Guys, I have no clue if this subject will be relevant for a lot of people in the forum. But I'll add my 2 cents anyway because I've been dealing with this first-hand.
Overall:
From 2008-2009 up to early 2012, real estate prices have soared in Rio. We'e talking here about a price increase of, very roughly speaking indeed, anything between 120-300% during this period.
This bubble (I have personally no doubts it is a bubble) is based on a few misconceptions:
A. A grossly overrated and exaggerated perception of economic growth:
Don't get me wrong here, there has been consistent and real economic growth in Brazil in the last years. But as you break it down you will see that:
1. Tens of millions of people who escaped poverty became low-middle-class, read: they did not, in general, become buyers of overpriced real estate properties in traditional or new middle-class areas and will struggle hard to catch up with the ridiculous rise of prices in their own segment as well.
2. Very low or inexistent unemployment: This is very true, the poor got some purchasing power, there are more middle class people who earn a decent salary. But, again, none of this means your personal financial situation has improved to such as extent as to accompany the surreal boom in real estate prices. There are significantly more millionaires as well but, in absolute numbers, they are few and far between which means we're still dealing with a niche here.
Conclusion for A: whereas economic growth has truly been there for a while, in no way it is as shiny as it is depicted. And by no means it provides a real basis that justifies current market prices. This can't be sustained on the long run because prices have increasingly lost contact with the reality of people's incomes and financial possibilities.
B. The World Cup and the 2016 Summer Olympics:
This is the funniest of all misconceptions. Basically, there is a hysteric and very widespread belief that foreign soccer fans, international athletes and tourists will massively buy obscenely overpriced real estate after a few days in Rio. This crazy belief has surely helped to create or to considerably strengthen the current bubble.
C. There is a massive deficit in the housing segment:
True, if a quarter or a third of the population lives in slums and in rundown areas, these people will have the desire to improve their situation. The bulk of the deficit is in this specific segment. But this means concretely that there is a big opportunity for housing projects with affordable prices, not for the typically ultra-overpriced apartments we have now.
Some Effects of the Bubble:
A. People are getting heavily indebted in order to buy real estate that just isn't worth the price being asked. The underlying dangers here need no in-depth explanation: it means not only a heavy financial burden for the present, but also a potential time-bomb for the future if the economy slows down (and this can happen just anywhere).
B. This is related to the former point: The hysteria has driven up prices of everything; crappy properties have very often followed a similar increase in price, percentage wise, as properties which will always be special (good location, sea-view, amenities, commercial-touristic potential etc etc).
C. Migration of parts of the middle-class: I know quite a few people with very decent incomes (2K- 5K USD/month) who just can't afford rentals that have soared with 100-150% over the last few years. Especially if you are middle-class and have children, you might feel the rope around your neck is tightening. And, yes, middle-class is very slowly and very discreetly starting to move to some well located slums in the touristy area as I predicted some time ago.
If there is interest from the forum I can get back to the subject and come up with some examples of how I have been riding the bubble: opportunities-threats and bizarre examples of this situation.
Overall:
From 2008-2009 up to early 2012, real estate prices have soared in Rio. We'e talking here about a price increase of, very roughly speaking indeed, anything between 120-300% during this period.
This bubble (I have personally no doubts it is a bubble) is based on a few misconceptions:
A. A grossly overrated and exaggerated perception of economic growth:
Don't get me wrong here, there has been consistent and real economic growth in Brazil in the last years. But as you break it down you will see that:
1. Tens of millions of people who escaped poverty became low-middle-class, read: they did not, in general, become buyers of overpriced real estate properties in traditional or new middle-class areas and will struggle hard to catch up with the ridiculous rise of prices in their own segment as well.
2. Very low or inexistent unemployment: This is very true, the poor got some purchasing power, there are more middle class people who earn a decent salary. But, again, none of this means your personal financial situation has improved to such as extent as to accompany the surreal boom in real estate prices. There are significantly more millionaires as well but, in absolute numbers, they are few and far between which means we're still dealing with a niche here.
Conclusion for A: whereas economic growth has truly been there for a while, in no way it is as shiny as it is depicted. And by no means it provides a real basis that justifies current market prices. This can't be sustained on the long run because prices have increasingly lost contact with the reality of people's incomes and financial possibilities.
B. The World Cup and the 2016 Summer Olympics:
This is the funniest of all misconceptions. Basically, there is a hysteric and very widespread belief that foreign soccer fans, international athletes and tourists will massively buy obscenely overpriced real estate after a few days in Rio. This crazy belief has surely helped to create or to considerably strengthen the current bubble.
C. There is a massive deficit in the housing segment:
True, if a quarter or a third of the population lives in slums and in rundown areas, these people will have the desire to improve their situation. The bulk of the deficit is in this specific segment. But this means concretely that there is a big opportunity for housing projects with affordable prices, not for the typically ultra-overpriced apartments we have now.
Some Effects of the Bubble:
A. People are getting heavily indebted in order to buy real estate that just isn't worth the price being asked. The underlying dangers here need no in-depth explanation: it means not only a heavy financial burden for the present, but also a potential time-bomb for the future if the economy slows down (and this can happen just anywhere).
B. This is related to the former point: The hysteria has driven up prices of everything; crappy properties have very often followed a similar increase in price, percentage wise, as properties which will always be special (good location, sea-view, amenities, commercial-touristic potential etc etc).
C. Migration of parts of the middle-class: I know quite a few people with very decent incomes (2K- 5K USD/month) who just can't afford rentals that have soared with 100-150% over the last few years. Especially if you are middle-class and have children, you might feel the rope around your neck is tightening. And, yes, middle-class is very slowly and very discreetly starting to move to some well located slums in the touristy area as I predicted some time ago.
If there is interest from the forum I can get back to the subject and come up with some examples of how I have been riding the bubble: opportunities-threats and bizarre examples of this situation.