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Brazil ‘bubble’ fears rejected

Land and property prices continue to rise in Brazil’s two largest cities, São Paulo and Rio de Janeiro, but local GPs and industry groups say fears of a bubble are overblown with the country “buying for growth”.

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Fears that Brazil’s real estate markets are being enveloped in a speculative bubble have been dismissed by a raft of private equity and real estate professionals.

With land and property prices in the country’s two largest cities, São Paulo and Rio de Janeiro, continuing to rise and investor appetite for the country rising, there are increasing concerns Brazil’s property markets could be in the midst of an emerging bubble.

Rio de Janeiro
However, Luiz Henrique Lessa, president of the non-profit Brazilian Association for Real Estate and Tourism Development (ADIT) cautioned against such worries saying that while valuations for select development land in core markets were high, it was not representative of Brazil’s emerging institutional real estate market.

Pointing to the more than $4 billion redevelopment of the Porto Maravilha area of Rio de Janeiro, which will involve the urban regeneration of roughly 1.5 square miles of the city’s downtown port district for residential and commercial purposes, much of it ready for the 2016 Olympics, Lessa said that “Brazil had reached a level of maturity” that was proving attractive for real estate investors. “Of course, I don’t have crystal ball but I wouldn’t say Brazil was in the middle of a bubble.”

Rio and São Paulo, he added, were “not representative of the overall market. In Brazil, people are buying apartments and corporations are buying commercial space and changing their lease contacts for their own personal and corporate uses. It’s about buying for growth, not speculation.”

Lessa joins a raft of private equity real estate professionals featured in the March issue of PERE magazine who argued pricing in Brazil’s two main cities had to be balanced against the fundamentals of the asset class.

Gary Garrabrant, co-founder of Equity International – and due to speak at ADIT’s upcoming conference in Fortaleza in May – joined other real estate executives in saying there were plenty of opportunities in Brazil, particularly in the country’s secondary cities. “We are exploring relationships and adding portfolio companies that are more regional in their focus,” he said. “There’s no grand plan but it’s about finding the second generation of opportunities in Brazil.”