The property market in Rio de Janeiro

Wealth creation is driving the market.

8 April 2014, Words by Paul Tostevin

 

Brazil was one of the big global success stories in the first decade of the new millennium. With its bountiful natural resources and a growing middle class, as well as increasing foreign investment and credit, the economy expanded rapidly. GDP grew by 7.5% in 2010, but by 2012 growth had dropped to just 0.9%. The economy is predicted to grow by 2.5% in both 2013 and 2014, while the government battles rising inflation by increasing interest rates, which now stand at 10%.

Compared to some of the other fast-growing emerging economies, Brazil’s real estate market does not yet look overheated. Commercial yields currently stand at 8.5% and residential yields are at 5.1%. As more and more Brazilians are lifted into the middle classes, the demand for housing continues to grow.

Rio de Janeiro has been the real success story of Brazil’s economic emergence. It was once a city plagued by crime but tougher policing has helped to pacify the drug-controlled favelas. As a result, the adjoining neighbourhoods have experienced rapidly appreciating prices.

The city has been enjoying significant infrastructure investment in the run-up to two global sporting events – the World Cup this year and the Olympics in 2016. Both of these will undoubtedly help to raise the city’s international profile. It is no surprise that Brazilians are returning to Rio in large numbers. The city is now growing at a faster rate than São Paulo.

The rate of annual house price growth in Rio de Janeiro peaked at 40% in 2010, slowing to 15% in 2013. This is much more in line with underlying occupier demand, matching rates of growth in rents. However, mortgaged indebtedness is low and credit control is strong, so the prospects for a substantial downward price correction seem relatively remote in the current climate of growing wealth creation.

While São Paulo is now Brazil’s financial capital, Rio de Janeiro still boasts a major financial district. Several multi-national corporations are based here – a legacy of the city’s days as the country’s capital.

Rio is also home to a significant number of oil and gas companies, as well as telecommunications, entertainment and media organisations. Office rents appreciated rapidly between 2010 and 2011, growing 
by 37% in a single year, although they have since fallen by 14%.

 
 

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