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Well-recognised as a leading organisation that serves the growing international interest in investing in Brazil, ADIT is now a firmly established port of call with regular events as well as its own investment agency and consultancy.  We spoke to chairman Felipe Cavalcante on a range of issue related to the current climate in Brazil including recently emerging property bubble speculation; the ‘Minha Casa, Minha Vida’ programme (and the country’s housing deficit); regional hotspots; researching investment opportunities; transparency; risk management and the annual event being held in Forteleza city from the 10 to 12th of May.

We last spoke in September of last year – can you tell us a bit about what ADIT have been up to since then? Yes, a great deal has happened at ADIT Brasil since we last spoke.  Luiz Henrique Lessa has now become CEO and I have become chairman – or president of the board.  Luiz Lessa’s nomination was part of our strategy to sharpen ADIT Brasil’s activities in the national and international real estate and tourism markets. With Luiz Lessa taking over presidency, we will be able to exercise our strengths in attracting foreign investments, all the while keeping up with the Brazilians who will be partners to these investors.  Of course you remember that ADIT became a national association last year, and so we now have a representative in every state in Brazil who individually act as the funnel for international investments.  ADIT Brasil – the Association for Real Estate and Tourism Development of Brazil – is a bridge between the Brazilian entrepreneur and the foreign investor as well as a link between the financial and real estate market.  You may remember that Luiz Lessa had successfully set up the investment agency, a business unit developed to structure real estate projects by attracting resources together with the financial market.  His duties as Chief Investment Officer (CIO) of ADIT Brasil have now been taken over by André Menezes, and he has worked successfully to structure specific projects so that they can be better presented to the international investor.  These are real estate projects including housing, hospitality, hotels, retail, office buildings, logistic centres and mixed-use developments. Mr. Menezes has ensured that the agency has a diverse profile, being centered on competence and transparency.

ADIT Brasil has also created the Board of Environment and Sustainability.  This board follows up on the latest environmental issues that affect, directly or indirectly, professionals in the real estate and tourism sector.  In February this year, ADIT Brasil’s board approved the inclusion of international associate members to its structure. Accepted associate members of ADIT Brasil will have several advantages over other international firms looking to break into Brazil.  Firstly, they will be publicly represented within the Brazilian territory alongside the Federal Government and will have the additional security / guidance required to invest successfully in Brazil.  As well as exclusively participating in ADIT Brasil’s range of property fairs, conferences and seminars overseas, members have the superb added advantage of being able to use the contacts of fellow members to gain insight into local and national markets and be introduced to the most reputable Brazilian companies in real estate today.

There has been much debate in various media sources with regards to the issue of a bubble in Brazil – what are your (and ADITs) thoughts? Brazil is continuing to grow at a rate which shadows most of the rest of the world at the moment.  It is defying the world economists as it continues a pattern of combining economic growth with income re-distribution to its people.  Two years ago the government launched the Growth Acceleration Programme (Programa de Aceleração do Crescimento) spending $930 billion on infrastructure projects and the Minha Casa, Minha Vida project has been a runaway success – allowing low income families to get on the housing market for the first time.  The result is a massive building programme that I don’t think we have been prepared for.  It is true that we lack skilled workers, technicians and engineers and this has created bottlenecks in many infrastructure projects.  Money has been pouring into Brazil although the majority of international investment continues to be via shareholdings in listed companies.  The resulting inflow of non-productive capital is making the Real stronger and less competitive on the world stage. This is creating a barrier to entry for foreign investors that the government is acutely aware of and is working to combat.

Do you think that things may be coming more under control or is the pattern of rapid price rises likely to continue? Our domestic market continues to strengthen.  Brazil is now the 5th largest economy in the world – having overtaken France recently.  Inflation may be higher than other western countries, but it’s lower than many emerging markets and is relatively low by our standards (keeping it low is a priority for Dilma’s Government as it was for Lula’s).  I think we will continue to see prices rise in the next few years simply because of the continued strength of demand both domestically and internationally – but inflation will be kept in check.

What do you think about the future of the Minha Casa, Minha Vida programme? The initial government injection of R$ 64 million into the Minha Casa Minha Vida has kick-started the building of homes for the low to middle income social bracket.  The increased construction workers required to meet the ever-rising demand of the program has strong employment benefits and it has been one of the contributory factors to Brazil’s withstanding the effects of the global financial crisis.  Such a massive undersupply of housing throughout the country means the national building project of new residential developments was long overdue – particularly amongst the lower-working classes.  Now the poorer end of Brazilian society is assisting the country’s long-term growth.  However, only 650,000 homes were approved in 2010 (the large majority of which have not be delivered) and the government had a construction target of one million per year.  It is estimated that there are still 7.2 million homes needed today and it is predicted that figure will rise to 23 million by 2023 so the demand is not going to go away for a very long time.  Whilst the government’s decision to cut R$ 5.1 billion in discretionary spending related to the program recently is sensible, even after this reduction, the housing budget is still higher than it was in 2010.  But it is important to note that the brakes are being applied.

From what you are seeing, where are the most popular destinations for foreign real estate investors at the moment? Most international investors begin their focus on São Paulo and Rio and there are still superb opportunities for investment in both these cities.  There is talk of the São Paulo market peaking but it depends where you look.  The redevelopment of the docks area of Rio offers similar opportunities as seen in the London Docklands of the 1980s.  Many foreign real estate investors are also widening their focus on the 13 World Cup cities which are directly receiving $50 billion from the Brazilian Government to help make them ready for this event.  But I believe that this growth would continue anyway without the World Cup or the Olympics, and therefore real estate prices are very much on their upward curve.

Are there any new regions emerging in the country that are showing interesting prospects (such as in the centre of the country)? A lot of our major cities are on the coast, although of course Brasília is inland – a region which is demonstrating strong and stable growth.  Minas Gerais is a Brazilian state rich in minerals and responsible for nearly half of Brazil’s total mineral production.  But, in fact, it has a very diversified economy and the fastest private sector growth rate too.  Depending on how you do the sums, the state has the either the second or the third largest economy in Brazil. It is rich in agriculture – producing soya, sugar, corn and cotton, but also attracts high tech industry too in the form of thriving a biotechnology industry, an IT cluster as well as the largest Fiat car plant in the world.  The Northeast offers plenty of opportunities and the World Cup is helping investors to focus on four of the host cities which are located in this region – Recife, Salvador, Natal and of course Fortaleza where ADIT Invest 2011 is being held (May 10-12).

For someone who is interested in investing in property / land in Brazil – what do you think are the best ways to undertake research? A common comment that we receive is that price estimates are very speculative and not based on clear data.  There has been very little research undertaken on land prices, property sales, rental levels and yields in Brazil.  The Brazilian Tourist Board is providing some good tourism statistics which we can work with and we now have the likes of Price Waterhouse Coopers, Deloitte and Ernst & Young providing well researched reports as well large international surveying firms like CBRE, Cushman & Wakefield and Knight Frank.

What do you see as the main hazards / risks of real estate in Brazil in 2011? The biggest hazard to real estate is that developers are biting off more than they can chew.  The big national constructors are finding many of their projects have long delays.   Another big factor is Brazil’s lack of workforce – both skilled and unskilled.  Some of the developers have taken on too many projects and this is leading to bad client service and the quality of the construction is suffering in some cases too.

How can they be minimised? Steps are being taken to cool the market.  For example, at the beginning of March 2011, the Government released the details of the R$ 50 billion cut to the Brazilian budget expenditures for 2011, which includes a cut of R$ 5.1 billion in discretionary spending related to the Minha Casa, Minha Vida program.  Most developers are slowing down new launches and decided to adopt a more steady pace – concentrating on the products in hand.  Most of them have already too many developments under construction and they couldn’t launch any more if they tried.  There has been a huge investment in education. Brazil has created more educational establishments in the last eight years than we have in the previous 100 years. This includes education for thousands of people in all areas of real estate – surveyors, accountants, project managers, bricklayers etc.  The result of these factors is bringing a much-needed balance in the market cycle and therefore I can see evidence of more of a soft landing.

Can you tell us a bit about the ADIT event on May 2010? ADIT Invest 2011 is an annual event organised and promoted by the Association for Real Estate and Tourism Development of Brazil (ADIT Brasil) with joint effort from Apex Brasil, the Ministry of Tourism and the State Government of Ceará.  Professionals from the United States, Brazil and Europe will come together in the Capital City of the State of Ceará to discuss the latest market trends, identify investment opportunities and secure future business ventures.   ADIT Invest’s program is divided into three separate segments: the International Conference, which hosts the real estate world’s icons’ debates and panels about the sector; the Real Estate and Tourism Exhibition, an area where local companies and organizations can showcase their products / services and the Business Round, a place where negotiations and new business ventures take place.  In 2010, the event occurred in Natal, in the state of Rio Grande do Norte and hosted 1,450 participants including 120 international investors from 16 different countries including United States, Portugal, Spain and England. Fifty national and international journalists registered.  There was a R$ 1.8 billion revenue figure generated through 437 pre-scheduled meetings during the Business Round. Additionally, the event counted on Speed Networking – a quick-paced business card swap that allows one person to meet fifty others in less than an hour as well as the Interactive Round Tables, a unique opportunity for participants to debate with specialists on the most important and polemic subjects in Brazil’s real estate and tourism market.   The event in 2011 is sponsored by the Government of Ceará through its Secretary of Tourism.

A full list of participants registered so far can be found by clicking here.

Those interested in participating in ADIT Invest can register online at www.aditinvest.com.br or request information by e-mailing adit@adit.com.br.