Post: #1

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.

Post: #2

Having just been to rio. i am looking the prices too. the problem is - when will it come dow. itn will be difficult to comedown.

2000 usd is very very goodincome for rio.who is buying?

is now a good time to buy ?

Post: #3

as far as o understand the mortgagemarket in brazil is not very populare due to extreamly high interest rates compared to western europe.

Post: #4

(02-04-2013 11:22 AM)Locksmith Wrote:  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.

You have not only described Rio. Its the same in Peru, Uruguay, Argentina, Colombia, etc
There is a big fucking bubble going on and when it explodes this continent will go to hell..

Post: #5

how much has lima s property prices increased

Post: #6

So the prudent investor should be

a) saving or selling his holdings
b) convincing American buyers that they can get in on a quick flip?

WIA

Post: #7

(02-04-2013 12:30 PM)east and west Wrote:  how much has lima s property prices increased

200-300% in Miraflores and San isidro from 2007 onwards....

Post: #8

(02-04-2013 12:30 PM)WestIndianArchie Wrote:  So the prudent investor should be

a) saving or selling his holdings
b) convincing American buyers that they can get in on a quick flip?

WIA

This is the time to Sell big time....if you have to buy you are fucked...

Post: #9

i dont see a big event leading to fall in prices. i would buy if i am an investor.

Post: #10

on the other hand prices im the eurozone still havent really fall much. tere is where i want to sell.

Post: #11

(02-04-2013 11:22 AM)Locksmith Wrote:  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.

What's the best website to look at to keep track of property prices in Rio? I'd be interested in buying properties when the bubble pops ('The time to buy is when there is blood on the streets' and all that). Are there hurdles to buying property as a foreign buyer?

Post: #12

(02-04-2013 12:54 PM)Thomas the Rhymer Wrote:  

(02-04-2013 11:22 AM)Locksmith Wrote:  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.

What's the best website to look at to keep track of property prices in Rio? I'd be interested in buying properties when the bubble pops ('The time to buy is when there is blood on the streets' and all that). Are there hurdles to buying property as a foreign buyer?

Hi, my wild guess is that the bubble could burst soon after the 2016 Olympics: one important psychological factor creating the hype will be over by then plus the economic forecast doesn't seem that rosy on the medium-long run to sustain the current madness. Also, we need structural reforms down here in order to create sustainable growth and it still didn't happen.

You're absolutely right TR, if anyone tells you there's an excellent business deal somewhere you're either too late for it or it's just not (entirely) true. Blood on the streets is a far better sign indeed. In fact, I took this quite literally when I invested in some rough but beautifully located areas that were "cleaned" soon after. It was great.

Be cautious with websites and newspapers, they're often too late with the really interesting insights plus you need to be careful with the "experts" from the press. Take your own conclusions always and try not to follow the herd.

Anyway, here is an index you can use, a very well known one:

http://www.zap.com.br/imoveis/fipe-zap/ (insert the areas you're looking for and search, it's all in portuguese).

Or try newspapers such as "Valor Economico" or "O Globo", also in portuguese.

Post: #13

This is the time to Sell big time....if you have to buy you are fucked...
[/quote]

You're mostly right. If you bought prior to 2009, now is mainly time to cash in with very good profits. Making money is also knowing when to get in and when to get out.

In some cases you'll also want to reinvest part of the profit in opportunities which are still under the radar and undetected (there aren't that many nowadays, but there are for sure).

Post: #14

I'm about to head back to Brazil but don't know how much time I'll spend in Rio. I've been going back and forth for the last 10 years; you used to be able to rent a decent-sized and renovated one-bedroom in Leme for $400/month not too long ago, short-term. Before 2008 I rented a one-bedroom with pool and concierge in Ipanema for $1000/month. These prices have tripled and quadrupled...

That said, a good amount of that is due to the fall in the purchasing power of the dollar. Prices will never come back to those levels I think, because the dollar is only going to lose more and more value over the years. A lot of people are putting their money in Brazil because it's relatively isolated from certain risks in global financial markets (or people think it is), which is a big reason why the real has been climbing. The Brazilian govt. (stupidly in my opinion) saw this as a bad thing, and has been working to *prevent* foreign investment by charging a fee, and also to debase their currency. If they hadn't done that, Americans would be more priced out of Rio than they already are.

The other thing you have to consider is that in a real estate bubble, rent prices are usually decent while it is only the selling price that grows irrationally. In fact, that's why it's irrational and a bubble: sell price is a function of rent price, but people believe the former can grow without reflecting the reality of the latter. During the US housing bubble, rent prices didn't grow that much at all, only the selling price did; that's why it was obvious to many people that it was a bubble. In Rio this is not the case. Rent has tripled or quadrupled in dollars, and grown by much in the local currency. Has this led to vacancies? No...in fact there are times in Rio now when you can't even find a temporary apartment anymore. The building where I stayed in Ipanema, that I mentioned above, is perpetually booked now and I couldn't even pay the inflated by 300% price even if I wanted; it's just never available. I don't know who's renting these apts., but people are doing it, and I doubt they're doing it on credit. So the sell price is actually an accurate reflection of what these apts. are renting for; demand is huge.

In the end I'm actually also of the opinion that it's a bubble, because theoretically the only way apts. can rise so much is if the economy grew that much also, and that's not the case. On the other hand, there are the things I just said, which makes the picture murky.

I'm actually curious about who is renting these apartments. If I had to guess, it's foreigners whose companies are paying the rent. Does anyone actually know? The demand is definitely there though; owners ask for $1000/month for the crappiest shitholes, and they get it. Why would they ask for less?

Post: #15

(02-04-2013 01:34 PM)Bronze Age Pervert Wrote:  "I'm about to head back to Brazil but don't know how much time I'll spend in Rio. I've been going back and forth for the last 10 years; you used to be able to rent a decent-sized and renovated one-bedroom in Leme for $400/month not too long ago, short-term. Before 2008 I rented a one-bedroom with pool and concierge in Ipanema for $1000/month. These prices have tripled and quadrupled..."

"That said, a good amount of that is due to the fall in the purchasing power of the dollar. Prices will never come back to those levels I think, because the dollar is only going to lose more and more value over the years. A lot of people are putting their money in Brazil because it's relatively isolated from certain risks in global financial markets (or people think it is), which is a big reason why the real has been climbing. The Brazilian govt. (stupidly in my opinion) saw this as a bad thing, and has been working to *prevent* foreign investment by charging a fee, and also to debase their currency. If they hadn't done that, Americans would be more priced out of Rio than they already are."

Partly true. But the BRL is, indeed, still very much overvalued. Artificially. Look at the Big Mac index for instance.

"The other thing you have to consider is that in a real estate bubble, rent prices are usually decent while it is only the selling price that grows irrationally. In fact, that's why it's irrational and a bubble: sell price is a function of rent price, but people believe the former can grow without reflecting the reality of the latter. During the US housing bubble, rent prices didn't grow that much at all, only the selling price did; that's why it was obvious to many people that it was a bubble. In Rio this is not the case. Rent has tripled or quadrupled in dollars, and grown by much in the local currency. Has this led to vacancies? No...in fact there are times in Rio now when you can't even find a temporary apartment anymore. The building where I stayed in Ipanema, that I mentioned above, is perpetually booked now and I couldn't even pay the inflated by 300% price even if I wanted; it's just never available. I don't know who's renting these apts., but people are doing it, and I doubt they're doing it on credit. So the sell price is actually an accurate reflection of what these apts. are renting for; demand is huge."

Very good point. And also partly true since there is indeed a high demand in certain areas. But if you move away from Ipanema and go to some shithole 30 kilometers away (zero demand from foreign tourists and expats) you'll also see the prices have similarly increased. When the bubble burts it will become clear what is special/sustainable and what's just a hype (re-read my post perhaps).

"I'm actually curious about who is renting these apartments. If I had to guess, it's foreigners whose companies are paying the rent. Does anyone actually know? The demand is definitely there though; owners ask for $1000/month for the crappiest shitholes, and they get it. Why would they ask for less?"

Yep, expats, tourists... you just said it.

Post: #16

(02-04-2013 01:45 PM)Locksmith Wrote:  

(02-04-2013 01:34 PM)Bronze Age Pervert Wrote:  "I'm about to head back to Brazil but don't know how much time I'll spend in Rio. I've been going back and forth for the last 10 years; you used to be able to rent a decent-sized and renovated one-bedroom in Leme for $400/month not too long ago, short-term. Before 2008 I rented a one-bedroom with pool and concierge in Ipanema for $1000/month. These prices have tripled and quadrupled..."

"That said, a good amount of that is due to the fall in the purchasing power of the dollar. Prices will never come back to those levels I think, because the dollar is only going to lose more and more value over the years. A lot of people are putting their money in Brazil because it's relatively isolated from certain risks in global financial markets (or people think it is), which is a big reason why the real has been climbing. The Brazilian govt. (stupidly in my opinion) saw this as a bad thing, and has been working to *prevent* foreign investment by charging a fee, and also to debase their currency. If they hadn't done that, Americans would be more priced out of Rio than they already are."

Partly true. But the BRL is, indeed, still very much overvalued. Artificially. Look at the Big Mac index for instance.

"The other thing you have to consider is that in a real estate bubble, rent prices are usually decent while it is only the selling price that grows irrationally. In fact, that's why it's irrational and a bubble: sell price is a function of rent price, but people believe the former can grow without reflecting the reality of the latter. During the US housing bubble, rent prices didn't grow that much at all, only the selling price did; that's why it was obvious to many people that it was a bubble. In Rio this is not the case. Rent has tripled or quadrupled in dollars, and grown by much in the local currency. Has this led to vacancies? No...in fact there are times in Rio now when you can't even find a temporary apartment anymore. The building where I stayed in Ipanema, that I mentioned above, is perpetually booked now and I couldn't even pay the inflated by 300% price even if I wanted; it's just never available. I don't know who's renting these apts., but people are doing it, and I doubt they're doing it on credit. So the sell price is actually an accurate reflection of what these apts. are renting for; demand is huge."

Very good point. And also partly true since there is indeed a high demand in certain areas. But if you move away from Ipanema and go to some shithole 30 kilometers away (zero demand from foreign tourists and expats) you'll also see the prices have similarly increased. When the bubble burts it will become clear what is special/sustainable and what's just a hype (re-read my post perhaps).

"I'm actually curious about who is renting these apartments. If I had to guess, it's foreigners whose companies are paying the rent. Does anyone actually know? The demand is definitely there though; owners ask for $1000/month for the crappiest shitholes, and they get it. Why would they ask for less?"

Yep, expats, tourists... you just said it.

Do not invest in south america!! its time to sell not to buy. I would buy in USA or southern countries of europe. South America is bloated...

Post: #17

rio reminds me of one city which is similar

barcelona, spain

both are near sea. great culture. night life. touristic.alot of short term rentals.

not sure how much prices dropped in barcelona but my guess is alot. prob now rio is more expensive.

Post: #18

Out of curiosity, what do you guys project will happen with commercial real estate particularly in Rio after 2016? I heard that was the most outrageously priced property now as people are looking to cash in on companies looking for more exposure/opportunities with WC and the Olympics coming around.

Post: #19

(02-04-2013 02:20 PM)yb13 Wrote:  Out of curiosity, what do you guys project will happen with commercial real estate particularly in Rio after 2016? I heard that was the most outrageously priced property now as people are looking to cash in on companies looking for more exposure/opportunities with WC and the Olympics coming around.

You're right about the outrageous prices. For a medium-sized commercial space (restaurant/ shop) 400K USD 'goodwill' fees and rentals of 15-20K USD are common in good areas. It can even get a lot more expensive than that depending on specific features.

It's just my guess: the bubble has driven up virtually all rental prices, regardless of quality to a certain extent. And when the bubble bursts the wrongly overrated places will go down while those spaces which are special will basically remain valuable because of their permanent sought-after features (top location, scenic place, main street, amenities around, etc etc).

Post: #20

Rio isn't quite as insane as Dubai yet, is it?

Post: #21

think dubai had bigger ups and downs.maybe has todo with lower taxes there

so far rio has only pretty much up. not sure how much prices droped in the financial crisis. but definitly not as big as dubai or even paris.

not sure about the 60s. think that time the proces were very high due to thw jet set image.

Post: #22

Check out this blog: Brazilian Bubble
Read this article in particular, Brazilian Property Developers Cooking the Books

They've been on this bubble for ages now. It's becoming ever more clear.

Post: #23

I've been looking at places in Florianopolis the last few times I was there. Seems like some reasonably priced places can be had in apartment complexes less than 50m from the beach. Hopefully things won't turn out like Rio before I can grab a place there.

Post: #24

This is one of the striking aberrations of the bubble:

Badly built apartments put on the ground by speculators, with practically no amenities (you'll probably need a car to buy a loaf of bread).

Usually these buidlings appear in areas with no proper roads or infra-structure. Plus new buildings seem to appear every week.

If you have to work downtown or, let's say, in Copacabana, be prepared to face a 2 hour's traffic jam to go and another two hours in a traffic jam to get back home and drop dead.

Welcome to Jacarepagua, Rio's fastest geowing neighborhood in 2012! (see pictures)

Average asking price for such a wonderful apartment? I'd say around 500K Real.

Note: A friend of mine recently banged a girl in one of those newly built blocks. When he went to have a shower, he had to enter the cubicle sideways since it was too narrow! The walls were so thin he could also hear the neighbor next door using his toilet.

Post: #25

Another aberration of the bubble is that a few areas have been completely overlooked and are underrated.

This is the island of Paquetá in the bay of Rio, it takes a 1 hour's trip by ferry boat (usually pleasant and relaxed) to get downtown.

However sleepy and sort of abandoned for decades (there are two minor slums at one edge), it has bars, a lot of historic heritage and music on the streets during weekends. Paquetá is completely walkable, it has great sights, scenic small beaches (not clean yet unfortunately because it's in the bay) and it is closed for traffic (only bicicles and horse carriages are allowed).

People overwhelmingly live in houses, many of them with garden and private swimming pools.

Asking price for better housing, better logistics, better quality of life?

I'd say that a small but decent house with perhaps a token swimming pool could go for 200K-250K Real if you do your homework well. This is about half of what you'd pay for a crappy crib in Jacarepaguá.