish view of the industry is shared by another important industry, Brazil's banks who are the ones, after all, that will provide the money if and when Brazil's mortgage market really takes off (WSJ Sep-2007)

Sep. 2007: Caixa Economica Federal savings bank announced a new credit line, expanding the maturity of its mortgage loans to 30 years from 20 years

The property market in Brazil has changed dramatically since 1997, when Mr Paim de Andrade led the first initial public offering of a Brazilian housebuilder (Rossi Residencial). Today, he notes that there are 31 real-estate companies listed on the Brazilian market. Brazilian homebuilders have a combined market capitalisation of around $20 billion, the same as that of publicly traded American homebuilders, a statistic that says a great deal about the shifting balance of economic power from the developed to developing world (Economist)
Feb 17, 2009