BRASILIAN REAL ESTATE MARKET OVERVIEW

1
BRASILIAN REAL ESTATEMARKET OVERVIEW
Laerte Temple ltemple_at_secovi.com.br
2
Opportunities and pit falls
The RE industry creted its rules, habits and the
current culture in the traditional markets with
stable economies, hight purchasing power and low
increments.
the future of the real estate industry is
globalization
Globalization created new markets with completely
different conditions, dynamics, rules (?) the
so-called emerging economies (BRIC)
3
Emerging countries RE boom
Extraordinary GNP growth rates made China ,
India and Russia being the target and investment
desire of an expanding globalized RE investment
trend these emerging countries experienced a
never heard of Real Estate boom. watch out
high GNP growth rates do not always tell the
whole story .....and Real Estate is a long term
business ! what happened with Brazil ?
?
4
Brazil is being evaluated to offer excellent
and sustainable RE conditionsbut it is not yet
on the RADAR of most players
Many Real Estate developers seem to ignore the
risk of questionable sustainability in other
BRIC countries
5
Brazil the country

• Area ?
• Currency ?
• Population ?
• Population density ?
• Urban population ?
• Pop. growth rate ?
• Unemployment ?

• 8.5 million sq km
• R - Real
• 188 million (2008)
• 22 inhabitants/ sq km
• 81.3
• 1.2 (2006 07)
• 8.1 (July/2008)

• 5

6
Brazil as an option for foreign investment

• The country is a democracy
• Stable instituions
• Independent and respected Judiciary
• Mild climate with no risk of earthquakes,
  hurricanes and tsunamis
• Foreign capital is welcome, with almost no
  restrictions
• 400 of the Fortune 500s biggest world companies
  have branches in Brazil

• 6

7
What are the facts indicating Brazil to be the
place for RE to go ?
Brazil
8
? backlog of 8 million homes ? increasing
purchase power ? tax incentives for the RE
industry ? sudden availability of long term
finance ? stable economic situation in steady
growth ? qualified local constructors and a well
greezed RE industry
is Brazil in risk of a RE TSUNAMI ?
9
A pivotal moment

• Brazils principal industries are in a strong
  competitive position because of lower costs and
  efficiency
• Stable economic conditions - growth in domestic
  market and export - increasing peoples purchasing
  power and lowering poverty
• Confidence in the economy rises.
  Investment-grade status.
• Access to international capital markets. The R
  will become more comparable to developed
  financial markets in cost, terms and maturities

Source Bradesco Econ. Dep. August 2008
10
Global influences on the local RE market

• High liquidity on the financial global market is
  increasing investors' appetite for real estate
  good results and profit margins.
• Continuous fear about the USA sub-prime
  situation. Increasing concerns about the China,
  India, other RE booms.
• Not much more fabulous gains in Eastern Europe
  and (B)RICs. RE prices have reached
  unsustain-able peaks and do not pay the expected
  yields.
• Good opportunities are becoming scarcer in the
  global RE market places but they still exist in
  Brazil.

Source Bradesco Econ. Dep. August 2008
11
Economy outlook (1)
Economists anticipate that Brazil will grow to be
the worlds 8th largest economy by 2020 and the
5th largest by 2050. This growth is largely due
to favorable demographic trends. Based on
various economic reports, the risk profile of
Brazils economy has improved dramatically in
recent years and is expected to improve further
as the economy continues to stabilize and expand.
Brasil age pyramid - 2005
of RE credit/GNP total credit/GNP
Source The Economist Dez 2007
12
Economy outlook (2)

• Based on various economic reports, the risk
  profile of Brazils economy has improved
  dramatically in recent years and is expected to
  improve further as the economy continues to
  stabilize and expand
• These improvements, coupled with Brazils
  thriving international trade and growing public
  markets, have integrated the country into the
  global economy and stimulated the rapid growth
  of a middle class population.
• Source The Economist Dez 2007

Source Bradesco Econ. Dep. August 2008
13
Is Brazil a safe place to invest ?
Financial outlook
Global exposure to enormous amounts of floating
money. Where are we going to ?
Financial assets versus GNP
Source McKinsey (September 08)
14
Innumerous renewal opportunities
15
Operational platform

• Real estate investments have been a traditional
  financial hedging alternative to prevent from
  high inflation and financial volatility.
• Legal protection for buyers and secure property
  registration.
• Sales on plan with direct developer's finance is
  usual
• Recently changed regulations have drastically
  improved finance conditions.
• Tax incentives for real estate buyers,
  regulatory improvements and public infrastructure
  investments are creating sustainable impulses for
  the real estate industry.

16
New development areas offering ideal investment
opportunities
17
Legal scenario for real estate finance

• Brazils RE industry counts on an appropriate
  legislations and regulatory structures to
  mitigating investment risks and turning.
• Brazil into an attractive destination for
  investors
• Securitization companies act as liquidity agents
  for the secondary market.
• Commercial papers backed by real estate
  receivables are similar to mortgage securities
  and represent the typical medium and long term
  finance vehicle.
• Fiduciary regime for RE receivables, which allows
  for a complete segregation of the transactions
  and represents an important protection for RE.
• RE fiduciary sales regime, an essential
  instrument rarely existing in other countries -
  that allows to effectively secure real estate
  financing transactions and enhance the quality of
  the credits on the transaction

18
Main Brazilian Real Estate market places
gt 60 of the market
N
14 cities with more then 1 million inhabitants
represent the potential of RE opportunities
19
The Brazilian Real Estate market potential 1
20
The Brazilian Real Estate market potential 2
21
Real Estate investments are fleeing the major
capitals centers
Degraded central areas become high potential
opportunities for the R E industry
A large sub-utilized central area is in process
of increasing deterioration. The site is
equipped with complete infrastructure and could
be transformed in an attractive new city, where
people could live and work in ideal conditions.
SPs real estate industry is experiencing a fatal
lack of adequate sites in the metropolitan area.
The actual trend is to look for cheaper sites
outside the municipal area.
22
Residential market
23
Residential development - history and future

• A substantial amount of low cost dwellings (3.2
  million units) were generated in the 70 s and
  early 80 s, with long term subsidized government
  finance (SFH Sistema Financeiro Habitacional of
  the Banco Nacional de Habitação BNH
• The extinction of the SFH left no alternative
  for lower income class population and accrued a
  backlog of present 8million units. The medium
  income and upper class demand was tapped with
  typical home made financial systems
• The recent availability of long term finance
  with lower interest rates will enable the supply
  of the retrieved demand for housing and
  generate new market opportunities for investors
• Lower finance cost and more cost efficient
  developments will enhance urban renewals and
  stimulate modernization of urban development

history
future
24
Performance of the residential market

• 86 of the Brazilian population lives in own, not
  rented property
• the increasing purchasing power enables 45 of
  the population today to buy their home - against
  25 in year 2000
• accumulated demand is estimated with 8million
  units

25
Office market
26
Office market

• São Paulo 80 million sq feet office, the
  largest in South America.
• No new developments 2005 2007.
• No vacancy since 2006.
• Rio 50 million sq feet office, second in
  Brazil.
• Less than 4 vacancy rate.
• Retrofit trend downtown area.
• Most S. Paulo and foreign developers are
  investing in Rio.

27
Commercial market, retail, shopping

• There are 346 shopping centers nationwide
• 20 years ago, only 15 of the existing centers
  were located in the interior, far away from the
  large urban centers, today it became 50These
  346 centers totalize an ABL (Área Bruta
  Locável) of 7.3 million m², with 52.000 shops,
  1.300 anchor stores and 1.315 cinemas.Total
  sales generated in 2007 is R 52 billion (30 US
  b)
• Greater São Paulo locates 3.1 million m2 of
  ABL, which represents 40 of the national ABL
• Shopping center sales represent 18 of total
  retail sales (except cars and fuel)
• Special retail consultants identified still lack
  of sales areas and see prosperous development
  potential

Source ADVB
28
Industrial market situation and outlook

• São Paulos metropolitan region is victim of
  unplanned and disorganized industrial growth
  during the past 50 years. Environmental
  restriction, union fights for higher labor,
  logistics and growth requirements led to several
  waves of industrial exodus.
• In the late 70 s, municipal and state government
  granted tax incentives to migrate to neighbor
  cities in a 50 to 150 km range from SP.
• In the late 90 s occurred the phenomenon of
  Brazils growth expectation , induced by the
  automotive industry. Previewing to maintain
  spectacular growth rates (2m cars per year to 3m
  in 4 years
• Global competitive pressure obliges more than
  5.000 industries to find new suitable locations,
  because they remain still installed inadequately
  in often downgraded metropolitan region,

29
Market potential - new industrial and logistic
centers
Typical situation in several metropolitan
regions industrial cluster imbedded in
residential area
3.200 industries operating in SP metro region
30

• Thank you! www.secovi.com.br

Tanks to Mr. Bernd Rieger Rieger Reurbanização
bernd.rieger_at_rieger.eng.br www.rieger.eng.br