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Brazil Real EstateMain Issues and Prospects
Chris HowardMD, 4:Property Brazil
22nd March 2012
Brazil Real Estate – the issues and prospects
• What the current state of the real estate market • Which regions are strong• Which sectors are strong• What are the strengths or underlying weaknesses?• What are its prospects for the next 5-7 years?
To do this
Brazil • Where are we now : A quick profile
Real Estate• What is being done• Why is it being done• Looking ahead
Brazil
The headlines : Resources – wealth drivers
UK Brazil
Size 94,000 sq m 3.2m sq m 30x UK79th largest 5th largest
Population 62m 195m 3x UKAverage age 42 25
Natural Resources§ Energy 70% imported Self sufficient§ Food import 42% 95% home grown§ Water Self sufficient 15% of world supply
Strong economy compared to the UK and the EU
GDP Growth 2005 - 2012 Brazil, UK, EU-27
-6
-4
-2
0
2
4
6
8
10
1 2 3 4 5 6 7 8
Brazil UK EU-27
Comparing with the UK : The Outlook for the UK
§ Exports§ Mainly US and Europe, troubled
§ Consumer Expenditure§ Declining, savings increasing
§ Government Spending§ Cutting
§ Company Investment § Based on the above backdrop, low
So where is economic growth to come from?It won’t be quick
§ Exports§ Increasing: doubled to the EU in 10 years
§ Consumer Expenditure§ Driving the economy: 86% GDP growth
§ Government Spending§ Using $375bn FX Reserves § Housing/ Infrastructure Investment
§ Company Investment § Large inflows§ Sovereign wealth funds, Banks, § Corporations, individual investors
The Brazilian economy – continuing growth
Given the difference ……
…..it is a real challenge to effectively portray how different the position of Brazil is:
§ Consistent economic growth§ Young population§ Rich in raw materials – rising world demand/ prices§ Profitable and unique property market
Only mildly affected by the ‘North Atlantic’ credit crunchThese advantages are structural and will last
Brazil Real Estate
§ Infrastructure§ Residential§ Hotels§ Retail§ Commercial
What are the drivers?
The Main regions of Brazil
North East
Sao PauloRio
The interior
Percent of population living in cities
• World 57%• Europe 60%• UK 89%
• Brazil 83%
Why invest in Real Estate?
• Social Policy/ Vote winning§ Housing Policy§ Infrastructure
• Long term economic growth§ Economic efficiency/ inflation§ New sectors§ Consumer demand
• New market sectors§ Agribusiness§ Tourism – short term and long term§ Domestic/ International Tourism
Economic Success by sector
• Oil and Gas• Food• Consumer products• Retail/ Logisitics• Housing• Agribusiness• Pharma• Sustainable Energy
Short Term : World Cup and Olympic Venues
Brazil Real Estate
§ Infrastructure§ Residential
§ Hotels§ Retail§ Commercial
Prospects for each sector
§ Infrastructure/ Residentialsubstantial investment and continuing demand
§ HotelsCountry under-resourced and high incentives for growth
§ RetailPopulation growth and age profileConsumer demand growth
§ CommercialGrowing urban economy
4:Property Brazil Portfolio – the current projectsCoroa da Maio 1 - completedFirst apartment site completedOn plan/ On budgetInvestment return as projected
Villa Solare – now selling31 Apartments 1km from the AirportSegments C/D
Piabeta96 apartmentsKey worker : Satellite suburb
Socorro 200 unitsKey worker Villa/ ApartmentsSegments C/ D
We are seeking further investment in three ways
Profit Share 4:Property Portfolio share in profits of whole portfolioReturn : in excess of 25% p.a.3 year investment
Fixed Return Secured investment in single project20% p.a. return1 year investment
Joint Ventures Private Investment Fund as LLPshare in profit of single projectin excess of 25% p.a. joint project2-3 years
Capital Guaranteed Fundprojected 15%+ p.a.
In conclusion
Why should we look ahead?
Firstly : Strong economy, strong property market
Secondly : in Brazil there are compelling reasons for stability
: The favourable conditions are structural, and will not go away from year to year§ Food prices rising/ Agriculture underexploited§ Energy supply long lasting§ Improving commercial base and performance§ Age profile so Rising housing deficit§ Demand exceeds supply
Thirdly : Government aim to house the population in 15 years: Government policy/ supporting PP and mortgages: Continuing opportunities
and in addition …..
• Bank mortgages• are now readily available • at reasonable interest rates, • for the first time!
• These have only been available since 2007• Only 2.6 % of house owners have mortgages currently
• the majority of the population can now buy a home• and are keen to, • creating immense demand for the foreseeable future
So the property market is strong
• fast growing Brazilian economy and young population
• Housing deficit of 7m units and growing …..so continued demand – it is a secure market
• Demand will exceed supply for the next few years making development a profitable activity
• We have strong projects in process already
• The investment is available now
We are seeking further investment in three ways
Looking ahead we can all benefit, whatever our aims :
§ Fixed Return
§ Profit Share
§ Joint Ventures
Looking ahead
Country• Strong economy• Sustained/ growing demand for exports
Real Estate• Low age profile population• Growing housing demand• Infrastructure needed
Continuing GrowthGoldman Sachs/ O’Neill
“Brazil is not a BRIC but now a ‘Growing Economy”
Let’s discuss in more depth later…
