In Brazil real estate investment has a lower profitability than fixed income

RIO DE JANEIRO, BRAZIL – For a long time, buying a property to rent was considered the safest and most advantageous option for conservative investors. This is one of the many legacies of the long period of inflation and high-interest rates experienced by much of the Brazilian population.

Even though the current situation is not precisely one of economic stagnation (consider that the Selic is at 12.75% per year), investment options are much more diverse than they were years ago. Deciding where to invest is much more democratic now, especially for conservatives.

The situation in the rental market is a call for real estate investors to reevaluate their portfolios – especially those who are now thinking about buying for investment purposes.

Although lease values are adjusting faster due to skyrocketing inflation, rental profitability is currently below the CDI, the benchmark for fixed income yields.

In a study conducted by QuintoAndar, the data of sales and rents were crossed to calculate the average profitability of the properties traded on the platform. The idea is to know how much an owner who recently bought a property could earn by renting the same property.

Data from the cities of São Paulo, Rio de Janeiro, and Belo Horizonte were analyzed for the first quarter of 2022.

In the capital city of São Paulo, the average rental yield was 4.8% per year. The annualized CDI rate, which is the basis for the fixed income yield, is 12%.

LONG-TERM DECISION

It is essential to keep in mind that the CDI has a volatile trajectory given Brazil’s volatility of interest rates. Although currently in double digits, the rate was 2.8% in 2020 and 4.42% in 2021.

See below for the history of the CDI:

Year Cumulative CDI
2009 9,88%
2010 9,75%
2011 11,59%
2012 8,40%
2013 8,06%
2014 10,81%
2015 13,24%
2016 14,00%
2017 9,93%
2018 6,42%
2019 5,96%
2020 2,76%
2021 4,42%
2022* 7,93%
*in 12 months, through May

It is essential to consider this volatility, especially considering that buying a property theoretically benefits a lifetime of income.

On the other hand, investing in rentals is even more disadvantageous than long-term investments because the longer the term and liquidity, the higher the yield tends to be on fixed-income investments.

NEIGHBORHOODS WHERE RENTS YIELD MORE

QuintoAndar’s research also considered the regions where the profitability of rents is higher. In São Paulo, the neighborhoods of the East Zone brought the best annual income to landlords (with an average of 5.6% in the areas of the region).

In Rio de Janeiro, the central area is the one that brings the best return, with an average annual return of 5.4%. In Belo Horizonte, the best neighborhoods for rent are in the north.

With information from Exame