Analysis: Pandemic reignites residential unbuilt lot market in Brazil

RIO DE JANEIRO, BRAZIL – After shrinking last year amid the impact of the pandemic on economic activity, the residential unbuilt land market is expected to grow again this year boosted by the population’s changing habits.

The dream of moving to the countryside or at least owning a “getaway” outside the capital is driving a 10% growth prospect for the sector, according to Caio Portugal, president of Aelo, an association of urban allotment and development companies.

The upturn comes after challenging times – last year, sales dropped 4% -, which made the sector slow down launches. On the other hand, the combination of increased demand, without a corresponding increase in supply, has led to a sharp drop in land inventory. Since 2018, the total number of available lots has halved: from 125,400 to 67,400. Last year alone, a 33% drop was registered, according to Aelo. The high demand is beginning to be reflected in prices.

Part of this trend is related to the void left by large companies in the last decade, such as Alphaville Urbanismo, Scopel and Cipasa. These companies had dozens of construction sites open at the same time throughout Brazil. However, they incurred heavy losses with the 2014 crisis and were forced to downsize operations. Alphaville has been recently betting on subdivision with the construction of pre-fab houses, also for high-income customers.

Competitive void

“The current stock (of land in the country) is a joke, it has plummeted. It is one of the lowest levels since the development market became professionalized,” says Fábio Tadeu Araújo, partner of Brain consulting. And he says that the crisis that affected large development companies, from mid last decade, should make it difficult to change this scenario. “There are no more important national competitors in the development sector. The market began to depend more on regional companies,” the consultant says.

The shortage of land on the market has prompted some small projects to resume launches. Such is the case of Urba, MRV group’s land development company. The company aims to launch between 4,000 and 4,500 plots in 2021, which will represent a considerable leap compared to 2020, when it offered only 250 units. The goals for the coming five years are more ambitious, with a planned 15,000 new units per year.

“The development sector has great consumer demand, particularly in the Brazilian countryside. But it is still a dispersed segment, with many local companies. So it clicked for us that it makes sense to move forward,” says Urba’s CEO Érika Matsumoto.

Trend for rising prices and stability in launches

If demand exists and there is a limited stock of a certain product (or service), the natural path is that supply will rise to capitalize on consumers’ appetite, right? According to Aelo, an association comprising companies in the sector, in the case of residential developments there is a drawback: high urbanization costs, which have risen 50%, hinder a significant acceleration in condominium launches across the country. Therefore, the forecast is that launches will remain stable in 2021 when compared to 2020.

“This increase has led to greater caution in launches,” says Aelo’s president Caio Portugal. Overall, despite the sharp decline in land inventories, lot prices were, on average, 8.5% higher, the executive says. The exception are gated condominiums for high-income groups, he adds. In these cases, some developments witnessed a rise in sales values of up to 100% in just over a year of Covid-19 pandemic.
New reality

The pandemic and the home office have caused many people to reassess their housing situation. In the process, many have decided to buy land. This is the case of commercial planning coordinator Marcelo Pinhati, 33 years old: in March 2020 he stopped commuting daily from Osasco, in Greater São Paulo, where he lives, to São Paulo, his workplace. He is currently working from home because of the pandemic. With this new routine, he and his wife, Nathalia Chaves, 23, who lost her job at the start of quarantine and began selling cakes, have reconsidered the need to live near the São Paulo capital.

“The cost of living in São Paulo is very high. We began to look for a place to live in the countryside, but not too far away. As the cost of a house is very high, we decided to look for a lot,” says Pinhati.

The couple chose a 300 m² plot of land in a condominium in the city of Itupeva, some 80 km from São Paulo, which cost R$200,000. Part of the purchasing funds was saved by the couple precisely during quarantine – they spent less on tolls, fuel and meals away from home, for instance.

In addition, Nathalia managed to earn more from the sale of cakes than in her previous job. “With lower interest rates and the ease of access to credit, we managed to buy closer to the capital than we had thought,” he says.

The architect to design the house has already been hired, and the couple’s plan is to move in as soon as the work is completed. The commercial planning coordinator believes that the company where he works will maintain the home office arrangement, but even if he has to return in person – partially or fully – commuting to the capital should not be an issue.

For Rodrigo Feriani, a 37 year old production engineer who lives in São Paulo’s west zone, the pandemic was the “cue” to fulfill an old dream: “I always wanted to live in the countryside.” He says that during quarantine, the need for the family to have a larger area became clear, where his two young daughters could have a more spacious space to play in.

After the decision to move was made, they chose a 300 m² lot in Itupeva, which cost R$190,000. The plan is to pay for the land and then start building the house. “We think the city is cool, also because of its proximity to the capital,” he says.

Feriani continued to work on-site in the pandemic, but says that although living in the countryside, the distance will not be a problem, because he will be able to use the company’s chartered transport. And even if he has to drive, he says it wouldn’t take much longer than 30 minutes.