Mortgage reform key to Brazil property boom
Reform of Brazilian mortgage regulations put in place in 2005 are paying dividends today in the stability and growth of the country’s property market.
Prior to that time, lending institutions were unwilling to give mortgages to all but the most creditworthy of clients, as under the law, they could not recoup the full value of a property in the event of a borrower defaulting.
In 2004, only 53,787 real estate loans were made nationwide – in 2007, that figure was 195,900, according to Brazilian Association of Real Estate and Savings Institutions (Abicep).
With Brazil firmly established as one of the most popular emerging market destinations for overseas property investment, the development of more sturdy domestic demand is also stimulating property prices.
And the willingness of financial institutions to lend money to more Brazilians is making the market faster-moving – at a time when the country’s economy is also booming.
Nevertheless, it is in some ways Brazil’s lack of a developed real estate sector that encourages stability. The caution of the lenders means a sub-prime lending scenario similar to that seen in the US is just not feasible.
"What happened in the US will not occur in Brazil, at least not now," Jose Carlos Oliveira, professor of economics at the University of Brasilia told the Latin Business Chronicle.
"In the first place, that’s because the lower and middle-lower classes are not active in this market. And interest rates aren’t so low that they’ve reached the point of stimulating people who don’t have to potential to buy and sell."
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