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The new real estate Brazilian market Trade Winds 2010: “The Americas” Soccer World Cup/Olympic Games Webinar February 4, 2010 Nelson Simis Schver Nelson Schver Advogados Government Scenario

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slide1

The new real estate Brazilian market

Trade Winds 2010: “The Americas”

Soccer World Cup/Olympic Games Webinar

February 4, 2010

Nelson SimisSchver

Nelson SchverAdvogados

slide2

Government Scenario

Brazil has reached a high degree of sophistication in its infrastructure of economic development support. Recently, the financial sector worked as an instrument of macroeconomic stability and perfected even more its installed base. The Central bank performance and the measurement and application of macro and microeconomic data, as well as the knowledge of price index from IBGE and FGV are all examples of it.

Aware of the importance of real estate market expansion within the economic outlook, the current government has created a normative ambience that provides a variety of tools that aim for expansion, improvement and the definitive consolidation of a new real estate market for the country.

The understanding between constructors/developers, financial authorities and all the public agencies and departments - that somehow interact with the financial sector – worked an extensive and consistent agenda which resulted in the overcoming of most obstacles so sector should have a strong expansion focused on the security of operations and on the consumer `s  defense, and as consequence more and more operations.

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The Convergence Between

Private Enterprise and Government…

Parallel to the government measures, the financial agents represented by the Brazilian Association of the estate credit and savings (Abecip) and the constructors/developers made a deal to adapt the new rules to the consumer market and to reorganize these two segments so operations can flow with flippancy. The deal has been being kept, revised and submitted to the Central Bank of Brazil and the National Monetary Council assessment.

Starting with the new “marco regulatório” and the new rules of performance, the financial authorities and the constructors/developers set a number of commitments that will give consumers access to estate funding. It will give the financial authorities the possibilities to perform in their true function, which is building and undertaking.

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…The Convergence Between

Private Enterprise and Government

The proposal is to enlarge financial credit lines making products with real estate values of 40 thousand reais and beyond. Interest rates lower than the current rates (12% a year)and financial time and income commitment smaller. All of this only to allow the access to a large quota of people in the market. People who normally can not get an estate financial credit line to purchase a house.

Slowly those new rules are being implanted with the expectancy of a promising future.

The performance presented in the five first months of the year 2009 with the introduction of just some new rules was exciting. 50% more resources were put comparing to the same period of the previous year.

It was shown by ADEMI – representing entity of businessmen of the sector – in the second semester of 2009 a promoting campaign of the new rules, which has motivated even more the entrepreneurs and borrowers, showing the news of the recent market. A safer market, more accessible and more fit to the reality of the Brazilian consumer.

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A New Strategy to the Estate Credit

An article of January eleventh by the newspaper Folha de São Paulo draws attention to a tendency: Turn loans to borrowers in negotiable bounds in the market to increase the available resources.

The sector is betting on the success of Brazilian companies who have gone public and to search resources to the financing of real estate purchase in the capital market including derivatives where the same happens on the main economies around the world.

The access to the capital market goes trough the relaxation of the savings rules, main source of capital in the sector. It has the potential  to leverage  the estate credit, which is around 2,9% of the gross national product behind Mexico (9%), Chile (17%) and U.S. (65%).

It is expected that with this new tendency Brazil will have a new financing system in 2010 with the conjunction of the real estate market and financial market.

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Numbers and the Expected Scenery for 2010…

It is a fact that the demand for estate credit has widely overcome all expectations in 2009. The resources from the savings of borrowers, which is around 32 billion reais, has financed about 310 thousand of properties, surpassing in 4 billion the approximation made at the beginning of last year.

The forecast of Abecip to 2010 is that those resources will increase about 50%. It is estimated that 48 billion of savings will finance around 400 thousand houses.

In 2009 the volume of demand from FGTS (Fund based on time service for the common worker) to housing was 19,6 billion. The government hopes to increase it to 24 billion in 2010. An increase of 22%.

If we add to those numbers more 9,3 billion from the Government budget destined for housing, the total financing will have a record availability of 81,3 billion.

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…Numbers and the Expected Scenery for 2010…

Many aspects favor the continuity of estate credit expansion: The economical stability, the employment and income. The funding presents attractive conditions such as accessible interest rates and longer terms. The construction companies provide options to all levels of income.

A highlight of this expansion is the growing number of borrowers of low income. In 2009 Caixa Econômica Federal approved ten thousand properties from the program called “Minha casa, minha vida” in the city of Rio. There are another eighteen thousand waiting for approval which indicates an effective growth in 2010, only because this housing program.

Until December twenty fourth the program had already approved the building of 247,9 thousand homes. 60% of those destined to families with monthly incomes up to three minimum wages. In December of 2009 CEF was analyzing projects to more than 619,3 thousand houses spread by 3.060 enterprises.

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…Numbers and the Expected Scenery for 2010

The numbers of CEF sheet accounting are still on closure. But we already have the information regarding the amount of the balance of housing credit between December of 2008 and September of 2009: This modality of operations has gone from 45,07 billion to 62,84 billion, increasing to 74,1% the participation of the bank in the total balance of the housing portfolio of the financial system.

In this scenery the growth of housing construction in 2010 is very clear, which will lead to a full recovery of the industry of materials of this sector. Whose sales had been lowered in 2009 as a reflex of the crisis. Today, this segment is aware that it will need to improve its installed capabilities to handle what is about to come.

According to the Central Bank, the estate credit has increased and it represents today 2,9% of the gross national product. This percentage is the double of the previous year, but very far from what we see in the developed countries.

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Sources:

  • Folha de São Paulo newspaper.
  • Newmark Knight Frank, Global Real Estate Advisors.
  • O Globo newspaper.
  • Valor Econômico newspaper.
  • Jornal do Brasil.

Thank you!

Contact information:

Nelson SimisSchver

Nelson SchverAdvogados

Rua do Carmo, 11 - 8th floor

20011-020 Rio de Janeiro, Brazil

Phone: 55 21 2509-7330

Fax: 55 21 2509-7309

nelson@schver.com