bli
08-19-2009, 11:42 PM
Caixa Econômica Federal, Brazil’s government-owned savings and mortgage bank has announced impressive figures with regard to housing loans. In 2005 Caixa only granted R$5.1bn in home loans, the bank has granted in excess of R$17.4bn in home loans in 2009, a 340% increase in lending.
It is easy to see why as Brazilian interest rates have fallen steadily over the past two years, with the rate reducing from 19.75 per cent a year in August 2005 to 10.75 per cent in 2009.
This is a result of the Brazilian Government’s series of “anti-cyclical” measures to boost growth since the onset of the global economic crisis. The most important of these is Minha Casa, Minha Vida (My House, My Life) which at a time when Brazil’s construction industry was heading into decline after several years of strong growth has reinvigorated the housing.
This programme will pour R$60bn into Brazil’s housing market and given that the construction industry accounts for 5 per cent of Brazil’s gross domestic product this programme is giving a valuable boost to employment and earnings.
Goldfarb construction president Milton says “This will provide about 70 per cent of our business this year. His company plans to build 12,000-14,000 homes under the scheme this year alone. Spotting a bandwagon, developers have jumped aboard, but Minha Vida is not the only indicator of a construction boom in Brazil.
Of 23 companies that have listed on the São Paulo Stock Exchange this year, 11 are property developers. Many of these developers have aimed at the top end of the market. Yet this sector may already have reached saturation, while the real demand in Brazil is among the middle and lower income groups.
It is Caixa’s *** to promote development of this housing sector and it does so at subsidised interest rates and at spreads that commercial banks cannot match.
For those at the bottom of the income scale, the programme offers eye-popping subsidies. It allows people earning up to three times the national minimum wage of R$465 a month to buy flats or houses worth up to R$52,000.
Subsidies vary according to earnings. For those earning one minimum wage, for example, the scheme will contribute R$46,000 – leaving the buyer to provide just R$6,000, which they will borrow from the Caixa and repay in 240 instalments of R$46.50 a month.
Douglas Munro, president of US-based developer Hines in São Paulo states that one of the major reasons for this huge advance in lending has been the approval in 2004 of a law allowing lenders to foreclose on non-payers and seize their property in lieu of payment.
The international developer Hines is one of the few big developers to concentrate on middle and lower income groups, with homes costsing on average R$100,000, for families with monthly income of about R$2.500 – not poor by Brazilian standards, but certainly not wealthy.
But both Caixa and Hines have words of warning for private investors, private equity and hedge funds keen to enter this market. “There is a big imbalance between risk and return,” they say. “There is no bubble ready to burst, but investors are being naive about the outlook. There is a blindness to the pitfalls of doing business in Brazil.”
It is easy to see why as Brazilian interest rates have fallen steadily over the past two years, with the rate reducing from 19.75 per cent a year in August 2005 to 10.75 per cent in 2009.
This is a result of the Brazilian Government’s series of “anti-cyclical” measures to boost growth since the onset of the global economic crisis. The most important of these is Minha Casa, Minha Vida (My House, My Life) which at a time when Brazil’s construction industry was heading into decline after several years of strong growth has reinvigorated the housing.
This programme will pour R$60bn into Brazil’s housing market and given that the construction industry accounts for 5 per cent of Brazil’s gross domestic product this programme is giving a valuable boost to employment and earnings.
Goldfarb construction president Milton says “This will provide about 70 per cent of our business this year. His company plans to build 12,000-14,000 homes under the scheme this year alone. Spotting a bandwagon, developers have jumped aboard, but Minha Vida is not the only indicator of a construction boom in Brazil.
Of 23 companies that have listed on the São Paulo Stock Exchange this year, 11 are property developers. Many of these developers have aimed at the top end of the market. Yet this sector may already have reached saturation, while the real demand in Brazil is among the middle and lower income groups.
It is Caixa’s *** to promote development of this housing sector and it does so at subsidised interest rates and at spreads that commercial banks cannot match.
For those at the bottom of the income scale, the programme offers eye-popping subsidies. It allows people earning up to three times the national minimum wage of R$465 a month to buy flats or houses worth up to R$52,000.
Subsidies vary according to earnings. For those earning one minimum wage, for example, the scheme will contribute R$46,000 – leaving the buyer to provide just R$6,000, which they will borrow from the Caixa and repay in 240 instalments of R$46.50 a month.
Douglas Munro, president of US-based developer Hines in São Paulo states that one of the major reasons for this huge advance in lending has been the approval in 2004 of a law allowing lenders to foreclose on non-payers and seize their property in lieu of payment.
The international developer Hines is one of the few big developers to concentrate on middle and lower income groups, with homes costsing on average R$100,000, for families with monthly income of about R$2.500 – not poor by Brazilian standards, but certainly not wealthy.
But both Caixa and Hines have words of warning for private investors, private equity and hedge funds keen to enter this market. “There is a big imbalance between risk and return,” they say. “There is no bubble ready to burst, but investors are being naive about the outlook. There is a blindness to the pitfalls of doing business in Brazil.”