Extracts from Press Articles on
the
Brazilian Economy & Future Outlook
Brazil: Mainstream mortgages 'still emerging'
5/16/2008
Access to mortgage loans is increasing all the time in Brazil...
Brazil is South America’s largest economy and the seventh largest consumer market
in the world. Recently Goldman Sachs bracketed Brazil with Russia, India and China as the “BRIC” countries that
collectively represent the world's economic future. Thus there are reasons to believe that South America's
economic powerhouse of 190m people is starting to be taken seriously on a global level.
A Brief History of the Mortgage
Market
Until relatively recently, mortgage lending in Brazil was highly restricted, due
to a combination of limited products, chronically high inflation rates and a prolonged financial crises that
impacted confidence in the financial market.
But the first steps towards the development of a domestic mortgage market were
taken as early as 1994, with the implementation of the economic stabilization plan called Plano Real. This
package of measures was the first in a series of actions that the Brazilian government has taken to satisfy the
ever-growing housing demand of the Brazilian people.
Mortgage finance companies were
first introduced in 1995. They are not subject to any restriction on LTV, interested rate, maximum loan size or
how they can fund the purchase of real estate. Despite all this, 10 years later there are only 6 operational
lending institutions and the market is dominated by one major player.
Since the 90s the main lender in Brazil has been the Caixa Econômica Federal
(Brazil Central Bank) which originates 70% of Brazilian mortgages, financing USD $11.2 bn of Brazils total USD
16bn residential mortgage market.
The remaining 30% is serviced
by private and state- owned multi-chartered banks. Bank financing for home acquisition remains
relatively low in proportion to the overall volume of sales and many people instead take up other payment
services offered either from the government (for affordable housing) or from real estate
developers.
Where next?
There is a severe housing
shortage in Brazil, and population growth rates (0.98% in 2008) mean that this deficit will grow from 7.2
million to 12.45 million in the next 15 years. Brazil owner occupier rates were 73.7% in
2004, a level which is not thought to have changed significantly in that time. In 2005, 594,000
properties were sold domestically in Brazil; out of this only 38% were financed with
mortgages.
Banco Santander estimates that
with the current growth in demand, more than 1 million homes will be sold each year by 2010, with mortgages
accounting for an increasing proportion – up to 60% by that point.
The government of President Lula has devoted to resources to tackle the housing
shortage. His main aims and results were the provision of more funds for the purchase of affordable homes,
increase of housing loan-products and making bank finance available that would relieve real estate developers
from the burden of lending money and thus exposing themselves to credit risks and additional operation
costs.
Diverse products
As interest rates maintain their downwards trend in Brazil, competitors have
started to introduce diverse products able to compete with the Caixa Econômica Federal. These retails banks are
showing an increasing ability to service ever-larger portions of the population, which will likely result in
more widespread use of loan products such as mortgages in the medium and long term.
With demand for new build property and real estate prices both set to continue
increasing in the coming years in line with the country demographic growth, the increasing stability of the
local economy and the increasing access to credit, investors and developers operating in the Brazilian domestic
housing market should see several years of plenty ahead of them.
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