The Brazilian Government owned, Caixa Economica Federal savings and mortgage bank announced remarkable figures with regard to home loans. The Bank has granted in excess of R$17.4bn in home loans in 2009, a 340% increase in lending from 2005 when Caixa granted R$5.1bn in home loans,.
Brazilian interest rates have fallen steadily over the period, reaching just 10.75% – almost half the 2005 figure of 19.75%.
This reduction stands hand in hand with the anti-cyclical measures that have been undertaken by the Brazilian Government to boost growth since the onset of the global economic crisis. At the heart of these is the Minha Casa, Minha Vida (My House, My Life) project, aimed at providing access to affordable housing for the masses. The initiative has reinvigorated the housing market at a time when Brazil’s construction industry was heading into decline following several years of strong growth.
This programme will pour R$60bn into Brazils housing market and given that the construction industry accounts for 5 per cent of Brazils gross domestic product this programme is giving a valuable boost to employment and earnings.
The Brazilian contractor, Goldfarb Construction, says his company will build 12,000-14,000 properties with this scheme in mind over the next year. Their President, Milton says This will provide about 70 per cent of our business this year.
Minha Vida is not the only indicator of a construction boom in Brazil. On the Sao Paulo Stock Exchange this year 11 of the 23 companies that have listed are property developers. Although the majority of these developers have aimed at the high end of the property market, which may have already reached saturation.
Caixa is responsible for promoting development of the affordable housing sector, which it does with subsidised interest rates and at spreads that commercial banks cannot match. For lower income families, the programme offers truly impressive subsidies, and in doing so allows people earning up to three times the national minimum wage of R$465 a month to buy flats or houses worth up to R$52,000.
The Government Subsidy varies according to the salaries of the applicants. A purchaser earning the minimum wage will get a subsidy of R$46,000 ” leaving the buyer to provide just R$6,000, which they will borrow from the Caixa and repay in 240 installments of R$46.50 a month.
Douglas Munro, president of US-based developer Hines in Sao Paulo states that one of the major reasons for this huge advance in lending has been the approval in 2004 of a law allowing lenders to foreclose on non-payers and seize their property in lieu of payment.
The international developer Hines is one of the few big developers to concentrate on middle and lower income groups, with homes costing on average R$100,000, for families with monthly income of about R$2.500 ” not poor by Brazilian standards, but certainly not wealthy.
Both Caixa and Hines say There is no bubble ready to burst, but investors need to be aware of the future outlook and not be blind to the pitfalls of doing business in Brazil.
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