Interest Rates Fall for R$500K Homes

By Andrew Willis, Senior Contributing Reporter

RIO DE JANEIRO, BRAZIL – Last week the Caixa Econômica Federal (Federal Savings Bank) announced lower interest rates on loans for those planning to buy properties valued at over R$500,000 in Brazil. The move is part of the Brazilian government’s efforts to stimulate the country’s flagging economy, and keep up with an explosive property market that has outpaced financing options in recent years.

Caixa is the largest government-owned financial institution in Latin America. By dropping interest rates, officials hope they can spur Brazil’s growing middle class into making greater investments in the nation’s property sector.

Under the changes, loans that previously had annual interest rates of between 9.9 to 8.7 percent will now be offered at interest rates of between 9.4 to 8.3 percent, depending on the customer’s profile. On a loan of R$600,000, for example, savings as a result of the changes could amount to roughly R$43,000 over thirty years.

The Caixa announcement follows pressure from property sector stakeholders who have been pushing the government to play a more active role in the higher-end property market. A key factor behind the calls for change are the higher prices attracted by houses and apartments across many parts of Brazil in recent years, especially in Rio and São Paulo.

In 2011 the average cost per square meter in Rio rose a staggering 34.9 percent, with the coveted neighborhoods of Leblon and Ipanema in Rio’s Zona Sul (South Zone) continuing to command the highest figures. Unsurprisingly the economic boom of the oil and gas industries, combined with the upcoming sporting events and overall beauty of the city, has seen prices rise at an alarming rate.

In the the third quarter of 2012 however, data collected by Rio-based Agente Imóvel suggested a cooling off period in terms of property sales in 2012. Yet now a recent report by the the same group underlines the strong growth in the higher-end property market.

“The market in Rio continues upwards on a broad basis. Most notable was the district that really took off in December, Leblon [in the Zona Sul], the priciest neighborhood in the country,” Agente Imóvel’s Johan Jonsson told The Rio Times.

He adds that Caixa’s interest rate cut is unlikely to bring about a sharp rise in house purchases, however. “A rate cut of forty basis points on a nine percent mortgage rate will hardly make much of an impact on the market as a whole.”

Other data points to the rise in Brazilian property prices is in 2010 the R$500,000-plus price category accounted for twelve percent of loans in the Brazilian property market. Today it accounts for eighteen percent, according to the Associação Brasileira de Crédito Imobiliário (Brazilian Mortgage Association).

Frédéric Michel Cockenpot, Managing Director at WhereInRio Luxury Rentals & Sales tells The Rio Times: “Based on previous market trends, the cut in interest rates would probably help to sustain an increase in 2013 of 5 to 15 percent for housing purchases in this cost bracket. Lower interest rates always bolster an uptake of loans.”

As is in the city of São Paulo, prices per square meter have risen by 160 percent over the past five years, while in Rio de Janeiro the figure is 200 percent, according to FipeZap. “Prices went up a lot, and credit option didn’t keep up. There ended up being a gap,” Claudio Tavares, professor at the University of São Paulo (USP), told the ISTOÉ magazine.

Property valued above R$500,000 has traditionally been excluded from government support programs such as the Sistema Financeiro Habitacional (Housing Finance System). So far, Brazil’s other big banks such as Banco do Brasil, Santander and Itaú Unibanco have not signaled any plans to follow Caixa’s decision to cut interest rates.