With Credit Crunch in Brazil, Real Estate Consortiums Up 41.5%

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – With declining credit supply and no forecast of an improvement in the economy in the short-term, many Brazilians have resorted to the consortium system to help pay for durable goods such automobiles and homes. According to ABAC (Brazilian Association of Consortium Administrators) there was a 41.5 percent increase in demand for real estate consortiums from January to November of 2015 in comparison to the same period in 2014.

“We had a good performance (in 2015), and the expectation for 2016 is the best possible,” Abac President Paulo Roberto Rossi was quoted by O Globo as saying. According to Rossi the current credit restrictions make the system very attractive to those consumers planning to purchase real estate.

According to the entity a total of 222,700 units were commercialized to 802,000 participants through the consortium system during the first eleven months of the year. The consortium groups amassed roughly R$25.67 billion in credit to be disbursed along the payment terms for each of the groups. Some real estate consortiums have installments of up to two hundred months (sixteen years).

The Brazilian consortium system started years ago when the population, without any credit supply to purchase durable goods, devised a plan to pay monthly installments and not have to wait for the end of the payments to obtain the product. The system also allows members to pay for expensive products without paying high interest rates.

A consortium usually consists of a group of people seeking the same product. The group, usually made up of hundreds of persons, decides on the number of installments to be paid by the participants and divide the price of the item by the number of members and the number of installments.

Each month with the payment by members, the group is able to buy, in cash, a single product, without paying the financing rate. The product is then raffled to one of the participants, who will still be responsible for paying all the remaining installments.

Companies specialized in administering consortiums charge a small administration fee but far less than if the buyer were to obtain a loan or financing for the purchase.