Editorial: The City of Tomorrow (Part 2)

Part two of four editorial articles regarding the business outlook for Rio de Janeiro this year.

Editorial, by Stone Korshak

RIO DE JANEIRO, BRAZIL – Still (picking up from last week), in Rio de Janeiro, the allure that brings droves of vacationers each year continues to draw entrepreneurs to stay and take advantage of all that the city has to offer. After all, there is oil, there are major infrastructure efforts underway (for the 2014 World Cup and 2016 Olympic Games), there are great ports waiting to move vast natural resources, and … there is the beach.

Stone Korshak, Editor and Publisher of The Rio Times.

Stone Korshak, Editor and Publisher of The Rio Times.

The unavoidable truth however – one that cannot be emphasized enough – is that Rio is not an easy place to do business. One of the first questions a Carioca (term for someone born and raised in Rio) will ask someone not from Brazil is an incredulous “why are you here?”

Anyone living and working or doing business in Rio will ask why a foreigner would chose to try to live here, as opposed to their country of origin, in the U.S. or Europe for example. The reason is the legendary bureaucracy, corruption and general inefficiency – it is not just a cliché.

Even the government and local media here use the term ‘Custo Brasil’ – the Brazil Cost. Just this morning (January 24th) the major newspaper in Rio, O Globo, had a front page headline of “Bureaucracy Clogs 79% of Exports in Brazilian Industry.”

Yet Brazil is the “country of tomorrow” and so although the joke is that “it always will be”, there are opportunities here for the bold and well prepared. In Rio de Janeiro, most business thinkers are likely talking about; real estate development, oil and gas services, and logistics and shipping.

Real estate development is going to sound like the low hanging fruit, and some areas in Zona Sul (South Zone; including famous neighborhoods like Copacabana, Ipanema and Leblon) property values have literally doubled in some cases over the last few years. The cost of real estate in Rio de Janeiro as a whole rose by 15.2 percent in 2013, according to the FipeZap Index of listing prices.

As aggressive as that sounds, it is a slowdown compared to recent years. In Rio, the FipeZap index registered an overall rise in purchase prices of 224.7 percent since January 2008, with São Paulo not far lagging behind. In the same time, rental prices have gone up 131.1 percent.

While many fear it is a bubble waiting to burst, the government is helping fuel the market with credit, and in December Caixa Econômica Federal, Latin America’s second largest government-owned bank (after Banco do Brasil) streamlined the procedures of its home equity loan program to make lending more accessible.

In the first half of November, Crédito Imóvel Próprio Caixa’s portfolio totaled a R$6 billion balance in contracted operations. In that same period, the number of contracts grew by 120 percent, going from little over 38 million to nearly 54 million contracts.

Another change in the landscape is a higher percentage of young Brazilians are buying property: Caixa granted some 57 percent of mortgages this year to customers less than 35 years old. The age of borrowers has declined in recent years and the total number of contracts for those under 35 has now reached a historic 44 percent.

Leblon and Ipanema Real Estate, Rio de Janeiro, Brazil News

Leblon and Ipanema currently have some of the highest real estate prices in Brazil, photo by Fernando Maia/RioTur.

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