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Perhaps more so over the last year, it has become increasingly acknowledged and accepted by all involved in the Brazilian property sector that a period of cooling off is impending – whether this would be via the early 2012 statements of the country´s leading developers slowing down their launch / operational plans; the inefficiencies of the Minha Casa, Minha Vida programme; issues related to the contraction of labour or a number of other contributory factors. Whilst the question as to if Brazil´s bubble burst will be as impactful as what occurred in Europe and the USA is another debate, it is worth looking a few of latest circulating arguments related to housing accessibility in order to understand the realities.

One graph that was recently produced by the FIPE / Zap property index (based on asking prices via the Zap property portal) demonstrates the number of working months (earning an average wage) needed to be able to buy one squared metre of real estate in the country´s predominant economic regions: São Paulo and Rio de Janeiro.  In January 2008, it was necessary to work 2.9 months in order to be able to purchase 1m² in São Paulo and 3.8 months in Rio de Janeiro. As at November 2011, this grew to 5.99 months in São Paulo and 7.49 months in Rio de Janeiro.  According to Luciano D´Agostini illustrating the issue on the INVA Capital blog, despite what has been an increase in income over the last 4 years, the purchasing ability for the majority in relation to the price of properties has decreased by a half.

In the video below, Samy Dani from the Getúlio Vargas Foundation indicates how acquiring property in central São Paulo is currently not yielding greatly and investors would be better off placing their funds in savings accounts:

In another INVA Capital blog post, D’Agostini applies a comparison between the real estate markets of Brazil and USA – demonstrating that the nominal per capita income level in Brazilian reais over 11 years increased 2.8 times up until a drop was seen between 2010 and 2011.  Over the same period in the USA, the rise was 1.4 times (in dollars) before stagnating in 2007 upon the onset of the property bubble, followed by a slight rise in 2009.

Looking at the evolution of price comparisons over the 11 years, D’Agostini uses the Shiller 20 index to examine the prices of properties in the USA and the General Index of the Commercial Property Market Index (Índice Geral do Mercado Imobiliário Comercial- IGMI-C) published by the Getúlio Vargas Foundation and the Bovespa stock exchange for Brazil.  With the bursting of the USA’s property bubble occurring in 2007 (the culmination of its peak which began in 2004), Brazil was still witnessing a period of price growth which began to move at rates much higher than what was seen between 2000 and 2007. Between 2000 and 2008, the growth of Brazilian per capita income was above the growth in property price which formed the basis of how the market was judged (income rises determining price movements).

From 2008 onwards the indicators demonstrated an inversion of this process – with what is described as the initiation of a period of “hyper-inflation” largely fuelled by the growth of the housing credit market which significantly outpaced earnings levels.  In the USA, from 2000 to 2007, the growth of per capita income was broadly in line with the inflation of real estate prices. However, as the growth of income slowed in pace in line with the property prices, the relationship stopped meaning that the prices in USA inflated strongly due to the rapid expansion of credit between 2000 and 2006.

As prices in the USA have fallen heavily since 2007 and per capita incomes have grown lightly, today the relationship between the two is almost identical to what was the case in 2000 when the bubble started to form (yet at the current time it would be difficult to purchase in the USA without direct cash investment due to the limit availability of housing credit).

It is D’Agostini’s belief that with what he sees as forthcoming drops of between 15 to 35 percent in Brazil – to purchase real estate and resell in 2-3 years does not represent an excellent opportunity as the period has already past of strong growth in prices (the time to have done this was 2007/08 to resell in 2010/11).

One commentator to the D’Agostini blog post has argued that Brazil cannot be compared with the USA due to very different fundamentals (interest rates, taxes, banking systems and policy); another pointed to the significantly advanced housing production capacity of the USA compared to Brazil (which led to an over-supply in the former) whilst others – as is increasingly becoming the case – see more chances of the bubble bursting in Brazil as a result of indicators such as these.