1 – Property prices have soared
Experts say the only condition for the existence of any bubble is an abrupt rise in prices. And that’s exactly what’s going on in Brazil recently. According to a survey by EXAME/ Ibope, house prices rose an average 24.7% in the last 12 months in Sao Paulo, Rio de Janeiro and Porto Alegre.
2 – High standard office rentals are among the highest in the world
Not only are the homes prices high compared to other countries. The rent of commercial buildings of the highest standard, aimed to house offices of large companies, also are among the most expensive in the world.
3 – The real estate credit grows so fast that a lack of money can occur
No one doubts that the mortgage was an important factor for the recent rise in property prices in Brazil. More than 1 million homes were funded last year. According to figures from the association of banks, mortgage loans for the purchase of real estate grew 65% in 2010.
4 – Buying residential property to rent is bad business
According to Professor William Eid Jr., coordinator of the Center for Studies in Finance from FGV-EAESP, the main sign that there is a price bubble in the Brazilian real estate market lies in the fact that the value of rents is now proportionally very low compared the sale price of properties.
5 – Experts are already talking about a bubble of commercial spaces
In recent months, thousands of people have invested much of their savings in the purchase of small commercial offices spaces from 40 to 200 square meters in Sao Paulo. For Professor John Rocha Lima Jr., from the Center for Real Estate at the University of Sao Paulo, there is “clearly” a bubble in prices of sale of such property. He admits that the rents of commercial spaces soared in recent years because it lack of offers. But thousands of such properties will enter the market until 2013.
6 – Prices rise despite higher interest
High Interests are always an appropriate policy to dismantle bubbles – whether in real estate or stock. The logic is: if you can get an interesting fee with fixed-income investments where the risk is near zero, why would someone venture to speculate in stocks or real estate? At least in the Brazilian stock market, the decision of the Central Bank to raise interest rates from 8.75% to 12.25% per annum in recent months has taken effect. Including the shares of the largest developers in the country are among those that suffered most in the Stock Market in recent months. Oddly, the Brazilian real estate market went against the grain and did not care much about monetary tightening.