If you were at this event, you may have thought that the panel was sprinkled with a coat of serotonin before they took the stage to discuss the state of the real estate market in Brazil. Basically, the outlook for Brazilian real estate is very optimistic. The panel consisted of Celina Antures, CEO of Cushman and Wakefield – South America, Fernando Silveira, Advisor to the Vice President Caixa Economica Federal, Roberto Kauffman, President of Sinduscon Rio, and two other stakeholders of the Rio de Janeiro development industry.
Celina Antures opened with detailed remarks of the real estate food groups that look especially attractive in Brazil: Shopping centers, industrial, and office. She added hotels to the mix after further discussion. A question from a member of the audience asked her whether this outlook was for the Tier 1 markets (Sao Paulo and Rio de Janeiro) or for the secondary and tertiary markets as well. Her response was that this outlook was for Brazil as a whole. Although many believe that the demand for commercial real estate will pull back in the near future, especially after the main sporting events they will host this decade, she was confident that demand is here to stay due to the increases in income for Brazilians.
Another topic that was delved into quite deep was the foreign investment into Brazilian real estate and development. The panel seemed to reach a consensus that there is no shortage of foreign direct investment into Brazilian real estate, especially the core markets. Partnerships and investments in publicly traded REITs have been the primary vehicle for this FDI. In previous cycles, investors have looked for the short-term opportunistic hold in Brazilian real estate. Lately, Celina Antures said, there has been flight to longer-term based investments. This is a great outlook for the domestic market in Brazil. Companies are modernized, markets have become sophisticated, and the government has created a business friendly environment, which has added to the attractiveness of investment.
Government programs to stimulate the real estate ownership have succeeded in the recent years, and the government has succeeded in attracting foreign investment. The next hurdle will be the building of infrastructure to support these economic advancements. Fernando Silveira noted that the government sees this as a top priority, which is encouraging. Infrastructure is one of the main factors that play into separating developed countries from developing countries. Brazil is clearly on the path to becoming a top developed country.
This article may paint a picture of Brazil being an absolute high-reward low-risk investment. This is not true. There are still risks that are present in the asset class and the overall financial market. Brazil’s currency has proved to be highly volatile. This can scare investors away from the market because of the potential exchange rate risk. Hedging this risk with lending in the local currency will not be sufficient. The government must prove that the currency is stable in order for investors to rid themselves of this added risk. The panel assured the audience that the government would do their best to keep the currency stable against the US dollar. Monetary policy is impossible to predict, but I will remain optimistic. Another concern is the complicated tax code and procedures in Brazil. Celina Antures realized this, and she hopes for tax reform to make investment and business in Brazil more attractive.
Bryan Masters is currently receiving his Master of Science in Real Estate degree at the University of San Diego while working as an analyst for a real estate investment firm. He is also a guest curator for the MIPIM sustainability and innovation category on behalf of the University of San Diego, Burnham-Moores Centre for Real Estate.
Image: V. DESJARDINS / IMAGE & CO