Will The Brazilian Property Market Continue to Boom Or Burst Post-World Cup?
The world is looking at Brazil and not just in anticipation of the 2014 FIFA World Cup and the 2016 Summer Olympic Games – but because of its booming property market. It has outpaced Hong Kong (101.4%), with a whopping 121.6% spike from 2008 to 2013!
Both sporting events have no doubt played their part in boosting the economy in the South American country and bringing countless opportunities for almost every type of entrepreneur and investor to make a healthy return.
For those who have bought a home there, they are probably smiling wide with its increased valuation and for anyone trying to buy a home now; they would surely have been priced out of a market or two over the last five years.
Can we trust the crystal ball?
According to Brazil: Land of the Future, Rio de Janeiro has been given an R$8 billion (RM4.2 billion) facelift to coincide with both events. The fund will be used to improve the infrastructure, build new schools, health centres, transport amenities and housing in the Port Region, the Western Zone, the Suburbs, Downtown, and the Southern Zone including communities within Copacabana, Leblon and Maracanã.
Since the announcement of the Olympic host and with the rise in development and urbanisation, property prices have been rapidly increasing with Curitiba recording the highest annual rise of 37.3% (29.7% inflation-adjusted) in 2013 alone.
Their properties are most definitely booming. Credit was more freely available (interest rates declined from 26% in 2003 to 7.25% in 2012), and property across the country looked relatively cheap. All the conditions were in place for a boom. And so it has.
The combined spending by Brazilian’s and non-residents from this year’s World Cup is forecasted to net an income of US$3 billion which would be a great boost for the economy. Foreigners will definitely be attracted by the country’s double digit capital appreciation and generous rental income that both international events will boost further.
According to Andrew Thompson, group sales manager of Brazilian property developer Ritz Property, buying a property in Rio now would be a “shrewd move”.
Thus far, the record has been promising on Brazil’s economy, which will inadvertently boost the property market.
But is it a bubble?
Housing bubbles can be very ugly and the most recent one that the world has witnessed is the US property market going bust. In the 2000s, the rapidly rising home prices eventually resulted in the US and parts of Europe reeling into an economic disaster.
Hence, most investors are worried about the Brazilian property market due to its rapidly rising prices. The housing prices have increased at a far faster pace than income in recent years that has resulted in the central bank increasing the interest rates again from 7.25% to 10.5% in January this year.
Though it didn’t happen in most cases, property bubbles can deflate slowly through various regulations and curbing measures, but often, the bubble will burst nastily resulting in economic crisis.
To jump or not to jump?
Have you missed the boat by not buying into Brazil four years ago? According to the Brazilian government, some 3.7 million World Cup visitors are expected, generating an impressive US$3 billion boost for the economy.
With the Summer Olympics shortly after (two years later), the boom may just continue growing until well into 2017.
However, if you didn’t buy into the country four years ago, the returns you get now will likely not be as significant to balance out the risk. When it comes to a property boom (that can potentially be a bubble), it’s always better to be too early than too late.
Tell us what you think about buying into Brazil today in the comments below!