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An article from the ‘Fly-to-Let’ online magazine

Whilst global financial markets continue to report low mortgage lending figures, news from one of Brazil’s mainstream banking institutions – Caixa Econômica Federal – showed an expected house lending level for 2010 to reach R$ 70 billion (£26 billion) compared to R$ 47 billion (£18 billion) in 2009.

Brazil was by no means immune to the effects of the global downturn yet the country’s negative GDP period was relatively short lived as a result of a well-regulated banking system, improved credit ratings and low debt ratios as well as several macro factors such as possessing a high level of international reserves, a rising middle class and controlled inflationary management.

Despite ongoing debates with regards to the formation of a bubble, the housing market looks set to continue its growth trajectory and can be attributed to several factors:

• Whilst comparatively high on an international level, lower lending interest rates are becoming increasingly commonplace amongst the mainstream mortgage lenders;
• Brazil has one of the highest global housing deficits with estimates varying between 7 to 9 million (and growing at a minimum of 1 million per year);
• Falling unemployment and rising wages: official statistics recently published indicated a 27 percent rise in salaries between 2003 and 2010;
• The mortgage market has a huge amount of growth space, particularly considering that total secured lending forms just over 3 percent of the country’s GDP (compared to 68 percent in the US, 11 percent in Mexico, 20 percent in Chile and 45 percent in Spain);
• The mainstream banks and lenders are being heavily (yet sustainably) capitalised in anticipation of increased demand;
• Social housing (such as the ‘Minha Casa, Minha Vida’ – ‘My House, My Life’ programme) and regeneration funding programmes are actively encouraging feasible homeownership whilst enabling wide sections of Brazilian society to have a better standard of living;
• Laws amending the landlord and tenant relationship have been considered to take a favourable view on the responsibilities of property owners as a means of encouraging the sector.

So what does this mean for the overseas property investor?  Many would be well aware of the fact that it currently remains difficult to borrow directly from Brazilian banks and mortgage lenders.  However, it is widely expected for the natural course of Brazilian lending to move towards foreign buyers, particularly as the mortgage market looks set to mature in the medium to long term.  According to Luis Lessa from the Association for Real Estate and Tourism Development (ADIT) in an interview with the Brazil Real Estate & Land Investment Guide: “I see the change in the short term – although we have credit available in the (domestic) market, the Brazilian government clearly sees the need for international investment to occur.”  Foreign investors may also be interested in the competitive terms being offered several developers throughout the country.