44 | MIHNA CASA
ROUND TABLE
www.opp-connect.com | APRIL 2013 Bosque | A rendering of a new project showing how architectural styles have much improved over the years
an immediate payment of BRL300,000 (USD150,000) for some infrastructure work. Fortunately, we had the money to do this but I know of several other companies that have not been able to meet these extra requirements and they are no longer working in this sector. Many of the new requirements seem designed to weed out the undesirables and that is probably a good thing.” But both men also agree that many of the problems stem from a slow and inadequate public administration. Max Crown (“Max”) agrees: “dealing with the Caixa can be a nightmare. Being a government bank you are, basically, dealing with civil servants. Not only are they overwhelmed with work but many of them also don’t really understand what they are doing or the rules of the programme. This causes huge delay”. Under the Minha Casa, Minha
Vida programme, The Caixa bank is responsible for delivering two essential components of any development project. They can provide the funding needed by the developer to build the project and they will provide the mortgages needed by the buyers of units built. The second part seems to be working better than the fi rst. “The problems about the bank providing the developers fi nance start with the bank – or at least the relevant offi cials – simply not understanding the business of being a developer and, in particular, the requirement of predictable cash fl ow and the cost of stopping and restarting the construction of a project.” says Ed.“These problems with the Caixa presented so many developers with so many problems that almost everybody who is still in the business has now decided to build using other funding – in other words, not to involve the Caixa until the buyers need mortgages to buy the properties.”
The developers who have decided
to raise their own fi nance have used several different models.
Max has gone down the route of raising large amounts of money from small numbers of wealthy individuals or investment funds. “This reduces the cost of fi nding the money and provides for good stability”, says Max. Others have preferred to raise small amounts of money from large numbers of investors, some wealthy and others less so. EcoHouse has chosen this second option. Anthony Armstrong Emery (“Anthony”) says. “While MCMV fi nance is available from the Federal Banks, the delays in receiving capital for completed construction can be crippling for developers. Monthly payments for construction should be paid soon after a stage is completed but drawdown can take four or more months, often without reason. The result is a cash fl ow crunch for the developer. EcoHouse’s model ensures that construction funds are secured in a Lloyds TSB escrow account before construction commences meaning no cash fl ow delays and faster delivery of much needed homes.” Surely, this way of raising money is much more expensive than the cost of taking the money from the Caixa? All are agreed that is true, however, as Colin points out, “what we developers need is certainty of our funding: knowing that the money is going to be available when we need it. It is worth paying a premium for that certainty.” Wouldn’t it be more sensible for the government to streamline and speed up the process of obtaining money through the Caixa? After all, they are – indirectly – paying for the much higher cost of borrowing being used by developers. “Yes”, says Ed “but this is Brazil.”
What sort of properties are being
built under the Minha Casa, Minha Vida programme? The answer is, a vast range of different types and sizes of property. From two bedroom apartments and terraced (row) houses up to three and four bedroom apartments and houses of various styles and in various price
“The delays in receiving capital for completed construction can be crippling”
ranges. At the lower end, most houses and apartments are about 40m2. At the upper end, for administrative reasons, most are less than 70m2. 69.99m2 is common, as is the ability for the buyer easily to add another room or two to later bring the house up to 90 or 100m2. There are limitations on what can
be built. Some of these are federal and some are imposed by the state authorities in the places where the properties are being built. All have to be built to minimum construction standards laid down by law. All seem to agree that the quality of what is being built is improving all the time, both in terms of design and construction. Ed says:”a lot of what we are designing and building now is good looking property and of great appeal to our potential buyers.” Anthony has also noticed the same trend. “Apart from more layers of regulation such as tighter environmental policies and the introduction of the aviation permit as part of the licensing process, the programme has evolved from little or no regulation around use of materials and labour rights having a much tighter quality controls and mandates on the treatment of the workforce. Bosque is our third project and we learned from the fi rst two that the canteen and rest areas are the fi rst things we needed to build! On quality, we have stepped up our game having gained ISO 9001 approval.” Colin points out the obvious:
“Although there is a huge potential demand for these properties and, for some years to come, demand is likely to outstrip supply, at the end of the day you have to sell the things to the end user buyers and they are not going to want to buy something badly designed, badly built and in the middle of nowhere.” The level of demand does not seem to be abating. The 12th Salão Imobiliário de Natal (Natal Property Exhibition) started on the 13th March 2013. This fi ve day event was held in the huge Natal Convention Centre – a sure indication of the organisers’ confi dence in the strength of the market. Ocimar Damásio, the spokesperson for the event was very clear: “we are going to exceed all that we had
Interior | The planned style of the Bosque project is modern and chic
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