Foreign Investment in Brazil´s Property Sector Reaches Record Levels

Research by Ernst & Young Terco (EYT) has demonstrated that the first half of 2012 saw total foreign investment levels in Brazilian real estate reaching between R$ 5 and 10 billion – with the GDP of such investments in the country being estimated at over R$ 170 billion and expected to rise within the next 10 years to R$ 270 billion.

The main reasons cited for the growth were the wider demand levels, rising incomes and increasingly present profitable opportunities in the country´s construction sector. It was also pointed out that the average gross operating profit in the Brazilian property market is currently doubling what is achievable in the USA and China.

Via the Brazilian Attractiveness Service, the EYT stated that 60% of the multinational company directors interviewed see a positive future for Brazil – with 30% believing in an expressive impending rate of growth in the property and construction sectors in the next two years. The World Cup 2014, Olympics 2016, petroleum sector growth were also quoted as encouraging factors.

Further research demonstrated that whilst the volume of capital in developing world countries is currently at an average of 4.3 times the size of their GDP, this volume is 1.5 times the size in Latin America which the EYT believe, in turn, is like to increase wholesale financing costs for lending institutions. It was stated that the developed world is witnessing an excessive concentration of capital, labour restrictions and lower returns. Emerging countries such as Brazil, on the other hand, are seeing more promising signs of economic stability, income security as well as better risk-return patterns.

Nevertheless, it was pointed out that – if the Brazilian economy continues to grow at its current pace, there could be a mismatch in the relationship between supply and demand which could provoke price volatility. However, it was claimed that the reduction in demand being witnessed in 2012 will not alter open market values in the immediate future.

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