Brazilian Real Estate Fell 20 Percent in 2015 According to Moody’s

By Georgia Grimond, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – Moody’s, a credit rating agency, last week (February 16th) said that property prices in Brazil had fallen by 5 to 20 percent in 2015 and that, according to projections, the industry will continue to be “under pressure” until at least halfway through 2017.

In real terms the price of the average offer on a property declined nine percent in twenty Brazilian cities in 2015 but as the accepted price is often lower than the advertised price the contraction is thought to be closer to 15 to 20 percent.

The decline is part of a cyclical downturn that has been in motion since 2012 and which followed a period of massive growth, explained the agency. It has been exacerbated by political unrest in the country and the slowing of the economy.

“These price declines are primarily due to a sharp contraction in consumer confidence, which is based on economic uncertainty in Brazil, including the poor employment and high inflation,” explained Cristiane Spercel, Moody’s vice president-senior analyst.

Sales of property are expected to fall around ten percent in 2016 compared to 2015, and Moody’s citied the liquidity of construction companies as the “most serious concern” in their report. “We note signs of industry contraction since 2012, but the challenges for builders have been aggravated by a tighter funding availability and deterioration in real-estate prices,” said Spercel.

Adding, “Despite the still high pent-up demand for new housing in the Brazil, industry stress will likely grow during 2016 along with further deterioration in the job market and weaker consumer confidence.”

The Brazilian real estate industry has also been suffering from oversupply. Despite an ongoing reduction in the launch of new releases, the perception of a flooded market remains. Terminated contracts and poor sales have left large numbers of finished, sale-able properties on balance sheets and are only serving to prolong the downturn.

Last week (February 19th) Rio’s mayor, Eduardo Paes, said in an interview with Bloomberg that much of the new stock that was built in anticipation of this year’s Olympics may fail to sell before the Games in August.

Odebrecht and Carvalho Hosken, who are responsible for Ilha Pura, a 3,604-apartment development in the Olympic Village in the suburban neighborhood of Barra da Tijuca, have so far sold fewer then 300 of the flats. “The real estate market has really cooled down,” Paes told Bloomberg. “Ilha Pura is the bigger risk. The guys did 31 buildings all at once, and they’re going to have difficulty.”

It has been almost a decade since Brazil bid to host the Olympic Games. The boom years of the late 2000s have since ended and the property market has change dramatically in the meantime time. As trouble in Brasília continues, inflation and unemployment rise and banks are increasingly reluctant to issue mortgages. Property prices have been falling and developers are being left with new-builds on their hands.