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The Caixa Econômica Federal – the dominant house lender in Brazil and main administrator of the low income subsidy programme ‘Minha Casa, Minha Vida’ (‘My House, My Life’) – has been granting loans on the back of irregular real estate developments.

Representatives from the Real Estate Committee of the Brazilian Chamber of Construction Industry have stated the need to increase the monitoring of home loans given on development projects that are not formally registered and do not adhere to their responsibilities.  Practices being undertaken include employing informal labour (to avoid taxes) and failing to comply with the necessary bureaucracy.  Evidence has shown that Caixa Econômica Federal has been financing projects which have subsequently presented problems including incomplete / poor workmanship and real estate construction in poor areas of infrastructure.   According João Crestana of the São Paulo Union of Housing (SECOVI-SP): ‘We are seeing strong and unequal competition between them [illegal development companies] and formal enterprises, which is resulting in lower quality buildings coming on to the market.’  Crestana also stated that, as a result of many such projects being funded with resources from the FGTS, ‘formality is benefitting informality.’

The bank (which reported a record lending revenue of R$ 77.8 billion for 2010) have been quick to react to the backlash, subsequently introducing a number of prerequisites which will be instilled into their home loan underwriting procedures (note that borrowers who have had loan agreed prior to 2/11/2011 will have their funding approved without being obliged to the new rules).  The essential stipulations are as follows:

1)      Projects must be have adequate, passable and safe road access;

2)      A full and specific statement must be provided confirming that the development is in a sufficiently urban location;

3)      A Caixa Econômica Federal technical report describing the development in detail is required to be undertaken;

4)      The existence of a Technical Responsibility Report (Anotação de Responsabilidade Técnica, ART) is necessary – even if this requirement is waived under local municipality rules;

5)      A specific survey report focused on specific items related to quality and safety of the development units is required (undertaken by Caixa Econômica Federal approved professionals);

6)      Confirmed delivery of the official buyer handbook (Cartilha de Orientação ao Adquirente) needs to be witnessed;

7)      Confirmed delivery of guidance and documentation related to the functioning of the building needs to be witnessed.