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Brazil - finally a dose of reality

Thursday, November 19, 2009

Catherine Deshayes

What a week it has been for Brazil - the Financial Times and the Economist have been filling their pages with positive exposure on this Latin American powerhouse and it's great to see that finally the property market in Brazil has been presented accurately...

Ever since Dominic Wilson created the now famous acronym in 1993 in Goldman Sachs Global Economics Paper No.99 - "Dreaming With BRICs: The Path to 2050", the term "BRICs economies" has been used by many property sales agents to promote their propositions. 

In the case of Brazil (the "B" in BRICs) they have been presenting accurate facts such as:

- Record low inflation
- Increasing employment (by year end 1 million jobs created in 2009 alone)
- Political stability
- A massive shortage of first homes - estimate from between 8-10 million)
- Huge oil finds and Petrobas (the state owned oil company) investing multiple millions
- World's biggest producer in coffee, "OJ" and consumer durables (you have read it all before!)
- Just 7 hours flying time from Europe.

However, most agents fail to mention that the forecast was "by 2050". Yes 2050, that "...if things go right, in less than 40 years, the BRICs economies together could be larger than the G6 in US dollar terms"  Back in 2003, Brazil was viewed by some as the weakest BRIC link,.

2009 Brazil is now emerging as the strongest.  President Lula (pictured) in his recent interview with the FT earlier this month proudly predicted that Brazil will be the 5^th largest economy in the world by 2020. We could discuss from a pure economics perspective that this clearly needs to be more defined further, but it makes a great headline and is of subject to a more detailed article.

However, most bizarrely (and this is where the smoke and mirrors come in), many property sales agents entice investor clients with excellent photography of the classic Rio de Janeiro postcard shots - Sugarloaf Mountain and Ipanema Beach etc, but are promoting beach condos in the North East of Brazil!

Don't get me wrong, the beach condos in the North East are fantastic for those that primarily want a fabulous holiday home and long term investment - they are ideal (but make sure you buy beachfront). 

Brazil and the North East will undoubtedly become a major international tourist destination over the coming years especially with the bonus of the three cities in the NE having 2014 World Cup status, although Brazilian tourism will continue to outnumber international visitors at least tenfold.

But that is not where the current property boom in Brazil is.  The clue was in the statement of where the property shortage is - "FIRST homes"!  Social housing is the fastest growing sector in the real estate market in Brazil, followed by property for the growing middle class sectors.

Anthony Fernandes of Brazil property specialist SPC Overseas comments, "investing in property that is targeted to the local market is where experienced investors are buying in..." he continues "...this is where we see big investment funds doing their due diligence..."

There is not doubt that there are tremendous investment opportunities in Brazil and it is sure to make the headlines for some time to come.  Like any investment markets, Brazil has sub-markets and sub, sub markets and picking the right niche is key to a successful property investment.

Fernandes offers a series of complimentary market reports available at www.spcoverseas.com/reports packed with useful information for investors.

Anthony Fernandes - Director SPC Overseas can be contacted directly at anthony@spc-overseas.com or on +34 902945780 / +44 952853054 / 0844 598 22929 (UK local call rate).

Picture of Brazilian President Luiz Inácio Lula da Silva

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