Rio Real Estate Balloon Continues

By Samindra Kunti, Contributing Reporter

RIO DE JANEIRO, BRAZIL – The Cidade Maravilhosa is already home to one of the world’s richest real estate markets, and the sector keeps growing as, according to some reports, comparatively more units were sold in the first quarter of 2013. Amid fears of a bubble in the property market, price rates have however gradually stabilized, for the moment.

Prices in Rio vary greatly, but in the most sought-after neighborhoods, Leblon and Ipanema, a two-bedroom apartment can cost well over R$1 million. FipeZap’s index, based on its internet database, shows that a square meter of real estate in Rio costs on average R$8,941, which compares to the national average of R$6,612.

The UN indicates that housing prices have increased with 165 percent over the past three years in Rio de Janeiro. In addition the rate at which average Rio property prices have risen over the past five years is four times greater than that at which average wages have gone up.

The explosion of Rio’s real estate market can be attributed to various factors. A boom in the petroleum industry, Brazil’s emerging middle class hungry to buy property, lower interest rates on loans, and the prospect of hosting the FIFA World Cup and the Olympics in 2016 have increased demand and stoked up prices.

Secovi, a real estate organization in Rio, announced positive results for the first quarter of 2013 with seven percent more units sold than in the corresponding quarter of 2012. The trade of 3,144 properties amounted to a total sales value of R$1,526 billion, up 28.7 percent from 2012.

While the industry is still expanding, asking prices seem to slowly steady as the market is cooling off after the growth frenzy of the recent years. Fears for a bubble ready to burst are unrealistic according to Johan Jonsson from Agente Imóvel, “With financed mortgage base below five percent of the property base there is no ground for a bubble to burst.”

Jonsson does stress that Secovi’s statistics may not reflect reality, “That “uptrend” is contrary to what brokers and builders say in Rio and Sao Paulo. Most major players are sitting on their hands watching their peers and what moves the government intends to take. The decision to increase the interest rate, a drawback for the real estate sector per se, in fact had the builder rise on BOVESPA, due to an expectancy of an even higher rate hike.”

Claudio Moreira from Nova Alianca, a real estate agency in Rio, clarifies to The Rio Times, “With Rio soon becoming the spotlight of the world, there was a lot of speculation in the real estate business recently. I exaggerate in saying that it was a betting circuit, but plenty of prices were widely over the top. The situation was not tenable.”

Moreira believes there are grounds for optimism, “The market is self-regulating and founded on the principle of offer and demand. Property projects were overvalued and consumers are no longer willing to buy these projects. Consequently prices are leveling off. I think the situation is stable and I do not envisage a collapse of the industry in the future.”

While it may be debatable whether the real estate industry in Rio is still expanding, the city offers plenty of cheaper alternatives to the Zona Sul (South Zone) in Barra da Tijuca and Zona Norte (North Zone), as well as many pacified favela communities.

Mr. Jonsson advises buyers to enter the market quickly, even though he does not foresee a rapid price acceleration, “Now is probably a good time to buy. The growth in the middle class and the continuous improvements in mortgage financing will continue to contribute to a real estate appreciation above the inflation for a decade to come.”

Frederic Cockenpot, managing director of WhereInRio also offer some advice, “With the current political and economic situation in Rio de Janeiro, there are many areas that offer very good investment opportunities. For foreigners, purchasing overseas it can often be a combination of personal use and investment. The neighborhood you prefer might be not the best for temporary rentals or to get the best return on investment.”