No gold medals for Brazil real estate

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Olympic fever may be sweeping the nation, but the mood in the real estate industry is taking a turn for the worse

Brazil, the largest nation in South America, was once hailed as one of the world’s most promising emerging markets. Now, even with Olympic fever upon us, the country’s mood – and economy, are grim.

Until recently, there was an economic boom fueled by commodity prices, massive offshore oil deposits were discovered and a there was a splurge of government spending and subsidised credit.

The International Monetary Foundation (IMF) had pegged its long-term potential growth rate at 4 percent in 2010.

These predictions turned out to be wildly optimistic. Decades of underinvestment, protectionism and overregulation have been laid bare, as the commodity boom has faded to reveal seismic underlying cracks.

The current mood is sour, divided and uncertain, with the real estate market among the casualties of the crisis.

“At the present time, nobody is looking too far ahead,” said Marina Cury, president of property services company Newmark Grubb Knight Frank Brazil. “Over the last few years, Brazilians have become used to short-term thinking. We don’t even know the identity of our next president or whether he or she is equipped to pull us out of the hole we are in.”

The political crisis has been dramatic. Corruption scandals have engulfed the ruling Workers Party, with president Dilma Roussef suspended from office pending an impeachment trial over accusations that she illegally manipulated government accounts.

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As the political psychodrama unfolds, the country’s economy continues to tank. In 2015, the economy shrank by 3.8 percent, its worst annual performance since 1981. Inflation reached 10.7 percent at the end of last year and is expected to rise further this year.

Unsurprisingly, the crisis has severely impacted the country’s real estate market. Four years ago, the sector was red hot, with a home-buying frenzy pushing prices up by as much as 30 percent on an annual basis. The upward trend, however, has been almost completely turned on its head with the housing market falling as much as 20 percent in 2015, according to Moody’s credit-rating agency.

Image credit: shuttershock
Christ the redeemer. Image credit: shuttershock

The downturn has delayed a rebound for struggling homebuilders, while big construction companies – many of which are implicated in the country’s corruption scandals – have been selling properties to raise cash as credit lines falter.

Not every homebuilder is feeling the pinch. Companies such as MRV Engenharia SA and Gafisa SA’s Tenda division with a focus on the low-income segment, where there is still gigantic pent-up demand, have been reporting strong sales.

Nevertheless, for most ordinary Brazilians the feel-good factor is in short supply. Even the prospect of the Olympic Games in Rio this month is doing little to lift the mood.

“The Games will have very little impact anywhere outside Rio itself where lots of additional hotel rooms have come online,” said Roberto Aliberti of Newmark Grubb.

What is likely to have a more telling effect on the national psyche is the outcome of Roussef’s impeachment trial.

Whether she is impeached or not, she retains the support of huge swathes of the population, who have vowed to take to the streets to state their case should the ruling go against her.

Whichever way the cards fall, analysts agree that the portents look gloomy for the immediate future.

“The country needs some stability to restore confidence,” said Aliberti. “But at the moment that’s a commodity in short supply.”

The fill version of this article originally appeared in Propert Report issue 136

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is a Bangkok-based writer who has spent the past six years living and working in Southeast Asia. He regularly contributes to a variety of online and print publications including BBC, Esquire and Travel + Leisure