BRAZIL’S next president will act to anchor the country’s rising currency to better vie with rival exporters and lure foreign real estate buyers, the head of the state- backed agency for growing its property sector said.

‘As our finance minister said, we are in a currency war. I think it’s clear the winning candidate will do something regarding that,’ Felipe Cavalcante, president of the Association for Real Estate and Tourism Development (ADIT), said.

‘Other countries are interfering a lot and Brazil’s industry is suffering, certainly. Something must be done,’ he said.

Brazil’s presidential election is next week, and the main contenders are Dilma Rousseff, the representative of the ruling Workers’ Party and currently led by President Luiz Inacio Lula da Silva, and the main opposition candidate, Jose Serra.

Earlier this week, Brazil’s Finance Minister, Guido Mantega, said he feared for Brazil’s future competitiveness, after a slew of Asian central banks intervened to cheapen their currencies to boost trading prospects and shore up sagging economies.

The Brazilian real tiptoed over the 1.70 mark against the US dollar this week, consolidating its status as one of the world’s strongest performing global currencies in recent months.

This has made foreign investment in Brazilian real estate relatively expensive, when compared with repriced assets in the more developed US and European markets, but Mr Cavalcante said institutions and funds were becoming more active in the country.

‘I think within two years we will see another real boom in terms of foreign investment in Brazil real estate.

‘In the US or Europe, we can see there are cheap opportunities but people are starting to realise that they need to be present in the BRICs, especially Brazil,’ he said.

Foreign direct investment in Brazilian real estate hit US$1.7 billion in 2008, more than double the sum invested in 2007, data from ADIT showed.

Mr Cavalcante said the yet-to- be published 2009 figure would likely fall below that peak due to global banking turmoil, but added 2010 could be a landmark year as investors raced to grab a toehold in the market before Brazil hosts the World Cup in 2014 and the Olympics two years later.

Mr Cavalcante said property inflation triggered by the two sporting events was not the only reason why annual double-digit hikes in values were possible over the next five years.

‘The fact is our prices are historically some of the cheapest in the world. Our mortgage market is expanding and that means investment demand is steadily rising,’ he said.

‘The growth of the economy has led to the growth of the middle class and the population of Brazil will keep growing until 2016 so we will have millions of new young people entering the market over the next six years,’ Mr Cavalcante said.

Mortgage lenders are extending access to credit to Brazil’s increasingly wealthy population, many of whom are keen to own or modernise their homes in the near future, a trend also observed in its BRIC competitors Russia, India, and China.

Mr Cavalcante said he expected Brazil’s mortgage market to hit 70 billion real (S$54 billion) in 2010, before growing to 300 billion real in 2014, as banks step up mortgage lending operations.

As many as 1.6 million new homes would need to be built each year until 2020 to satisfy demand from first-home families, he estimated, with demand from investors and second-home owners boosting this figure by about 10 million over the next decade.

‘This market is not based on speculation. It is not people buying and waiting for property to rise in value. All of this growth is based on demand. That is very different from Shanghai or Dubai or Spain. That makes us very confident,’ he said.

Meantime, Mr Cavalcante said the result of next week’s presidential election would re-energise domestic real estate investment interest, following a customary pre-election lull in recent weeks.

Opinion polls published on Wednesday put Ms Rousseff ahead of Mr Serra in a contest that could deliver Brazil’s first female president.

Mr Cavalcante said the interests of Brazil’s burgeoning property market would be well-served under either individual.

‘I don’t think there will be any difference between them in terms of attracting international investors . . . There is no sign they will change policy,’ he said. — Reuters

Source: Business Times, 2 Oct 2010

Investors attracted by investment grade rating and robust demand

(NEW YORK) Bricks in one BRIC country could soon be a hot commodity.

Brazil – one of the four core BRIC emerging markets, along with Russia, India and China – is a future host of the World Cup and the Olympics, and is drawing global investor interest to its real estate sector, which could see a record year in 2010.

Investors are drawn to the country’s investment grade rating and robust demand for everything from housing to hotel rooms. Brazil needs new retail space, warehouse and distribution centres and offices to support an economy whose growth is second only to China’s, analysts and investors said.

Equity International, a specialist in emerging markets, was among the early Brazil boosters, drawn by the upgrade of Brazil’s sovereign debt.

‘The waves of capital come and go,’ said Gary Garrabrant, chief executive officer and a co-founder, with Sam Zell, of Equity International. Mr Garrabrant was racing to the airport for his monthly trip to Brazil. ‘We’re now in a wave,’ he said. ‘Brazil has earned the opportunity.’

Though current enthusiasm, especially visible among North American investors, could still fizzle, Brazil’s economic growth is increasingly seen as sustainable, while inflation is down to levels more typical of developed markets.

Equity International, the largest owner of retail properties in Brazil, is looking at logistics and warehouse space to support expected growth and to serve multinationals such as Colgate- Palmolive Co, Procter & Gamble Co and Baxter International Inc.

The investor owns stakes in two private and three public names; the three public ones are developer Gafisa, entry-level homebuilder Tenda and retail property company BR Malls.

It is looking for stakes in three to five more companies in the next few years, calling Brazil a 10 to 20-year opportunity.

One of the world’s largest infrastructure buildouts is under way in Brazil that will ‘open up new territory to economic activity and commodity extraction’, said Goldman Sachs analysts in an Oct 23 note. That positions Brazil to meet global demand, especially China’s, they said.

Deal flow will pick up by the middle of the first quarter, said Steve Collins, managing director of Jones Lang LaSalle’s International Capital Group, a global broker.

‘You’ll see traction, as some of the international funds who have been raising money start to buy there,’ Mr Collins said.

Other big players in Brazil are private equity firm Tishman Speyer Properties, Hines Real Estate Investments, investment manager TCW Group Inc and Canada’s Brookfield Asset Management, Mr Collins said.

Brookfield’s Brazilian real estate unit, with interests in 15 shopping and office properties in Rio and Sao Paulo, recently raised US$272 million. Private equity group GoldenTree InSite has also been active.

Still, prospective deals may not be finalised. An earlier wave of hot money cooled abruptly amid the global economic crisis as investors preferred home markets.

Analysts have noted that European investors are focused more on China and India and their own markets than on potential Latin American treasures.

But the cornerstones for a healthy real estate sector are in place: a growing, educated population, consumers who are conservative users of credit, high projected rents and low vacancy rates. Sao Paulo’s vacancy rate of 9.5 per cent for office buildings is below Beijing’s vacancy rate of 27 per cent, Moscow’s 23 per cent, and Mumbai’s 10.4 per cent.

Meanwhile, the government has made mortgages more accessible; deals and pricing are more transparent; and reforms make it easier to move capital in and out of the country.

Redevelopment of Rio’s crucial port could also drive investment, as will construction of infrastructure and hotels needed for the 2016 Olympics.

‘The Olympics showed they got their act together,’ Mr Collins said. He added that Brazil is perceived as more stable than Mexico, and deals are more likely to close there than in Chile.

Among recent deals, Portuguese hotel group Porto Bay acquired the boutique L’Hotel in Sao Paulo. BR Malls, formed by GP Investimentos and Equity International, bought a shopping mall.

The interest in Brazil comes amid a global downturn in commercial real estate investments, caused by a credit crisis to which Brazil has not been immune.

Cross-border investments there added up to less than US$1 billion in the first half of 2009, with private equity funds accounting for almost half of all deals. That compares with US$1.5 billion in all of 2008 and US$3.4 billion in all of 2007.

Amid looser credit markets, the next investment wave is building. But investors still face risks from currency and lease terms.

Short-term leases are the norm, making it hard to gauge future returns. Also, the dearth of recent deals means that there is little comparable data on which to base prices.

Equity International’s Mr Garrabrant, instead, worries about too much money showing up too quickly.

‘When large institutions arrive, they often arrive at the exact same moment,’ Mr Garrabrant said. ‘Too much public equity or private equity can be disruptive.’ – Reuters

Source: Business Times, 5 Nov 2009