Brazil: A treasure chest ADIT BRAZIL REPORT
52 | BRAZIL WORDS | Amit Katwala
The tourist city of Fortaleza, on Brazil’s northeastern coast, played host to ADIT Invest 2011, Brazil’s largest business-to-business real estate and tourism investment conference last month. Amit Katwala went along to get a fi rst-hand look at the opportunities and pitfalls of investing in this busy emerging marketplace …
investors supposedly doing business in the country. But, the waters are not always as safe as they seem, and trouble could be lurking in the deep for those who don’t plan properly and seek expert advice. Prices are also increasing, sparking fears that we could be seeing the formation of a bubble in Brazil. Is Brazil still a treasure island of opportunity, or has its ship already sailed? Indeed, what
B
razil seems to offer a sea of investment options, with wave after wave of foreign
are the ingredients that have made Brazil such an alluring destination for international investors in real estate? OPP spoke to delegates and panellists at ADIT Invest 2011 to try and find out. Margaret Summerfield, of
Pathfinder International, said: “Our members are interested in investing outside the US and outside the US dollar as well. We help them by looking at the background trends and the forces driving markets. And one of the single biggest forces in
Brazil was the emergence of the middle classes in big numbers, growing and driving the economy. When we started here, 99% of the buyers were Brazilian, and that is a hugely interesting factor.” Greg Rockwell said Brazil was
also proving popular because it had not been affected by the global
financial crisis. He said: “People are thinking, ‘Where can I invest where people didn’t get too smart for their own good?’ Four years ago investors didn’t think about Brazil because they didn’t realise the US market was built on unsustainable leverage. Latin America didn’t do this – you have a relatively stable, functioning
Bubble trouble?
While there have been fantastic returns, the cost of doing business in Brazil is beginning to increase because of its popularity – investors from all over the world have cottoned on to the opportunity, and this is driving up prices. Margaret Summerfi eld said: “Investors who invested in the last three years have seen signifi cant rises, and they’ve benefi ted from the change in exchange rates between the dollar and the Real. One of our buyers made $50k to $60k just on the change it the currency rate.” However, she added this is causing problems for those looking to get involved
now. “If I was looking at buying a personal property right now, my concern would be that short-term I’d be looking at a loss. There is talk about the government doing something to devalue the Real.” The price of developing is also going up, with the cost of materials on the rise. Jorge Chaskelmann, the director of Aquiraz Riviera told OPP: “Cement has gone up, labour costs have gone up, equipment and furniture as well. This is squeezing the profi ts down, but the square metre price of sales has gone up too so it balances out.” There are rumblings of discontent about a possible bubble forming, but
speakers and delegates working in Brazil seemed adamant that this is not the case. Chaskelmann, told OPP: “There’s no bubble in Brazil. Real estate is growing, and prices are growing but there’s no danger of a bubble because of the banks. They won’t give you a 90% mortgage, the maximum they’ll give is 70% or 60%. Summerfi eld said: “I’m not so sure about a bubble. What we have noticed is a change from high-end luxury condos to building Minha Casa Minha Vida style projects, and that has been a big change. If the middle class carries on growing it will keep driving the real estate market here. For us, the price rises have been a big issue though. Property that 2 an a half years ago was selling at R$4,5000 per square metre is at R$9000 now.” The general consensus seems to be that because of the demographic factors and the huge demand, Brazil is at much less risk of a bubble than its fellow BRICs. Arguably the fact that it is on people’s radars already is a positive sign, as it means that a bubble will likely be avoided, according to Greg Rockwell. He said: “It’s good that people are talking about, because it means if there is one you’ll see it coming. From a strictly theoretical standpoint, one of the best things you can do to prevent a bubble is to talk about it all the time because it results from the ineffi ciency of the market at transmitting information.” He added: “If you want to take the gas out of something just talk about it a lot and the market will react. If you want it to become a reality then deny it as fervently as you can.”
Brazil | can be a diffi cult place to do business so fi nding local partners is crucial
www.opp.org.uk | JUNE 2011
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