The 10 months leading up to the Olympic games are shaping up to be an ideal window of opportunity for the property deal of a lifetime. Our Prestige MLS Member WhereInRio explains us why.
Rio de Janeiro, September 23, 2015 – the time is ripe for great property deals in Rio! Over the last few months, the property market in the ‘Marvellous City’ has been particularly attractive to foreign investors. This trend looks likely to become even more pronounced in the run-up to the Olympic Games.
Property has become particularly affordable for overseas investors due to the ongoing depreciation of the Real
Flashback to the past. At the beginning of the millennium, thanks to the surging economy of the Lula years, 40 million Brazilians joined the middle-classes and for the first time, were able to apply for a mortgage. The demand for property, which up to then had been kept in check, went through the roof, whilst interest rates, previously much too high, tumbled. Nowhere did the market overheat more than Rio: squeezed on all sides between the ocean, the mountains and the world’s biggest urban forest, building sites were simply unobtainable. Between January 2008 and July 2012, property prices skyrocketed by 380% and rents went up by 108%. Rio became the most expensive city in Latin America and the third or fourth least affordable large city on the planet – all to the great delight of many property owners, who became millionaires without lifting a finger, having hit the property capital gains jackpot!
However, the economic slowdown which began in 2011, along with the advent of both the World Cup and the 2014 Presidential elections put a stop to this seemingly unstoppable rise in prices. ‘Just before the World Cup and the Presidential elections, everything ground to a halt’, explains Frédéric Cockenpot, the young Belgian founder of the WhereInRio real estate agency, which specializes in the luxury property sector. ‘Both sellers and buyers started to play a waiting game. Everybody was asking themselves what would happen after the ‘Copa’ was over, and how the October 2014 elections would go in an atmosphere of tension generated by street protests. The market started to flat-line with seemingly no light at the end of the tunnel.«
The ongoing collapse of the Real against the euro and the US dollar over the past few months has intensified this trend yet further. Owners who took the risk of putting their properties up for sale took them off the market again, so as not to see their profits shrink away to nothing as soon as they transferred them to banks in the USA or Europe, due to the current very unfavourable exchange rate.
As a result, property has become particularly affordable for overseas investors due to the ongoing depreciation of the Real – a downward trend that has been further exacerbated by the recent decision of credit-rating agency Standard & Poor’s to downgrade Brazil’s rating from BBB to BB+. ‘The period between the recent World Cup and August 2016 is a critical one, an ideal window of opportunity for potential buyers’, stresses Frédéric Cockenpot.
In fact, enquiries from foreign individuals have rebounded. ‘Generally, when people interested in buying property contact us, they already have a fairly detailed idea of what the apartment or villa of their dreams will look like’, states Frédéric Cockenpot. ‘We carry out property searches, identify the properties that fit what they are looking for and then organize their stay in Rio so they can visit the property as and when they want. We can take them through every stage in the property buying process and offer them a property management service should they wish to rent it out when they are not in residence, enabling them to really capitalize on their investment’‘.
Despite Brazil’s recent slide into recessionary territory, Rio property remains a worthwhile long-term investment option. ‘It’s during economic downturns that the smart investor can find the best deals’, notes Frédéric Cockenpot. On a nationwide level, the likelihood of a property ‘bubble’ is largely warded off by the gradual slowdown in the market and the nature of the Brazilian lending system. Brazilian banks will lend no more than 70-80% of the value of a property, mortgage lending as a percentage of GDP should only be around 10% in the years to come, as opposed to up to 80% in the United States or Europe! Despite the economic slowdown, unemployment remains very low and the job market is far from saturated.
As for Rio, its future continues to look bright in terms of economic growth. Boasting significant oil reserves which are about the same size as those of Kuwait, the city has become the biggest producer of oil and gas in Brazil with an output of over 1.7 million barrels a day – and this figure is increasing by an average of 20% each year! This windfall has turned the city into one of the world’s top cities in terms of foreign investment. A world-class tourist destination, the city is also set to benefit hugely from the knock-on effect of the Olympic Games. ‘Returns on buy-to-let properties, especially at the high-end of the market, will be especially good. There are good economic times ahead of us – perhaps not as good as in previous years, but growth is likely to be healthy – and much more sustainable and less risky’, concludes Frédéric Cockenpot. ‘In a few years, the Real will recover its lost ground, making it the ideal time to sell property for a healthy profit.«
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