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23-Feb-2010

Confidence in real estate as an investment vehicle is high this year, particularly from institutional investors.

Brazil Real Estate Opportunity

25 January 2010

Yet another consultancy report finds that property investment in Brazil has huge growth potential. This confirms that there are tremendous investment opportunities available now and in the near future in one of the world's top emerging markets.

Global management consultants, A.T. Kearney, regularly research world property markets. Their latest publication, The A.T. Kearney 2010 Real Estate Global Opportunity Index ranks Brazil in fifth place, a leap from 14th place in the previous Index. Noting that "Brazil is a strong position", the report places Brazil behind China, South Korea, India and Saudi Arabia with Brazil's total score of 49 just one point behind Saudi's.

The Index looks at four criteria for real estate investment: construction spend, construction growth, country risk and the ease of doing business in 50 emerging markets across the globe.

In the ‘construction spend' category, Brazil scores relatively low (25 out of 100), although the figure is considerably ahead of both South Korea and Saudi Arabia, and far higher than all but four of the total 50 countries. In terms of ‘construction growth', Brazil scores 39. However, as highlighted by A.T. Kearney, the huge government social-housing programme - My House, My Life - is expected to boost the construction spend and growth figures considerably during 2010. According to the report, the Brazilian construction industry "attributes its net profit of US$322 million in Q2 2009 to the programme".

The Index reports that Latin American property investment markets have been generally stable over the last 12 months because of "continued growth in consumer spending and home-buying and the creation of new jobs". Brazil is highlighted as a case in point.

The Index also focuses on Brazil's economy, which the report says "seems to have already emerged from the crisis relatively unscathed". Buoyant GDP in Q2 2009, healthy financial institutions and government stimulus programmes in infrastructure are quoted as the main reasons behind Brazil's "brisk emergence from recession".

The Index finds that the residential property market in Brazil "is benefiting from rapid population growth and a demand backlog". Limited credit for individuals is believed to be one of the causes behind the backlog, although the report points out that mortgage lending in Brazil grew by 41% last year. Even so, the potential for further growth is massive - residential mortgages in Brazil constitute just 2.5% of the country's GDP (in the US, mortgages account for 68%).

Mortgage lending will certainly be boosted by growth in Brazilian property investment, particularly once non-resident mortgages become readily available. The final obstacles to run-of-the-mill mortgages for foreigners are expected to be removed before October this year.

As seen in this prestigious Index, within Latin America property investment, Brazil is far ahead of the game. Obelisk believes that Brazil's rise to 5th is a firm indication of its potential globally. Obelisk also expects Brazil's ranking as a real estate opportunity to rise even further on the back of increased construction this year.

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