By Marcelo Horcel
Improved Transparency, GDP Growth
Make Brazil New Investment Hot Spot
THE TIMES OF RAMPANT INFLATION, CURRENCY
crisis and political uncertainty in Brazil are long gone.
The country has experienced economic stability for
several years now and foreign investors have begun
to increase their investments there. On a macro level,
the Brazilian economy is strong: GDP growth averaged
4.5% annually from 2004 to 2007 and is expected
to surpass 5% this year. Brazil ran a trade surplus of
nearly $40 billion in 2007, with exports well balanced
among North America, Europe and Asia. Fortunately,
Brazil’s economy has withstood the global credit crunch
From an institutional standpoint, a major turning point
came in April when both Standard & Poor’s and Fitch
Ratings upgraded Brazil’s long-term debt to investment
Brazil has surpassed Mexico as Latin
America’s largest recipient of foreign
grade. That gave many institutions and pension funds
the go ahead to invest in the country for the first time.
The transparency of the real estate market has made
significant strides and, in that respect, Jones Lang LaSalle
rated Brazil as the most improved country in the world
from 2004 to 2006. As a result, net foreign direct investment grew rapidly to some $34.6 billion in 2007, an 84%
year-over-year increase. Brazil has surpassed Mexico as
Latin America’s largest recipient of foreign direct investment and is now the world’s 10th largest economy.
These positive factors have led to a shift in the
fundamentals of the real estate market and, accordingly, the appetite for property ownership in the country. Government reforms have provided incentives to
increase homeownership and residential mortgage lending. Easier access to long-term loans, coupled with
Brazil’s young population—the median age in the country is 29—is increasing the demand for better, more
affordable housing. The World Bank estimates Brazil’s
housing deficit at between 5. 4 million and 7. 9 million
units, while the country’s birth rate implies a need for
another 680,000 homes each year.
More than 20 home-building companies have gone
public in the past two years, but many will need additional capital to grow. In addition, private developers are
also looking for experienced partners to execute their
expansion plans. Most residential building has occurred
around Rio de Janeiro and São Paulo, while other areas
of Brazil are underserved. Strong investment opportunities lie in providing multifamily housing for the lower- and
middle-income segments of the population.
The country’s strong economy is creating greater
purchasing power for the middle class, estimated at
about 86 million, or 46% of the population. Yet only
18% of retail sales are made in shopping centers, suggesting that there is significant room for growth. Several
global chains have already announced plans to expand
their presence in new malls and hypermarkets. Because
about one-quarter of the country’s shopping malls are in
the São Paulo region, investment plays will be available
in less saturated areas.
Along that vein, Brazil’s strong exports and rising
consumer spending make industrial properties a natural
opportunity for investors. More than 75% of industrial
assets are owner-occupied, and there exists a growing desire for companies to take real estate assets off
their balance sheets through sale-leasebacks. There is
increasing demand for more specialized and modern
facilities, including build-to-suit warehouses and distribution and logistics centers.
While Brazil’s investment outlook is bright, the future
is not without potential risks. The biggest threat is that a
deep, prolonged global economic slowdown will halt the
country’s growth by reducing exports and foreign direct
investment. On the other hand, great opportunities
would arise should foreign investors need to quickly sell
their assets there. Concerns about high inflation have
diminished, as the Brazil Central Bank has done a solid
job in keeping inflation under control.
The views expressed in this article are those of the
author and not REAL ESTATE FORUM.
Marcelo Horcel is managing director of Latin American
investments at JER Partners, based in McLean, VA. He may
be contacted at email@example.com.
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