By Georgia Grimond, Senior Contributing Reporter
RIO DE JANEIRO, BRAZIL – For the last six years, following a property boom, Rio has been home to the most expensive and perhaps the most over-priced real estate in Brazil. Now with the economy retracting, the value of the real currency falling and tighter mortgage lending, prices are beginning to drop but remain some of the highest in the world.
“After the Brazilian currency lost around fifty percent compared to the U.S. dollar in the last twelve months, and based on Rio de Janeiro’s most expensive neighborhood, Leblon, where the average square meter costs R$14,000, prices are now comparable to Barcelona,” explains Sven dos Santos, CEO of Agencia Heidelberg, a Rio-based real estate agency.
“The average square meter price for a beachfront apartment in Avenida Delfim Moreira in Leblon, the most expensive street in South America, is around R$45,000 BRL and is comparable to Paris,” he adds.
According to the bi-annual “Cost of Living Index” produced by the Economist Intelligence Unit, the price of real estate in parts of San Francisco, California, is now equivalent to the upmarket neighborhood of Leblon in Zona Sul (South Zone) in Rio.
The fact the San Francisco is hemmed in by water and has seen an influx of people coming to work in the technology industry has driven up house prices and limited availability. Zona Sul suffers from similar geographical constraints, where space to build is limited to the land between the sea and the mountains.
A map of Neighborhood X shows housing in the West Portal area of San Francisco has reached a cost of US$1,131 per square foot which is the same as Leblon. Although prices may be rising elsewhere, the value of property in Brazil is beginning to level out due to the economic crisis and the fall in value of the real.
Still, proximity to tourist attractions like the beach adds value to the price of property in Rio. Popular visitor areas tend to attract state investment and businesses, have greater transport infrastructure and better security than other areas.
Despite adjustments in the market this year, the price of residential property in Rio de Janeiro remains the highest in the country. The average price in the city is R$10,538 per square meter compared to a country average of R$7,604.
Recently a penthouse overlooking Leblon beach sold for R$15 million, according to VivaReal, a classified real estate portal. Being so close to the beach is an asset, says Lucas Vargas, the company’s executive vice president. “Research shows that people are willing to pay more for homes that have points of interest such as tourist attractions, which are one kilometer away from the unit, and which can be reached on foot.”
Given the current economic situation dos Santos has seen an increase in foreign investment in real estate and a drop in demand from Brazilians. However many Brazilians affected by the crisis are now choosing to travel and vacation within the country rather than abroad and so interest in holiday rentals remains stable, while foreigners are increasingly drawn to Brazil due to the strength of foreign currencies again the real.