Why Invest in Brazil?
With Foreign Direct Investment pouring into Brazil from sources as diverse as David Beckham and Dubai International Capital the country is now well and truly on the radar of international property speculators, institutional funds and holiday home purchasers.A truly beautiful country with some of the world’s best beaches and friendliest people it is apparent that the economy and political culture have matured so successfully in recent times that the property market is now one of the most buoyant and exciting on earth.
With job creation at an all time high, both inflation and interest rates at record low’s, an increasingly aspirational population and a tourist industry the envy of Latin America the country appears unfazed by the credit crunch.
According to Jonathan Garner of Morgan Stanley: “The best strategy could be to buy land and property in emerging economies. I have been recommending to my clients that they consider investing in growing markets such as Brazil for a number of reasons, the chief of which is the credit crunch has very limited relevance to many emerging markets. Not only are the banks in good shape, you've also got households that are not overextended”.
We maintain that this is a fantastic time to invest in Brazil. Here is an overview of the major reasons why:
Economy :
Brazil’s economy grew at an annual rate of 5.8% in the first quarter of the year and was bolstered by rising food prices and construction costs.It is Latin America’s largest economy and rich in both human and natural resources. It is benefitting from commodity and farming booms as well as the fact consumer spending is increasing through rising incomes and the cheaper availability of credit.
Recent times have witnessed a massive growth in Foreign Direct Investment. In 2007 the figure doubles to $37.4 billion exceeding both India and Japan. The first quarter of 2008 has seen almost $12.7 bn reach it’s shores representing an increase of over 26% from the same period in 2007.
Banking, trade, mining, property and vehicle sectors are booming leading to the US credit agency Standard and Poor recently upgrading its status to Investment grade.
As the Brazilian Finance minister argues “the subprime crisis hasn’t arrived at the beaches of the Copacabana. As the crisis unfolds, Brazil stays unfazed. That shows we are a solid economy”.
Industry :
Brazil’s industry sector is currently booming. It is the world’s largest exporter of iron ore and is a significant producer of soya, grain and meat.Brazil’s other natural resource is oil. Petrobas, Brazil state oil company have found oilin the deep waters off the coast of Brazil. Estimates are that there are between 5 and 8 billion barrels. Furthermore the oil is light-crude which is less expensive to refine and worth more. Petrobas has also announced there maybe further oil deposits nearby When extracted this will significantly boost the economy.
Brazil also has a strong manufacturing industry producing steel and cars. It is the largest producer of biofuel cars which are seen by many commentators as a viable solution to the question of transport and environment.
Politics :
Responsible leadership of the macroeconomy and fiscal matters has seen Brazil achieve sustainable growth over the last decade. Record breaking export performances have translated into a growing economy that is creating millions of jobs. Inflation and interest rates have been lowered, the currency strengthened making it a good environment to invest in real estate. It is now a country committed to economic responsibility and the rule of law!The government is actively encouraging foreign investment and is investing heavily in infrastructure improvements. The President, Luiz Inacio da Silva announced when re-elected in 2006 a growth acceleration package which included housing and infrastructure investment of around $236 billion over a 4 year period.
They appreciate that tourism and property investment are intrinsically linked and are addressing what needs to be done in a positive manner.
Tourism :
Brazil’s tourism industry has grown almost 150% in last few years according to government official statistics. The target is to attract 9 million tourists each year fuelling the demand for short term rentals and property investment in Brazil.Large numbers of quality resorts are being built, particularly in regions such as Natal and Maceio. However demand still outstrips supply with a shortfall of approximately 8 million properties.
It is a very popular destination at the moment of course with over 5 million foreign tourists visiting in 2007. 700,000 of these travellers came from the states while almost 2 million arrived from throughout Europe.
The tourism growth in Brazil is highlighted by reports from aviation industry experts who estimate that 300 extra passenger aircraft will be required over next 20 years to meet demand.
According to Airbus “Greater capacity is needed because the South American Country is becoming more popular with leisure travellers. Indeed, the rate of growth during the next few years will outpace the global average. Since the mid 1990’s, international passenger traffic has doubled, and with Brazil being the major economic player in Latin America, air traffic has grown immensely, and will continue to do so with even more amplitude during the next 20 years at least”
Increasing Local Demand :
Due to a severe deficiency of available housing for Brazilian residents - some 20% of the population lacks adequate accommodation – there is a huge demand for additional properties. The country’s construction and real estate companies are building as fast as they can to meet demand and help alleviate the housing deficit concern. Money that has been pouring in from foreign investment - around $4.8 billion since September 2005 – has been used by the organisations to start work on new housing projects.With a large proportion of Brazil’s 190 million residents showing an increasing interest in buying property, the current introduction of new mortgage laws and the growth in property development should make home ownership a more likely option for an ever increasing proportion of the population.
The World Cup Effect
Brazil is to spend $1.2 billion renovating its stadiums for the 2014 World Cup finals including rebuilding four stadia whilst the remaining 6 would undergo substantial renovation including the infamous Maracanã stadium in Rio de Janeiro, which hosted the 1950 World Cup final and has already undergone recent reforms at a cost 200 million reais ($115 million). Economist Carlos Langoni estimates it will cost at least 6 billion dollars with the vast majority being spent on The remainder would be earmarked for infrastructure: roads, railways, airport modernization, telecommunications, power supply networks, hotels, etc.Many Brazilians believe this prestigious event will put the country firmly on the international stage. Antonio Lopes, a former Brazilian international, told Reuters: “I think this is going to help not only football but will help the country as a whole.”
“Brazil will benefit financially and economically.” he added.
In an interview with Brazilian TV channel SporTV, bestselling Brazilian author Paulo Coelho believes “That is going to change the country, it is going to unveil another country to the world - a country that needs to be unveiled. It is going to change everything,”.
The competition offers Brazil a fantastic opportunity to market the country as a first class tourist destination. It will create a huge demand for short term accommodation and leisure services. The President of Embratur. Jeanine Pires, has said they hope to attract half a million foreigners as part of the spectacle. An influx on such a scale will have a very positive impact for property investors.
With games traditionally played in a variety of locations throughout the host country, this is likely to showcase many of the country’s major cities, potentially boosting interest from both holidaymakers and overseas property investors.
Lula da Silva, Interview with Clarín, September 2008
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