Editorial: The Rio Real Estate Issue

Editorial, by Stone Korshak

RIO DE JANEIRO, BRAZIL – Real Estate is one of those topics that divides people into two main camps: those who own something and those who would like to. Among foreigners and Cariocas, everyone has an opinion on issues surrounding real estate in Rio; depending on which camp one is in, the conversations differ.

For those who own property, or work in the real estate industry as developers or apartment renters, they see what has happened in Rio as a natural re-alignment of what was a tremendously undervalued commodity. Most will now admit that the approximately five-year explosion of 25 percent annual increases in price is over, and that things will now level off.

The main argument against a bubble-burst has been that Brazilian real estate is typically not bought on credit. As most properties have been paid for in full, there will not be a sell-off as people get over-extended. I’m not so sure that is true.

Those who are looking to rent or buy a home have quite different perspectives and sentiments about real estate in Rio. They often include outrage and a desire for revenge for the gutting of bank accounts and dreams, as in many cases prices have literally doubled in the span of four years.

This group is hoping for a major crash in property values, and in essence a slap-down of the Brazilian economy. The desire is for the cost of living to re-align with earning potential, or at least to what many perceive as what things ought to cost, given adverse quality of life elements such as security and infrastructure.

You can probably guess which camp I am in, try as I may to be unbiased.

When I first spent extended periods of time in Rio I looked into buying a small apartment in Ipanema and keeping it as an investment and vacation rental. I recently dug up my old business plan from 2006—and there was a one bedroom available for R$150,000.

At the time I was not familiar and comfortable enough with Brazil to take the plunge, and of course it grates on me to remember this. Nowadays, according to a quick look at the Zap.com listings, the same size apartment seems to be going for an average of R$1 million.

To the bold go the spoils (“they” say), and many did have the foresight and opportunity to buy into Rio then. It’s not that I am not happy for them, many are friends and business partners, but there remains the question of what to expect next.

In 2009 – six years ago when we launched The Rio Times – I was able to rent a modest one-bedroom apartment near Arpoador beach for R$1,900 (including condo and IPTU). That same apartment now lists for R$4,000, meaning it’s doubled in six years.

Some quick research shows that the New York City real estate price index has had cycles of ten-year growth spurts, with 125-150 percent increases, followed by six-year decreases of around thirty percent. My guess is things will do something similar here in Rio, but as I’ve confessed, I’m no expert.