The property market in Brazil has enjoyed staggering growth in the last seven years, which coupled with a booming economy looked to be a very positive trend. However, investors considering buying or renting in the country have been holding back, waiting for a housing bubble to burst and over the last year, many analysts have urged caution.
In many respects investor caution has been beneficial to Brazil’s property market and successfully slowed price rises to a point that stability is now in sight.
Neil Shearing of Capital Economics said: “Good news remains thin on the ground in Brazil but we take some comfort from the fact that the country’s frothy housing market has so far managed to avoid a hard landing. It’s still early days but the initial signs are that Brazil’s housing bubble is deflating via a gradual moderation in prices rather than via a sharp and sudden drop in prices that can cause steep falls in household wealth and destabilise the financial system”.
According to a report published by Capital Economics, residential property prices in São Paulo have doubled within five years, while prices in Rio de Janeiro have tripled. Since then property prices have continued to climb with prices in São Paulo tripling since 2008, while prices in Rio have almost quadrupled.
Brazil’s economy has grown in line with property prices, a factor considered as one of the main reasons a housing bubble hasn’t burst before now. The country’s labour data reported GDP per capita increased by a whopping 60% since 2008 and with the rapid development of the mortgage market, housing finance has been made more accessible for millions of Brazilians in recent years.
In recent months, industry professionals have reported a slowing in house price growth, achieving more normal rates. At a national level, property prices rose 6.3% year-on-year in December 2014, down from the peak of more than 25% y-o-y at the beginning of 2012.
Price growth has slowed in the cities where the risk of bubbles appeared greatest, like São Paulo and Rio de Janeiro and in many areas, house prices are now growing in line with CPI inflation and nominal GDP growth, improving the fundamentals considerably.
As stability in the country’s property market continues to improve, investors will commence buying up Brazilian real estate and throwing all caution to the wind. With strong growth supported by firm economic fundamentals, this could be a market to watch with some interest.