Investors worried about an overheated Chinese housing market need only turn to Brazil. This real estate market has legs. And the recent five year real estate boom there has a good five more years before home values stop appreciating.
"The best way to participate in the real estate boom as an investor at this point to invest in real estate funds in Brazil," said Marcus Vinicius de Oliveira, executive director of real estate valuation firm Consul Patrimonial.
That kind of comment is smooth bossa jazz to the ears of fund managers like Joel Wells, who runs the $356 million Alpine International Real Estate Fund (EGLRX). The fund holds a number of Brazilian home builders and commercial developers.
But despite the generally positive long term outlook for Brazil's housing market, a slower economy and a sovereign debt crisis in Europe has undercut that more positive story line about emerging market housing booms, including those in sunny Brazil. Well's fund is down 28% year to date.
Housing prices have cooled in recent months, but are rising year over year. Interest rates are falling to single digits once again as inflation begins to ease on account of the global economic slowdown taking its toll on Brazil.
That hasn't stopped the fact that Brazil's middle class is now the majority of the population for the first time ever and they have money to burn.
There’s more to Brazil’s real estate boom than the government low-income housing program My Home, My Life, which drives much of the market interest in names like Gafisa (GFA) and Cyrela Realty (CYRE3).
Major private equity firms are investing in hospitality companies rumored to have A-list investors like Warren Buffett chasing them down for a possible stake. Shopping mall operators like BR Malls (BRML3) are raising capital in secondary offerings, and investors are oversubscribing to new issues.
So what's with the 2017 deadline? Brazil's building out for the 2104 FIFA World Cup. That's soccer to non-soccer fans, and Brazil is building new stadiums, but also hotels and housing. In 2016, the Summer Olympics come to Rio de Janeiro.
Oliveira at Patrimonial thinks demand for both housing and commercial properties will remain relatively high until things slow after those parties are over.
"There's a psychological margin that Brazil real estate enjoys at the moment due to the oil discoveries off the coast of Rio, the World Cup and the Olympics, which makes Brazil very attractive to foreign investors at the moment.
But after 2017 Brazil will still have its oil discoveries, but the World Cup and Olympics will be done with and foreign investment into Brazil will slow as a result," Oliveira said, adding that the middle and lower classes would have spent more than 10 years acquiring properties and supply could outweigh demand by 2017.
Overall, this has been a terrible year for Brazilian home builders. Gafisa is down more than 63% year to date ending Dec. 13. PDG Realty, which trades over-the-counter in New York, is down by 43%.
Investors who think this trend is bound to reverse, especially once the systemic risks posed by the U.S. and Europe start to subside, might consider Brazil real estate equities, or global REITs, worth a buy.
But until that moment, stocks like Gafisa are not for investors looking to preserve capital or even eek out a few bips in capital gains. It's a wild ride.
Until the global economy looks more balanced, and that depends on Brussels and Washington for the time being, the fundamentals of Brazil real estate will seem to be built on straw when they have probably never been so good.
yahoo.com
"The best way to participate in the real estate boom as an investor at this point to invest in real estate funds in Brazil," said Marcus Vinicius de Oliveira, executive director of real estate valuation firm Consul Patrimonial.
That kind of comment is smooth bossa jazz to the ears of fund managers like Joel Wells, who runs the $356 million Alpine International Real Estate Fund (EGLRX). The fund holds a number of Brazilian home builders and commercial developers.
But despite the generally positive long term outlook for Brazil's housing market, a slower economy and a sovereign debt crisis in Europe has undercut that more positive story line about emerging market housing booms, including those in sunny Brazil. Well's fund is down 28% year to date.
Housing prices have cooled in recent months, but are rising year over year. Interest rates are falling to single digits once again as inflation begins to ease on account of the global economic slowdown taking its toll on Brazil.
That hasn't stopped the fact that Brazil's middle class is now the majority of the population for the first time ever and they have money to burn.
There’s more to Brazil’s real estate boom than the government low-income housing program My Home, My Life, which drives much of the market interest in names like Gafisa (GFA) and Cyrela Realty (CYRE3).
Major private equity firms are investing in hospitality companies rumored to have A-list investors like Warren Buffett chasing them down for a possible stake. Shopping mall operators like BR Malls (BRML3) are raising capital in secondary offerings, and investors are oversubscribing to new issues.
So what's with the 2017 deadline? Brazil's building out for the 2104 FIFA World Cup. That's soccer to non-soccer fans, and Brazil is building new stadiums, but also hotels and housing. In 2016, the Summer Olympics come to Rio de Janeiro.
Oliveira at Patrimonial thinks demand for both housing and commercial properties will remain relatively high until things slow after those parties are over.
"There's a psychological margin that Brazil real estate enjoys at the moment due to the oil discoveries off the coast of Rio, the World Cup and the Olympics, which makes Brazil very attractive to foreign investors at the moment.
But after 2017 Brazil will still have its oil discoveries, but the World Cup and Olympics will be done with and foreign investment into Brazil will slow as a result," Oliveira said, adding that the middle and lower classes would have spent more than 10 years acquiring properties and supply could outweigh demand by 2017.
Overall, this has been a terrible year for Brazilian home builders. Gafisa is down more than 63% year to date ending Dec. 13. PDG Realty, which trades over-the-counter in New York, is down by 43%.
Investors who think this trend is bound to reverse, especially once the systemic risks posed by the U.S. and Europe start to subside, might consider Brazil real estate equities, or global REITs, worth a buy.
But until that moment, stocks like Gafisa are not for investors looking to preserve capital or even eek out a few bips in capital gains. It's a wild ride.
Until the global economy looks more balanced, and that depends on Brussels and Washington for the time being, the fundamentals of Brazil real estate will seem to be built on straw when they have probably never been so good.
yahoo.com
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