Blog

Between December 2010 and February 2011, the Brazil Real Estate & Land Investment Guide tracked property prices and rental values in a handful of the country’s most prominent cities in order to provide an outline of how the market really is operating.  Using the country’s four most popular property portals (Zap, Imovel Web, Web Casas and Balcão) we recorded over 29,000 properties in the central regions of Brasília (in the Federal District), São Paulo, Rio de Janeiro, Belo Horizonte (Minas Gerais) and Salvador (Bahia) for both sales values and rents – producing the results in the two graphs below:

Regional Analysis (in order of highest to lowest):

Brasília: as the fourth largest populated area in Brazil, the capital’s real estate prices have been increasing rapidly in recent years.  According to the recently released ZAP-Fipe Brazil real estate index, asking prices between August 2010 and January 2011 increased by 9 percent.  The city largely accommodates for the middle and upper classes, although the demand for low income housing is also increasing due to the rising numbers of people moving to the area fuelled by improving infrastructure and more opportunities (it is a recognised fact that employment in the public sector, which forms a significant part of the workforce in Brasília, has better rates of wages).   The most highly valued region is the north east sector (‘Setor Noreste’) which see values of properties reaching over R$ 2.6 million.

São Paulo: due to its widely spanned demographic breakdown, the largest city in South America has properties ranging from luxury mansions right down to low income housing estates and favela dwellings (the main ones being Heliopolis and Paraisópolis).  We analysed the sales values of 5 areas of the city (totalling 14,365) which have high densities of residential properties, namely: Santana (north of centre), Mooca (east of centre), Saúde (south of centre), Pinheiros (west of centre) and Lapa (north west of centre).  As a city considered an economic hub for both Latin America and  the globe, São Paulo will always remain an attractive for investment purposes.  There has also been a rapid increase in student housing investment due to several of Brazil’s largest educational establishments being located in the city.  Regions of interest for these purposes are: Perdizes, Pacaembu, Pinheiros, Vila Mariana, Moema, Higienópolis and Santo André.  Nevertheless, as the ZAP-Fipe index states that prices increased by 24 percent between January 2010 and January 2011; investors are urged to gain a detailed knowledge of the market to avoid the pitfalls of an inflationary market.  The current most expensive regions of the city are Vila Nova Conceição, Jardim Paulista, Jardim América, Ibirapuera with prices reaching up to R$ 35 million (almost  R$ 35,ooo per m²)

Rio de Janeiro: as a city that ticks all of the boxes in terms of having the benefits of beach life, a thriving economy and a vibrant culture, real estate investment remains an attractive prospect – particularly after the announcement that the city will host South America’s first Olympic Games in 2016.  We analysed the sale prices of 5 of the prominent regions (totalling 8,395): Leblon (in the south zone); Copacabana (in the south zone); Jacarepaguá (west of the south zone and close to the Barra de Tijuca region); Botafogo (between the south zone and the city centre) and Tijuca (north of centre).  Rio is city that many specialists are commenting still remains very under supplied which has resulted in the rapid prices witnessed in recent years (the ZAP-Fipe index states that asking prices increased by 40.5 percent between January 2010 and January 2011, another figure that makes the issue of a potential bubble more of concern).  The Leblon district is home to some of the most expensive real estate in Latin America with values for pent house, sea view apartments reaching R$ 27 million.  An unmissable feature of the city is the presence of favelas within very close proximity to middle and upper class apartment blocks – the Rio de Janeiro state government has been seen developing programmes such as the Morar Carioca which are attempting to improve what are often ramshackle living conditions with some success already being witnessed in regions such as the City of God (Cidade de Deus).  Rental figures in the area generally tend to increase in the summer months due to the larger influx of both national and international tourists.

Belo Horizonte: the third largest metropolitan region in the country, it is a city with rapidly growing middle-upper classes, good infrastructure and a strong economy (many domestic and multinational companies have their headquarters in the city – including Oi, Vivo, Google, FIAT, Arcelor, Toshiba, Sumitomo, Vallourec, and Gerdau).  Since 1993 the city has seen massive changes largely due to funding allocated via the Programme of Accelerated Growth (Programa de Aceleração do Crescimento, PAC).  In recent years, as well as the creation of areas for communal use such as parks and other public space, many of the lower class neighbourhoods have witnessed significant transformation – making the whole city much more integrated.  The ZAP-Fipe Brazil real estate index, pointed to asking prices between January 2010 and January 2011 increasing by 16.6 percent.  The most expensive real estate can be found in the Cidade Nova region with prices reaching close to R$ 1.9 million.

Salvador: often referred to as the cultural hub of Brazil, the city is the wealthiest in the north east and is viewed as an important international trading centre with prominent industries including tourism, food processing, textiles, iron, steel, ferro-alloys, oil refinery, petrochemicals, chemicals, cement and shipping.  The metropolitan region has, since the 1990s, received a considerable amount funding to improve infrastructure (particularly focused around Pelourinho, the city’s historic centre), with more works being expected including expanding the international airport; other transportation improvements and the urbanisation of the area surrounding the new Fonte Nova stadium, currently being constructed in time for the 2014 World Cup.  The ZAP-Fipe Brazil real estate index, pointed to asking prices between August 2010 and January 2011 increasing by 2.8 percent.  The majority of prime property is located in the Upper Town (‘Cidade Alta’) with sea view apartments in the Barra region currently on the market at R$ 1 million.

Our methodology

Our methodology was to extract property house prices values from the main search sites popularly used by buyers and sellers in Brazil, namely: Zap, Imovel Web, Web Casas and Balcão.  We chose 5 of the largest metropolitan regions of the country in order to be able to provide a broad based picture of what is happening in the market today and analysed both rents and sales figures (note that for Rio de Janeiro and São Paulo we chose 5 areas spread across the north, south, east and west).  The following should be noted with regards to our data collection:

• Despite what the website management teams say, there are no clear monitoring systems on the sites to ensure that descriptions are accurate – indeed, it is a fairly simple process to be able to upload a piece of real estate via all of the sites analysed.  This unfortunately produces a situation where inaccuracy and ambiguity comes into the picture that required us to spend a considerable amount of time weeding through our records and deleting what we viewed as fake or false advertisements as best we can;
• Our analysis was commenced in December 2010 and seasonal adjustments should be taken into account considering the fact that market activity tends to slow down during the Brazilian summer (November to March).  Conversely, rental figures also tend to be higher during these same periods – particularly in the coastal regions analysed (Rio de Janeiro and Salvador);
• We have analysed asking prices and a price difference should be taken into account for negotiation and real time sales prices (a deduction that is difficult to make which, based on our knowledge of sold prices, could be anything up to 25-30% less);
• With an increased number of multi-listed new build / off-plan properties on the portals, we recorded the smallest unit on sale in the development and its according value;
• Whilst it would appear that Brasília would have the highest average per squared metre valuation, note must be taken of the fact that its sample size was significantly smaller (owed to the fact that house prices via the internet were more difficult to come by in this region);
• Rents are usually based on long term contracts of up to 36 months (temporary and short term contracts usually have a premium);
• Our original plan was to be able to provide a yield analysis, however we feel the level of sales numbers we tracked in relation to what was collected for rentals was too distant in order to give an accurate picture.

Please feel free to contact us via info@brazilinvestmentguide.com for more information about our research and see our blog post entitled ‘Brazil’s Bubble Debate Continues’ which provides some insights on the back of the data collected.