Is it a bubble??
But this housing boom has led some to believe that a bubble has been or will be inflated and could potentially burst. Rio Apartments Group CEO Hakan Olsson foresees no bubble for several reasons. “First,” he says, “it is hard to get a mortgage in Brazil and a large portion of the property is bought with cash. You are not able to have higher mortgage payments than around 30 percent of your salary. This means there is no real speculation (as was the case in the U.S.).”
Mortgage levels as a percent of Brazil’s GDP is roughly 3 percent in comparison with 65 percent in the U.S. and 46 percent in Spain, he says. Brazil’s sub-prime mortgages are only roughly 3 percent of the total mortgage market in comparison with 63 percent in the U.S. and 10 percent in Spain.
Steve Rubens, a real estate lawyer working in Brazil, agrees that a boom and bust is unlikely because Brazil’s boom is much less “debt-fueled.” He also gave similar figures for mortgage as a percent of GDP, and points out that obtaining credit in Brazil is quite different than estrangeiros (non-Brazilians) may be accustomed to.
“Housing debt is in its nascent stages in Brazil as compared to the U.S. or EU, and it is still difficult to obtain a mortgage, particularly with good terms. For instance, individuals with a decent income but not a fixed salary have difficulty obtaining a mortgage in Brazil.” explains Rubens. Foreigners often purchase property in Brazil by using a second mortgage on property in their home country allowing them to benefit from lower interest rates.
While many may find the rapid increase in housing costs alarming, especially in Zona Sul (South zone) which includes the popular Leblon, Ipanema and Copacabana (which will host part of the Olympic Games), experts seem to agree that any massive devaluation like the U.S. mortgage crisis is unlikely.
“There may come a point where valuations excessively outpace the incomes of residents which would result in a tapering off of demand. In the U.S. home buyers were able to purchase properties well beyond their means. This is not the case in Brazil due to the more restrictive housing debt market,” says Rubens.