1/28 brazil a safe option for real estate investment nelson germanos secovi-sp development and real...

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BrazilA Safe Option for Real Estate

Investment

Nelson Germanos

Secovi-SP Development and Real Estate Association

www.secovi.com.brNovember 2008

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SECOVI-SP represents a broad spectrum of the real estate industry since 1946

• SECOVI represents over 13,000 real estate companies and 37,000 condominiums in the State of São Paulo.

• Active member in most governmental committees in housing and urban development.

• Provides reliable market analysis and indexes to the industry.

• Maintains a broad real estate database for commercial purposes.

• SECOVI-SP is a solid and comprehensive gate to real estate developers.

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Brazil as an option for foreign investment

• The country is a consolidated democracy.

• Stable institutions.

• Independent judiciary system.

• Free capital flow.

• Foreign capital is welcome. Financial benefits to some activities.

• 400 of the Fortune 500’s biggest world companies have branches

in Brazil.

• No risk of earthquakes, hurricanes or other natural disasters.

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Brazil – some figures

Area →

Currency →

Population →

Population density →

Urban population →

Population growth rate →

Unemployment →

8.5 M sq km (3.3 M sq mi)

R$ - Real

188 M (2008)

22 inhabitants/ sq km

81.3%

1.2% (2006 – 07)

8.1% (July/2008)

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Economic Outlook (2007)

• Achieving self sufficiency in oil.

• Investment grade by Standard & Poors and Fitch Ratings.

• US$ 200 bn in international reserves.

• One of the biggest producers of agricultural and mineral commodities.

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Energetic Matrix

BRAZIL:

• Renewable sources: 45.8%

– Sugar cane: 15.7% (became the second main source of energy in 2007)

– Hydroelectric: 14.9%

– Wood: 12.0%

• Oil: 37.4%

• Natural gas: 9.3%

• Others: 7.5%

Renewable

Not renewable

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World GDP (PPP) (2003-2013)

30

35

40

45

50

55

60

65

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

Source: IMF

Emerging markets Developed economies

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Brazilian Foreign Debt2000 - 2008

190,3

162,7 164,9150,9

135,7

101,1

74,8

4,3 -19,1

-50

0

50

100

150

200

250

2000

2001

2002

2003

2004

2005

2006

2007

2008

US$ bn

SOURCE: Banco Central do Brasil

(est.)

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2477 %

916 %

22%9,6% 5,2%1,7%

8,9% 6,0%7,7%12,5%9,3%7,6%5,4% 3,1%4,5%6,0%

93 94 95 96 97 98 99 2000 01 02 03 04 05 06 07 08

Source: IBGE

Plano REAL

Inflation rate

(est.)

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10

12,5

15

17,5

20

dec/0

3

mar

/04

jun/0

4

sep/

04

dec/0

4

mar

/05

jun/0

5

sep/

05

dec/0

5

mar

/06

jun/0

6

sep/

06

dec/0

6

mar

/07

jun/0

7

sep/

07

dec/0

7

mar

/08

jun/0

8

sep/

08

Source: Banco Central do Brasil

Basic interest rate

May/05 = 19.75%

Oct/08 = 13.75%

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Unemployment Rate2002 – 2009 (est.)

Source: IBGE / Bradesco

11,4%

12,3%

11,5%

9,8%10,0%

9,3%

8,1%

7,8%

2002 2003 2004 2005 2006 2007 2008 2009

13

7

10

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International Reserves

0

50

100

150

200

250

jan/

07

feb/

07

mar

/07

apr/0

7

may

/07

jun/0

7

jul/0

7

aug/0

7

sep/

07

oct/0

7

nov/0

7

dec/0

7

jan/

08

feb/

08

mar

/08

apr/0

8

may

/08

jun/0

8

jul/0

8

aug/0

8

sep/

08

oct/0

8

US$ bnSource: Banco Central do Brasil

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6,412,0

22,135,0 36,3 40,3

30,0 26,519,2

25,830,1 32,4

50,2 47,0 48,6

0

20

40

60

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

Gross Foreign Direct Investments

Source: Banco Central do Brasil

US$ bn

(est.)

(est.)

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Source: UNCTAD / Bradesco

1º 465.391 USA

2º 405.978 United Kingdom

3º 256.009 China

4º 237.197 France

5º 182.948 Belgium

6º 124.165 Hong Kong, China

7º 107.397 Brazil

8º 105.080 Canada

9º 101.911 Germany

10º 95.616 Spain

11º 92.359 Italy

12º 76.510 Mexico

13º 70.703 Singapore

14º 68.994 Holland

15º 64.900 Russia

Foreign Direct Investments Ranking2003 – 2006 (US$ M)

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World Population Distribution

0

1

2

3

4

5

6

urban rural

In bn persons

Source: UN

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0,52

0,54

0,56

0,58

0,6

1993

1995

1996

1997

1998

1999

2001

2002

2003

2004

2005

2006

2007

Worse

Better

Gini Coefficient 1993 – 2007A low Gini coefficient indicates more equal income or wealth distribution, while a high Gini coefficient indicates more unequal distribution.

Ratio ranges from 1 to 0

SOURCE: Banco Central do Brasil/ IBGE

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Real Estate Market

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Regulation

• Brazilian real estate credit market was excessively regulated.

• Important regulatory changes were carried out by the government as from 2005.

• Private banks gained access to the real estate credit market, increasing competition.

• Nonetheless, strict requirements always applied (and currently applies) to personal credit assessments.

• Among others, risk analysis by financial institutions include frequent and thorough inspections of the project, worksite, proposed schedule, legal and environmental documentation.

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Owned vs. Rented houses (2005)and Housing Deficit

• Owned 45.6 M (86%)• Rented 7.4 M (14%)

• Total 53.0 M (100%)

• Housing deficit 7.9 M

Source: IBGE

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City of São Paulo

Area : 1,530 sq km

GDP : US$ 157

bn

GDP (per capita) : US$ 14,000

Population:

São Paulo City: 11 M

Metropolitan Area: 19.8 M

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Atlantic Ocean

São Paulo Metropolitan Area

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Foreign investment in the Brazilian real estate market

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Foreign Investment in Real Estate

Capital markets (listed companies, investment funds); Direct investments in unlisted Brazilian companies; Direct foreign ownership of real estate (restrictions to

rural areas may apply).

• For many years, real estate investment in Brazil and other emerging markets were only possible through direct investment in specific projects.

• In Brazil, recent financial deregulation and strong development of capital markets stimulated IPO’s, as well as the institution of dedicated investment funds.

• Investment options include:

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IPO’s in 2007by sector

1st Real Estate: 28.1%

2nd Financial: 21.9%

3rd Food & Beverage: 7.8%

4th Agribusiness: 6.3%

Total: US$ 34.6 billion

Source: ANBID – Associação Nacional de Bancos de Investimento

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Who invested in the IPO’s

1st Foreign investors*: 73.8%

2nd Local Investment Funds: 19.6%

3rd Private investors: 6.6%

*Origin: USA = 61.1%; Europe = 35.3%; 3.6% other

Source: ANBID - Associação Nacional de Bancos de Investimento

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Corporate Office Space City of São Paulo (AAA Buildings)

Total stock (2007):New stock (2007):

Estimated new stock (2008):Vacancy Rate (q2 - 2008):

2.2 M sq m136,000 sq m179,000 sq m

7%

Source: Jones Lang Lasalle

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1 2 816

34

90

147

240 252 254 257262

351367

382

0

50

100

150

200

250

300

350

400

1966 1976 1986 1996 2002 2004 2006 2008

Brazil: Shopping Malls

Source: ABRASCE / SONAE / ENPLANTA / National Research Bureau

Cidade Jardim Mall

São Paulo State = 123 (2008)

In USA: 48,700 malls

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Second Home Purchases2007

79% of foreign buyers have already visited the country.

For most foreigners (76%), the main attraction for investing in the country were climate and natural beauties.

Source: Folha online

Property purchases by foreigners in Brazil totaled US$646M

U.S.A. US$ 102 MEurope US$ 450 MSpain US$ 82 MItaly US$ 63 M

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SÃO PAULO

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SÃO PAULO

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SÃO PAULO

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RIO DE JANEIRO

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RIO DE JANEIRO

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BELO HORIZONTE

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BELO HORIZONTE

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PANTANAL

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AGRIBUSINESS IN MT: SOY

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VITÓRIA

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SALVADOR

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SALVADOR

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RECIFE

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PORTO DE GALINHAS

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MACEIÓ

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MACEIÓ

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JERICOACOARA

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PORTO ALEGRE

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SANTA CATARINA

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SÃO JOAQUIM

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BLUMENAU

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50

Thank you

Nelson Germanos

nelsongermanos@secovi.com.br