Smith International Legal Consultants, P.A.

For many people in the US, the pain of the popping of the recent real estate bubble continues to wear on. Many owners owe more on their homes than their value, and prices have fallen dramatically in many parts of the country. In Brazil, the real estate market continues to heat up, with prices in the major urban centers growing rapidly. This has lead many observers to ask, are we seeing a real estate bubble develop in Brazil? Valor Economico, one of the primary business journals in Brazil, addresses this topic in its Valor Investe, now available in English. According to Valor, there is no little to no chance of a bubble growing.

What are the reasons to reject a real estate bubble? Valor cites to different sources to name a few:

• Little to no access to cheap credit. Interest rates in Brazil are between 9-12% for mortgages: "'In the Brazilian market, where interest rates are among the world’s highest, how can anyone speak of real estate speculation?' asks Alexandre Fonseca, vice president of the Rio de Janeiro Association of Real Estate Company Directors (Ademi-RJ)."
• Credit represents a relatively small percentage of the Brazilian economy, especially when compared to the US: "In Brazil, the total volume of real estate financing accounts for only 5% of the GDP – in 2009, the figure did not reach 3% – in comparison to the roughly 10% in Mexico, 12% in China, almost 20% in Chile and exhorbitant 80% in the United States."
• Price correction, not an overvaluation. The demand for housing is increasingly rapidly as more people join the middle class or can afford some kind of financing: "In general, there is somewhat of a consensus among market specialists that the demographic and economic factors indicate we are outside the bubble. The first is that there is a housing deficit of 6 million units, with 95% of this total concentrated in the middle to lower income population."

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