Brazilian Price Drop Presents Investment Opportunity

New data for the housing market in Brazil has shown an overall fall in prices for a second consecutive month. Between August and September, the FipeZap index showed the average cost per square metre of real estate for residential properties dipped by 0.12 per cent.

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The latest figures were revealed on October 2nd, and showed a continuing decline for the housing market. The Economic Research Foundation Institute (Fipe) collated data from 20 cities across Brazil and averaged the declines to calculate the final number. The drop marks the second month in a row that a fall’s been noted. It’s also the largest drop for a single month since the FipeZap index began in 2011. Coordinator of the research, Eduardo Zylberstajn, said: ‘It’s a continuation of the movement that we have been seeing for some time now with a nominal fall.’

Eight cities saw property price declines

Of the 20 cities surveyed, it was shown that eight noted a month-on-month drop for the price of real estate. Porto Alegre experienced the worst decline, with a fall of 1.26 per cent, whilst Rio de Janeiro was second on the list with a 0.52 per cent drop. Florianopolis, Contagem, Brasilia, Niteroi, Goiania and Recife followed, with slumps of 0.31 per cent, 0.22 per cent, 0.16 per cent, 0.15 per cent, 0.09 per cent and 0.04 per cent respectively. However, despite the fall in prices, Rio de Janeiro remains the most expensive place to buy residential estate in the country. Here, the average cost per square metre is R$10,538 – far higher than the national average of R$7,604.

Property variations remain under inflation rate

It was also revealed that property price fluctuations in the FipeZap index are lower than Brazil’s national rate of inflation. This is the ninth consecutive month such figures have been seen, and was the same for all 20 cities. Despite this, Fipe still expect the index to experience an increase of 0.9 per cent by the end of the year, building on its 2.63 per cent rise when compared to the same period in 2014.

Sao Paulo becomes second most expensive city

With many cities noting a decline in real estate costs, Sao Paulo remains the county’s second most expensive city. A small increase of 0.08 per cent was noted for its residential property, helping to close the gap between it and Rio de Janeiro. The average cost for one square metre is now R$8,614. However, the city has still experienced some effects of the national decline, with upmarket neighbourhoods seeing price growth cool. Between August 2013 and 2014, Sao Paulo’s 20 top areas saw value increases of 12 per cent. In comparison, only Jardim Paulistano saw a double digit rise in August 2015, rising by 14.7 per cent.

While Jardim Paulistano and Itaim saw price gains in line with inflation, the remaining 18 neighbourhoods rose at a rate below inflation, resulting in a real value decline. Campo Belo, Jarins and Sumare all remained stable, while Vila Madalena has experienced a 1.9 per cent drop over the past year.

Economic crisis to blame

The slump in real estate prices has largely been blamed on Brazil’s economic crisis. High inflation is making loans more costly, whilst unemployment is making banks nervous and, as a result, affecting mortgage availability.

The long-term outlook

Although the market in Brazil is presently in negative territory, a canny investor could see this as an opportunity to obtain some highly desirable real estate at bargain prices. Property prices do not remain low forever and for the more courageous investor the eventual ROI in Brazil could be high.