Selic rise redesigns the true property market in Brazil

The rise in the Selic rate led to a redesign of the real estate market in Brazil in the last 12 months. But the expectation is positive for 2023

O real estate market Brazilian economy is undergoing a redesign impacted by the conditions of the macroeconomic scenario. Until July of this year, the country’s official inflation, measured by the Broad National Consumer Price Index (IPCA), was in the double-digit range.

With inflation on the rise, the Central Bank readjusted the country’s interest rate 12 times in a row, taking the Selic from the level of 2% per year to 13.75% per year. The biggest monetary tightening cycle recorded in recent decades. With the uncertain scenario, the Brazilian postponed the purchase of the property. The consumer’s foot on the brakes had repercussions on the sale price of real estate.

data of FipeZap+ Index of sales, which evaluates the average sale price of properties in the largest capitals of the country, indicate that there has been a slowdown in growth in the last 12 months. In August this year, the indicator stood at 6.1%. In the same period last year, it was at 5.3%.

In other words, prices continue to rise, but the pace of increase has slowed in comparison with that recorded from 2020 to 2021, when the indicator went from 1.4% to 5.3%, on the same comparative basis. The advance of the last 12 months, it is worth remembering, was not even enough to compensate for the high inflation in the period.

The rent, on the other hand, it’s quite warm. The average rental price of FipeZap+ shows this: an increase of 14.3% in the last 12 months. “The buying and selling market has more rigidity in prices than the rental market. In addition, the rental market is more dynamic, the price varies much more quickly”, says Danilo Igliori, vice president and chief economist at DataZap+.

Last year was exceptional for the Brazilian real estate market because of the attractiveness of real estate financing resulting from lower interest rates and the transformations of the covid-19 pandemic, with the home office and the growth of e-commerce, making the consumer to rethink housing. When looking at this year’s data, it is noted that there was an accommodation on a new level. “2021 was the height of the real estate market in Brazil. The negative real interest rate and the pandemic boosted the market.

With the Selic high cycle, and the real interest rate returning to around 6%, the expectation was that the real estate market would cool down. In this context, 2022 surprised to the upside. It could have been a more difficult year, due to the rise in the Selic rate”, adds Igliori. The real estate market shows resilience amid the worsening scenario, which can be explained by the long cycles of the purchase and sale sector, with long and interconnected journey stages, so that a purchase is often linked to a second sale.

Another factor that explains the market’s resilience is the financing interest rates, which were not readjusted at the same speed as the Selic. The lowest average mortgage rate was recorded in August 2021, at 6.6% per year. In May of this year, the average rate was 10.01% per year. That is, even with the increase in the Selic, the financing rate proved to be less volatile. There was pressure on the cost of financing, but in a smaller proportion than the increase in the Selic rate. Last year, real estate financing in Brazil reached 255 billion reais, the best result in history.

Data from the Brazilian Association of Real Estate Credit and Savings Entities (Abecip) indicate that the Brazilian Savings and Loan System (SBPE) accounted for most of the financing, in the amount of 205 billion reais. Also a record. The financing by the Severance Indemnity Fund was 49 billion reais. From January to August of this year, the total amount disbursed was 147 billion reais, down 8% compared to the same period last year. However, Abecip remains optimistic. “Volumes have slowed down but are still very robust. The expectation is that 2022 will be the second best year, behind only 2021”, says José Rocha Neto, president of the entity.

When analyzing new and used real estate financing through savings funding, financing fell 17%, reaching 91.8 billion reais between January and August this year, compared to the same period last year. Financing for used properties fell 27% in the first eight months of this year, compared to the same period in 2021. Financing for new properties, on the other hand, rose 5%, on the same comparative basis.

The growth in financing of new properties is related to the delivery of projects that were made during the last two years. “The person buys a property off the plan, and after 24 months it’s time to get the keys. Even if the average loan rate has gone up a little, it does the math for the loan and how much you pay in rent. And it goes ahead”, adds Rocha.

Added to this, the consumer analyzes the options in relation to the contract cancellation. The law that regulates the real estate cancellation has been in force since 2018. According to data from the Brazilian Association of Real Estate Developers (Abrainc), the monthly rate of cancellations of the purchase and sale contract is falling in every month of 2022, and the cancellation/sale is at the lowest level since the beginning of the historical series, in 2014. “The cancellation is not favorable to the consumer. He does the math and opts for financing,” says Rocha.

The new real estate market in Brazil also remains heated. According to Abrainc, in the first six months of this year, sales of new properties rose 18% and launches 3%, compared to the same period last year. The highlight was the high and medium standard properties, whose sales soared 103%, from 11,588 units to 23,461 units in the first half of this year.

In this segment, launches rose 20% in the period. In the Casa Verde e Amarela Program segment, launches dropped 5% in the first half of the year and sales rose 2% in the first half of this year. The lowest stock of properties in the country since 2017 contributed to this scenario. Until July, the total stock of properties was 801,000 units throughout Brazil and the estimated time to finish all the stock is 10.9 months. Last year, the deadline to sell the stock of available properties was 12.3 months. In 2017, 14.1 months. “The low stock is the result of strong sales in recent years, so the launches are important for the recomposition”, says Luiz França, president of Abrainc.

There is a macro component that has helped the sector: the reduction in the cost of civil construction. In the 12 months ended in August, the National Construction Cost Index (INCC) accumulated a high of 11.4%. In the same period last year, it was at 17.05%. The sector was impacted by the increase in commodities, exchange rate, war in Ukraine, among others. “The drop in diesel directly impacts freight and has a super-relevant weight in all raw materials. Today, prices are more accommodating. It is the best cost scenario of the last two years”, highlights Ricardo Ribeiro, president of Grupo Direcional.

The changes in the Casa Verde e Amarela Program, with an increase in subsidies, a reduction in the interest rate and the possibility of financing a property in up to 35 years, will also give more breath to the sector. “The adjustments made were well thought out for the consumer, and with a long-term vision. They will bring new families to the market”, says Ribeiro. From January to July this year, Direcional saw sales grow 29% compared to 2021.

In the first half, contracted sales totaled 1.458 billion reais. On the stock market, the company’s shares are up 40%. Gustavo Cambauva, partner and real estate analyst at BTG Pactual (from the same controlling group as EXAME), explains that the company, as well as other incorporated companies listed on the stock exchange, accumulates a positive performance in the stock market because investors anticipated the expansion of the Casa Verde and Yellow Program and the expectation that the Selic rate will begin to fall next year.

“Economists are talking about interest rate cuts in the second or third quarter of next year. The expectation is that the scenario will be better in 12 months. That is why there are already investors wanting to set foot in the sector.” A new wave of optimism from consumers and investors could set a new tone for the sector from 2023 onwards.

The new way of living in the post-pandemic

DataZap+ Shows Consumers Want Space and Workspace at Home | Karla Castor

We all know that the pandemic impacted the consumer’s relationship with housing. With the need for social isolation, people wanted to live in properties with some characteristics, such as having a balcony, backyard, more divided rooms, space to work.

Some developers have modified their launch plans to adapt them to the buyers’ needs. The change also took place in the Federal Government’s Casa Verde e Amarela Program to encourage housing. “In the past, nobody wanted an apartment on the first floor, even with a garden space. With the arrival of the pandemic, there is now dispute. People want a space to sunbathe, put up a barbecue”, says Ricardo Ribeiro, CEO of Grupo Direcional.

With the possibility of remote work, consumers migrated to areas further away from urban centers. There was a demand for real estate in inland and coastal cities. “Before the pandemic, the emphasis was on urban spaces. People wanted to live in well-located neighborhoods and preferably next to work. It was a celebration of urban space and was reflected in the real estate market”, says Danilo Igliori, vice president and chief economist at DataZap+.

Today, even with the advance of vaccination and the reopening of the economy, it is not possible to say that the real estate market has returned to pre-pandemic levels. One of the reasons is the possibility of home office and hybrid work by a portion of the population. “It is a new model that is being tested”, adds Igliori. DataZap+ carried out a survey that presents the profile of buyers and new ways of living.

The study was carried out with 500 consumers and found that three out of ten interested in purchasing their own property are willing to move from the city in which they live. For most buyers, 56%, the possibility of working remotely influenced the search for a property with more space. Balcony or porch became a wish item for 2% of them, followed by backyard (49%). Airy places with natural light are also part of the list (41%), as well as an office environment (36%).

When evaluating the criteria related to the location, the proximity to access roads and avenues is the main aspect (48%) considered by the buyer. The proximity of supermarkets and bakeries stands out in the opinion of 80% as the most relevant aspect in the search for properties, with bus/van terminals or stops (23%), subway or train stations (21%) and bus stations (7% ) appear in the last positions. Size is key.

Most buyers want to live in medium or large properties, with a size above 70 square meters, with 20% looking for footage between 90 and 119 square meters. In addition, 43% have been looking for properties with three bedrooms, with at least one suite. A parking space also remains a highly desired item, by nine out of ten buyers. Of this total, 42% are looking for a job; and 38%, two. With regard to environmental aspects, it is important for consumers to choose to live in projects that value items focused on sustainability, with emphasis on properties that prioritize rainwater reservoirs and reuse systems.

REAL ESTATE GUIDE

• Sao Paulo – The evolution of the sale price of properties did not decrease in the annual comparison; for 2023, the expectation is for higher increases
• Rio de Janeiro – After a record year, rental and sale prices have soared, with even more optimistic prospects for companies in the sector in 2023.
• Belo Horizonte – Verticalization to combat land scarcity
• Curitiba – Heated market and strong post-pandemic demand
• Porto Alegre – In search of normalcy after bad years
• Goiania – Post-pandemic stock burning and proximity to Brasília boost the real estate sector
• Brasilia – The lease advances, but still does not recover the level of 2019
• Recife – A new Recife on the horizon of the real estate market
• Savior – Launches regain strength, but do not keep up with demand. The result is the strengthening of the lease
• Strength – Lack of supply and increased demand drive rent prices

Source: Exam