Upturn predicted for Brazil housing market as interest rates are slashed

Key interest rates cuts are provoking a positive response for the housing market in Brazil – a change for the continued decline the nation has witnessed since 2014.

The 2007 discovery of enormous oil fields deep beneath a layer of salt in the Atlantic seabed boosted the energy industry’s demand for residential and office space in Brazil. Demand continued to surge following the 2009 announcement that Rio de Janeiro would host the 2016 Olympic Games.

As a result, house prices surged by late 2014/early 2015, which meant property became increasingly unaffordable. This led many Brazilians to rent rather than own, and in turn, the national house prices have been falling in real terms.

In a bid to combat this, the Central Bank has been cutting its key interest rate since October last year, making lending less costly for potential home buyers. As of this month, the key rate stands at 7.5%, significantly lower than the 14.25% in the first half of 2016.

These changes are bringing investors and international buyers back to town in their search for bargains. Increases in construction and home sales, as well as a positive economic outlook, suggest that Brazil's housing market is not too far from recovery.

This change has also been as a result of the government expanding the Minha Casa Minha Vida (My House, My Life) program by raising the maximum income of eligible beneficiaries, as well as the price ceiling of housing units. In February 2017, the government allowed almost 30.2 million workers to withdraw amounts deposited in inactive FGTS accounts.

Minha Casa Minha Vida allows workers to use their FGTS as deposit for low-income housing, qualifying them for loans from the state-owned bank Caixa Econômica Federal. As a result, the residential real estate market in Brazil now is starting to pick up after two years where business was very slow.

And while prices are still declining year on year, it is predicted this will all change very soon, especially in major cities like Sao Paolo.