58 | BRAZIL REPORT
SOCIAL HOUSING Fact:
FACT: The value of mortgages contracted by banks and credit institutions for the purpose of residential real estate in Brazil is around 3% of GDP. In the UK it is 80% of GDP (source: European Mortgage Federation).
will be the biggest cargo and passenger airport in Latin America, and one of the ten biggest in the world. The runways are ready and can accommodate the Airbus A380 double-decker. So, not surprisingly, My House My Life projects are springing up on its outskirts. A gleaming new bridge connects the city centre, perched on a hill above the Atlantic Ocean, with the city’s expanding beach suburbs to the north. And separating the downtown area from the city’s main beach is a large protected area of dunes – the second biggest urban park in Brazil. Overseas property investors have spotted the area’s potential, and housing prices, in local towns like the fashionable resort of Pipa, some 50 miles south of Natal, have doubled since 2006. “We are very confi dent that there
are signifi cant profi ts to be made in the property market in Brazil,” says Origen’s director of Private Equity David Palumbo. “But what we are particularly interested in is impact investing. We believe we can deliver high, consistent returns to investors and at the same time have a positive, and measurable, social impact. In Brazil we currently focus on investments that target the ‘base of the pyramid’ – defi ned by the World Resources Institute as people earning less than US $3,000 a year. In line with many of the principles of the Acumen Fund, we believe that if we treat these people as customers instead of vulnerable individuals needing charity, we can help them move from slums into well- planned communities.” Could the strength of the Real become a problem on the currency conversion front? “Our analysis is that although there are some indications of overheating, there is little chance that the Brazilian currency will slide in the near future. There is still too much demand for it on the money markets for that to happen,” says Palumbo. “And this has been the case for some years now.” Indeed Brazil has introduced modest taxes on capital infl ows to contain the appreciation of the Real, which has
gained more than 25% against the US dollar since the beginning of 2009. China’s appetite for importing Brazilian commodities appears undiminished. So ... what are the risks? Brazil under its new president, Dilma Rousseff, has shown restraint in the decision to set the new minimum wage at 545 Reais (£210) at the current rate of exchange (some commentators expected it to be higher). The beginning of the year saw some modest budget cuts. Keeping the economy from overheating and containing infl ation (eventually
“The outlook for the Brazilian economy is bright, so whoever doesn’t invest, will get left behind”
bringing it down to 4% by 2012) are also key objectives. Ratings agency Fitch has raised Brazil’s foreign debt rating from BBB- to BBB. Fitch cited “signs of greater fi scal restraint” by President Rousseff which, together with “healthy growth prospects”, should permit further reductions in federal government debt, currently around 40% of GDP. Billionaire real estate investor Sam Zell’s interest in emerging markets
www.opp.org.uk | JUNE 2011
is well documented, particularly the opportunities he sees in Brazil. He has described Brazil as a “unique situation,” citing (on CNBC) a number of factors which make Brazil stand out, including an educated population, low debt, and energy self-suffi ciency. Brazil is so brimming with business opportunities, “it’s like the US in the 1950s,” Zell has commented. He has also praised the country’s “great work ethic”. For the time being, Brazil-only
funds are uncommon, but Blackrock’s Latin America fund delivered +400% in ten years and JPMorgan’s Latin America fund has now made +140% in fi ve years.
“One key issue is infrastructure,” says Origen’s Mark Jeffery. “Not everything in Natal will be ready for the 2014 World Cup. As the tournament approaches, the priority will be to get the new stadium ready. Not all the roads that should be repaired will be resurfaced. We have to be realistic about this.”
“Brazil has remarkably infl exible labour legislation,” he adds. “For example, there is no way for a group of workers to exchange a pay cut in times of recession for a promise of no job losses. If you are considering buying into a business in Brazil, you will need to take a long, hard look at its human resources policy and payroll records.” Nevertheless, Origen Private Equity
is targeting annual returns of between 20% and 28% for its social housing business in Brazil.
The minimum investment is £150,000 and syndicated investments starting from £500,000 will also qualify, and the company is concentrating on low-cost housing in and around Natal for now.
Overall, the outlook is bright. It could well be the case that, in the words of Carlos Slim, “whoever doesn’t invest, will get left behind”.
Fact:
Car production in Brazil rose by 24% in the past year; automotive exports were up 17% by value and 20% by volume over the same period (source: Anfavea, the Brazilian automakers’ association).
Responsible | construction policies are allowing Brazil to discourage deforestation and to protect its natural landscapes
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