Brazilian real estate: The mortgage situation
Mortgages are relatively new to Brazil, considering they were only introduced to its population around two years ago.
"It is very much in its infancy – bureaucracy is still vastly superior in Brazil and much of the population are not ‘officially employed’ so providing a regular source of income to be eligible for a mortgage is often very difficult," explained John Broad, sales director at Grup Immobiliari Natal Brasil.
He noted that while mortgages in the UK make up a large percentage of gross domestic product (GDP), Brazilian mortgages represent a very small fraction of the country’s GDP, with estimates around the two per cent mark.
No doubt those interested in the Brazilian property market will be interested in the state of the mortgage industry in the country. A recent article in the Global Property Guide claimed that president Luiz Inacio Lula da Silva’s reforms in the area have greatly assisted market growth.
The publication pointed to approval of fiduciary alienation, which means that the buyer becomes the owner of a property once it has been fully paid for, while the bank or lending body holds ownership of the Brazilian real estate while the loan is being paid off.
Banks in Brazil used to be disinclined to lend to households, as courts in the country were biased towards borrowers, but the changes have provided the financial institutions with greater security, according to the website.
It said that as a result of this, loan terms have lengthened to 30 years, up from ten to 12 years, while interest rates on housing loans offered by banks have dropped from approximately 16 per cent in 2005 to around 13 per cent. Additionally, government-owned housing organisations now offer loans at 12 per cent interest.
Last month, newspaper Folha de S Paulo said that the South American nation’s government could ease banking rules on the use of savings deposits for mortgage lending, although it did not reveal where it got the information from, according to Bloomberg.
The Brazilian newspaper reported that the central bank’s only concern is stopping banks from using savings deposits for non-mortgage investments, Bloomberg revealed.
For those looking at moving from the UK and into Brazilian property, they should note that mortgages in the country are currently not available for foreign nationals unless they are residents in Brazil with permanent residency visas. "Even then it’s not easy," Mr Broad commented.
However, there are those who believe that this situation needs to change. Laercio de Souza, general co-ordinator for investment promotion at the Ministry of Tourism in Brazil, told Property Wire that he was confident mortgages would be available to foreign real estate investors within the next 12 months. He said this back in October, so it remains to be seen whether this turns out to be the case.
Commenting on the mortgage situation in Brazil, Nick Marr, chief executive officer at Homesgofast.com, said: "I can foresee the day that Brazil’s banks will succumb to the pressure from the government and property industry and provide overseas financing to international investors. This will no doubt cause prices rises in Brazil as demand increases."
He said that foreign nationals not being able to get mortgages in Brazil from the country’s banks.
"For Brazil it means that investors are putting their own funds into Brazil and the opportunity of defaulting on loans is greatly reduced," he explained.
"Demand from investors is limited with those who have organised their finances from home or are buying Brazilian real estate off plan on a payment schedule. Land prices are very low and for many investors they are able to buy without financing."
