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According to statistics provided by Brazil’s six leading property development companies, revenues have increased six times since 2008 with over R$ 24 billion collectively raised via investors on the stock exchange.  Yet, whilst the high level of demand for real estate is well known, the majority of the key market players recent performances have been demonstrating signs of weakness  – with statistics divulged by Exame magazine pointing to profit drops over the last 12 months by Gafisa (45 percent) Trisul (44 percent) and Cyrela (32 percent).

Reasons for the declines were also analysed in the article (which can be read in Brazilian Portuguese directly here) and included an estimated 10 percent rise in the cost of construction inputs and labour over the last year as well as reports of a backlog of unhappy clients.  According to JP Morgan, the number of complaints against Brazilian construction companies (via the Procon consumer defence organisation) has doubled since July 2010.

Gafisa, the third largest company in the sector (that Sam Zell divesting many of his shares of in 2010) achieved revenues of R$ 4 billion in 2010 – 23 percent higher than compared to the year previous when Brazil was marginally hit by the global economic crisis.  In the first quarter of 2011, sales had fallen by 7.5 percent and profits by 79 percent – the executives state that this was due to the acquisition of the low income housing constructor Tenda in late 2008.  Specialist in Brazilian real estate law, Marcelo Tapai pointed out that the company had debts of R$ 73 million at this point and to stem the effects of the losses, the number of works started by Tenda slowed by over half up to mid-2009.  Furthermore, between January and June of this year, 250 court cases were initiated against the group.

Another flawed strategy pointed out in the article was the formation of partnerships with small and medium development companies.  Cyrela, for example, boosted the number of third parties it worked with the intention of expanding further into Brazil.  According to the statistics, 30 of the 209 projects in motion are costing 5 percent more than was originally predicted and 19 are delayed by over 6 months (in April, the company announced its intention to reduce the numbers of partnerships it has).

Despite being a segment of the market that remains significantly under-supplied, the majority of developers still see the low income housing market as high risk.  President of São Paulo based Trisul, Jorge Cury Neto – whose company has seen a 40 percent drop in market value over the last 12 months – stated to the magazine: ‘we are not prepared to move into affordable housing – we will focus on the market that we understand the best: the medium and upper class São Paulo resident’.  The company has a launch portfolio valued at R$ 300 million of which 20 percent is aimed at the low income sector.

Despite the seeming negativity, analysts interviewed by Exame believed the market should improve leading into 2012 due to the fact that buyer demand remains strong and that developers are learning from their mistakes.