The Real Estate Boom in Sao Paulo: Brasil Investment Summit
• What are the sectors with the best opportunities for institutional investors?
• Investment vehicles for institutional investors –where are the opportunities to get in the market?
• Should institutional investors move directly into real estate opportunities?
• What are the bubble risks in Brazil right now?
Commercial property in Sao Paulo is currently overpriced. Sao Paulo currently has prices equal to that of New York. The low-income housing program in Brazil has been a success, but it’s a hard place to make money. Margins are so tight. If you are a yield investor, retail and industrial are attractive. Many developers don´t have access to traditional capital to buy land. Middle income that is not helped by a government program will be financed by commercial banks. Brazil currently needs R$300 bil to provide for the lack of housing. Middle market housing financing is a very untapped market that looks very attractive.
Sao Paulo ownership is very different in old parts of properties. It is very dispersed, and buying the property can be very difficult. For this, and other reasons, it is not likely that old parts of the city will begin a retrofitting trend.
The panel agrees that it is not advisable to invest in construction in Brazil without an asset manager along your side. With respect to the currency, it is not a good idea to use USD or Euros to invest in a Brazilian office building today.
Traditionally, developers financed sales to the end users. There is a strong trend towards monetizing their receivables via MBSs. Brazil is in the very early stage of securitization, though. It is not possible to leverage more than the value of the property. If someone wants to provide a second financing, it will not be noted. As a result, all MBSs and mortgages are over collateralized. There is no risk of Countrywide´s in Brazil.
By Michael Pieper, Brasil Investment Summit