Strong demand low income and vacation properties in Brazil

Posted by rpg on Jan 16, 2016 |

STRONG DEMAND FOR LOW-INCOME HOUSING

But not every homebuilder is suffering. ch as MRV Engenharia SA and Gafisa SA’s Tenda division, have been reporting strong sales even as Brazil wades into its worst recession in 25 years.

“There is still gigantic pent-up demand in the low-income market,” Trotta said, citing Brazil’s housing deficit, broadly estimated at upwards of 4 million homes, and the financial support of a government housing subsidy program known as My House, My Life.

Brazilian President Dilma Rousseff has pledged the program, budgeted at 13 billion reais ($3.73 billion) for this year alone, will be shielded from further rounds of government budget cuts, citing its broader economic benefits.

MRV shares are flat this year, compared with Brazil’s benchmark stock index, which has lost 2 percent, while Gafisa is up 14 percent. That contrasts with a 20 percent decline in Cyrela stock and a 76 percent fall in Rossi shares.

Tenda plans to launch new projects valued at up to 2 billion reais by the end of 2016, executives told reporters on a conference call on Monday.

Trotta warned, however, that stronger demand in the lower end of the market may dwindle should the government follow through with a proposed change to financing rules.

Currently, the real estate industry benefits from a government-mandated, employer-financed workers’ severance fund that can be used to finance home purchases, an especially tempting option because the fund’s returns lag inflation.

But under the proposed change, the government would raise the returns it pays on each worker’s account, erasing the incentive to buy a home.

The bill is expected to be voted on in coming weeks.

LESS LUCRATIVE INVESTMENT

As for the broader property market, most analysts do not see prices recovering over the short term, in part because of the rising opportunity cost of holding real estate as an investment.

Brazil’s central bank pushed interest rates to a nine-year high last month, making the average rental yield of about 4.7 percent far less lucrative than the 9.2 percent return on a simple savings account. The savings account also comes without the risk of a drawn-out and costly eviction procedure should a tenant fail to pay rent.

Already-reticent buyers have sensed their strengthened bargaining power, which they are using to demand discounts of up to 30 percent on some apartments

“We have to explain the reality of the market to sellers nowadays,” said independent Sao Paulo-based broker Milena Moreira. “Some just don’t believe it.”

($1 = 3.4813 Brazilian reais)