1/28 brazil a safe option for real estate investment nelson germanos secovi-sp development and real...
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BrazilA Safe Option for Real Estate
Investment
Nelson Germanos
Secovi-SP Development and Real Estate Association
www.secovi.com.brNovember 2008
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SECOVI-SP represents a broad spectrum of the real estate industry since 1946
• SECOVI represents over 13,000 real estate companies and 37,000 condominiums in the State of São Paulo.
• Active member in most governmental committees in housing and urban development.
• Provides reliable market analysis and indexes to the industry.
• Maintains a broad real estate database for commercial purposes.
• SECOVI-SP is a solid and comprehensive gate to real estate developers.
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Brazil as an option for foreign investment
• The country is a consolidated democracy.
• Stable institutions.
• Independent judiciary system.
• Free capital flow.
• Foreign capital is welcome. Financial benefits to some activities.
• 400 of the Fortune 500’s biggest world companies have branches
in Brazil.
• No risk of earthquakes, hurricanes or other natural disasters.
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Brazil – some figures
Area →
Currency →
Population →
Population density →
Urban population →
Population growth rate →
Unemployment →
8.5 M sq km (3.3 M sq mi)
R$ - Real
188 M (2008)
22 inhabitants/ sq km
81.3%
1.2% (2006 – 07)
8.1% (July/2008)
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Economic Outlook (2007)
• Achieving self sufficiency in oil.
• Investment grade by Standard & Poors and Fitch Ratings.
• US$ 200 bn in international reserves.
• One of the biggest producers of agricultural and mineral commodities.
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Energetic Matrix
BRAZIL:
• Renewable sources: 45.8%
– Sugar cane: 15.7% (became the second main source of energy in 2007)
– Hydroelectric: 14.9%
– Wood: 12.0%
• Oil: 37.4%
• Natural gas: 9.3%
• Others: 7.5%
Renewable
Not renewable
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World GDP (PPP) (2003-2013)
30
35
40
45
50
55
60
65
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Source: IMF
Emerging markets Developed economies
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Brazilian Foreign Debt2000 - 2008
190,3
162,7 164,9150,9
135,7
101,1
74,8
4,3 -19,1
-50
0
50
100
150
200
250
2000
2001
2002
2003
2004
2005
2006
2007
2008
US$ bn
SOURCE: Banco Central do Brasil
(est.)
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2477 %
916 %
22%9,6% 5,2%1,7%
8,9% 6,0%7,7%12,5%9,3%7,6%5,4% 3,1%4,5%6,0%
93 94 95 96 97 98 99 2000 01 02 03 04 05 06 07 08
Source: IBGE
Plano REAL
Inflation rate
(est.)
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10
12,5
15
17,5
20
dec/0
3
mar
/04
jun/0
4
sep/
04
dec/0
4
mar
/05
jun/0
5
sep/
05
dec/0
5
mar
/06
jun/0
6
sep/
06
dec/0
6
mar
/07
jun/0
7
sep/
07
dec/0
7
mar
/08
jun/0
8
sep/
08
Source: Banco Central do Brasil
Basic interest rate
May/05 = 19.75%
Oct/08 = 13.75%
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Unemployment Rate2002 – 2009 (est.)
Source: IBGE / Bradesco
11,4%
12,3%
11,5%
9,8%10,0%
9,3%
8,1%
7,8%
2002 2003 2004 2005 2006 2007 2008 2009
13
7
10
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International Reserves
0
50
100
150
200
250
jan/
07
feb/
07
mar
/07
apr/0
7
may
/07
jun/0
7
jul/0
7
aug/0
7
sep/
07
oct/0
7
nov/0
7
dec/0
7
jan/
08
feb/
08
mar
/08
apr/0
8
may
/08
jun/0
8
jul/0
8
aug/0
8
sep/
08
oct/0
8
US$ bnSource: Banco Central do Brasil
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6,412,0
22,135,0 36,3 40,3
30,0 26,519,2
25,830,1 32,4
50,2 47,0 48,6
0
20
40
60
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Gross Foreign Direct Investments
Source: Banco Central do Brasil
US$ bn
(est.)
(est.)
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Source: UNCTAD / Bradesco
1º 465.391 USA
2º 405.978 United Kingdom
3º 256.009 China
4º 237.197 France
5º 182.948 Belgium
6º 124.165 Hong Kong, China
7º 107.397 Brazil
8º 105.080 Canada
9º 101.911 Germany
10º 95.616 Spain
11º 92.359 Italy
12º 76.510 Mexico
13º 70.703 Singapore
14º 68.994 Holland
15º 64.900 Russia
Foreign Direct Investments Ranking2003 – 2006 (US$ M)
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World Population Distribution
0
1
2
3
4
5
6
urban rural
In bn persons
Source: UN
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0,52
0,54
0,56
0,58
0,6
1993
1995
1996
1997
1998
1999
2001
2002
2003
2004
2005
2006
2007
Worse
Better
Gini Coefficient 1993 – 2007A low Gini coefficient indicates more equal income or wealth distribution, while a high Gini coefficient indicates more unequal distribution.
Ratio ranges from 1 to 0
SOURCE: Banco Central do Brasil/ IBGE
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Real Estate Market
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Regulation
• Brazilian real estate credit market was excessively regulated.
• Important regulatory changes were carried out by the government as from 2005.
• Private banks gained access to the real estate credit market, increasing competition.
• Nonetheless, strict requirements always applied (and currently applies) to personal credit assessments.
• Among others, risk analysis by financial institutions include frequent and thorough inspections of the project, worksite, proposed schedule, legal and environmental documentation.
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Owned vs. Rented houses (2005)and Housing Deficit
• Owned 45.6 M (86%)• Rented 7.4 M (14%)
• Total 53.0 M (100%)
• Housing deficit 7.9 M
Source: IBGE
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City of São Paulo
Area : 1,530 sq km
GDP : US$ 157
bn
GDP (per capita) : US$ 14,000
Population:
São Paulo City: 11 M
Metropolitan Area: 19.8 M
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Atlantic Ocean
São Paulo Metropolitan Area
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Foreign investment in the Brazilian real estate market
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Foreign Investment in Real Estate
Capital markets (listed companies, investment funds); Direct investments in unlisted Brazilian companies; Direct foreign ownership of real estate (restrictions to
rural areas may apply).
• For many years, real estate investment in Brazil and other emerging markets were only possible through direct investment in specific projects.
• In Brazil, recent financial deregulation and strong development of capital markets stimulated IPO’s, as well as the institution of dedicated investment funds.
• Investment options include:
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IPO’s in 2007by sector
1st Real Estate: 28.1%
2nd Financial: 21.9%
3rd Food & Beverage: 7.8%
4th Agribusiness: 6.3%
Total: US$ 34.6 billion
Source: ANBID – Associação Nacional de Bancos de Investimento
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Who invested in the IPO’s
1st Foreign investors*: 73.8%
2nd Local Investment Funds: 19.6%
3rd Private investors: 6.6%
*Origin: USA = 61.1%; Europe = 35.3%; 3.6% other
Source: ANBID - Associação Nacional de Bancos de Investimento
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Corporate Office Space City of São Paulo (AAA Buildings)
Total stock (2007):New stock (2007):
Estimated new stock (2008):Vacancy Rate (q2 - 2008):
2.2 M sq m136,000 sq m179,000 sq m
7%
Source: Jones Lang Lasalle
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1 2 816
34
90
147
240 252 254 257262
351367
382
0
50
100
150
200
250
300
350
400
1966 1976 1986 1996 2002 2004 2006 2008
Brazil: Shopping Malls
Source: ABRASCE / SONAE / ENPLANTA / National Research Bureau
Cidade Jardim Mall
São Paulo State = 123 (2008)
In USA: 48,700 malls
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Second Home Purchases2007
79% of foreign buyers have already visited the country.
For most foreigners (76%), the main attraction for investing in the country were climate and natural beauties.
Source: Folha online
Property purchases by foreigners in Brazil totaled US$646M
U.S.A. US$ 102 MEurope US$ 450 MSpain US$ 82 MItaly US$ 63 M
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SÃO PAULO
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SÃO PAULO
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SÃO PAULO
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RIO DE JANEIRO
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RIO DE JANEIRO
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BELO HORIZONTE
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BELO HORIZONTE
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PANTANAL
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AGRIBUSINESS IN MT: SOY
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VITÓRIA
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SALVADOR
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SALVADOR
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RECIFE
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PORTO DE GALINHAS
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MACEIÓ
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MACEIÓ
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JERICOACOARA
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PORTO ALEGRE
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SANTA CATARINA
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SÃO JOAQUIM
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BLUMENAU