How long will growth last?
Real Estate demand has 3 main drivers:
2- Economic Growth/Available income
Having this in mind, the response to the above question should take into consideration the expected evolution of these three variables in the Brazilian economy within the expected future.
Brazilian population growth has reached a moment in history in which the rate at which young people reach productive age is much higher than that of older people retiring. Known as the “Demographic Bonus”, this situation will last for the next 10 to 15 years, causing a strong expansion of the work force and driving consumption for all segments of the economy.
RE in particular will be very demanded by young people leaving their parent’s home to live alone (first home), but demand should be spread out to all other segments as well.
2- ECONOMIC GROWTH
For the first time since the 1970’s Brazil has experienced a long cycle of stability and economic growth, as a result of deep reforms implemented by Fernando Henrique Cardoso and high international demand for its commodities. Lula also implemented wealth distribution programs which helped spread out this wealth, resulting in the development of a strong upcoming middle-class, a driver of economic growth in the long term.
Until a few years ago, Brazilians had pretty much no access to credit. With the economy stabilized after 2004, credit began to expand, first for small ticket purchases (TVs, furniture), then to automobiles and finally to Real Estate. Nevertheless, since this is a recent phenomenon and rates used to be very high, Brazilians are not very indebted in average terms. Though the SFH funding could conceivably end within a couple of years, resources from other sources such as Private Equity, Bank funding and Securitization, with local and foreign resources, should still have a significant role in providing credit for mortgages in the long run.
Having these issues in mind, we can expect demand to remain strong for many years, even if, due to the international economic slowdown, there may be moments where the market won’t perform with the same exuberance seen in 2010.
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