A report written by José Roberto Mendoça, economist and partner of MB Associates for the PINI Web magazine, has rejected the idea that Brazil’s real estate market is heading for a crash. During a presentation of the report, Mendoça stated: "Our prices have increased as a result of liberated demand supported by a number of macro-economic factors such as higher incomes which are limiting the risk of artificial prices rises."
The report starts with examining the theoretical behavior of a housing bubble, pointing out that the US subprime crisis that primarily led to country’s downturn possesses a very different situation to that of Brazil. Mendoça outlines, "The Brazilian economy today is on a sustainable trajectory without short term macroeconomic risks’ going on to state that there are no signals of political or economic changes that will indicate further liberalisation of finance or excessively low interests rates."
Throughout the report, Mendoça discusses a range of issues including the risk averseness of the Brazilian banking system with regards to home lending; the lack of non-speculative data sources; the fact that the degree of leverage of overall house finance levels remains low and that the secondary mortgage market is very much at its infant stages, particularly in comparison to other international real estate industries. Furthermore, mortgage delinquency rates (finance agreements with payment delays of over 3 months) have decreased from 12.02 percent in 2000 to 2.52 percent in 2010.
On the argument being put forward by both the media and professionals in the sector that reported price rises have been reaching a clearly unsustainable rate 40 percent within a year in some regions (compared to income rises of 6.5 percent), Mendoça argues that the growth of the Brazilian middle class is largely to be attributed for such occurrences. Combined with higher income levels, he points to data indicating that 20 million more Brazilians will enter the middle class by the year 2015 and, therefore, the demand for property will remain high. He also comments that such extreme prices rises are due to a seeming lack of supply, particularly in prime regions such as Rio de Janeiro and São Paulo.
He concludes by stating that, at the present time, there are no unequivocal signs of a Brazilian housing bubble – but this is not to say that it could not happen one day: "Uncontrolled mortgage lending coupled with a highly liquid macro-economic asset market could lead to an increase in prices even stronger than what is being seen today. Yet, at the current moment, we are still at a stage where demand seems to be in line with the evolution of prices."