Brazil to Revitalize Home Finance Program

Newly re-elected leftist president of Brazil, Luis da Silva has announced plans to revive the housing finance program he created during his prior term as a key pillar of his new administration goals. There is a currently estimated housing deficit of over 5 million homes in Brazil.

“We will resume Minha Casa, Minha Vida (My House, My Life), with priority for low-income families, and bring back the social inclusion programs that lifted 36 million Brazilians out of extreme poverty,” said da Silva, also known as Lula, during his campaign speeches. The program targeted low- and middle-income families. The Brazilian gross domestic product per capita is just over $7,500 per year.

The Minha Casa program financed some 14.7 million home purchases during its first duration between 2009 and 2018, according to statistics from Caixa Econômica Federal, the state-owned Brazilian financial services giant headquartered in Brasília. It is the fourth largest banking institution in Brazil, as well as the fourth largest in Latin America, according to Wikipedia.

The revival of the Minha Casa program stands in stark contrast to the priorities of the former rightest President Jair Bolsonaro, who drastically reduced the federal housing program budget.

Lula also plans to invest heavily in urban infrastructure to support the estimated 85% of the national population of 214 million that live in cities. The new government plan to bolster city infrastructure includes the following: “We will resume policies that guarantee the right to the city, fighting territorial inequalities toward an ample urban reform, reducing socio-territorial inequities and promoting the ecological transition of cities through integrated investments in public transport, housing, basic sanitation and social equipment. We will support and incentivize creative and sustainable cities,” the plan states.

Architectural Demand to Rise

Brazil’s consumption of paint and coatings, mostly architectural products, will have slipped to just over $2 billion per year by the end of 2022, down from just over $4 billion per year in 2014, according to June 2022 analysis by Statista. Prior to Lula’s win and the reinstatement of the Minha Casa program, the current demand level was projected to remain static for the next few years.

One projection of the recovery of the Brazilian real estate market, by Modor Intelligence, suggests that “The residential real estate market in Brazil is expected to register a CAGR (compound average growth rate) of more than 6% during the forecast period 2022-2027.”

Among the Brazilian construction companies well-positioned in the residential market are: The major companies in the market include MRV Engenharia, Cyrela Brazil Realty, Even Construtora, Construtora Tenda, and Direcional Engenharia, Modor lists.

The residential housing market seems to have recovered from the Covid-related economic slowdown in Brazil. “The COVID-19 pandemic slowed the recovery of Brazil’s property market, with real house prices in Sao Paulo decreasing 5.51% up to Q3 2021, following a 0.21% increase the previous year,” Modor reports. “After the recessionary period in 2020 caused by the COVID-19 outbreak, the real estate market in Brazil improved significantly, overcoming the economic downturn, notably in the residential sector,” the analysts add.

While Minha Casa will boost home purchasing within the low- and middle-income bracket, high-income buyers and remodelers are also boosting demand for architectural paints and coatings now. “In both Sao Paulo and Rio de Janeiro, luxury property sales and launches increased by double digits. One of the reasons that luxury property in Brazil experienced such strong growth in 2021 was the significant rise in demand,” Modor reports.

“Luxury apartments have been the preference among affluent buyers in both of Brazil’s largest cities. In Sao Paulo, sales of apartments priced over BRL 2 million (about $390,000) went up by 3.2% in the year up to June 2021. In Rio de Janeiro, the increase was even higher, with transactions rising by 10%,” Modor relates.

New sales in the more middle-bracket recovered faster in 2021. “In the lower price echelon — over BRL 1.5 million (about $290,000), the figures were even more impressive. According to the Associacao Brasileira de Incorporadoras Imobiliarias, the Brazilian association of real estate developers (ABRAINC), sales of this type of property rose by 43% in Sao Paulo between January and September 2021,” Modor said.

“In tandem with solid sales (for mid-range properties) was the giant leap in the number of launches of luxury properties in Brazil. In Sao Paulo alone, they went up by 232% in the first nine months of 2021. In Rio de Janeiro, the increase in the region was 35%,” Modor adds. The combined luxury and super-luxury segment in Sao Paulo, from January to September 2021, totaled 4,217 units, which was an increase of 129%, Modor calculates.

Adding all home segments together, “The statistics from the Brazilian Mortgage Lenders Association (ABECIP) showed an increase of 124% (in new mortgages) in 2021. It is the biggest rise since record keeping began.” Modor points out.

GDP Rise to Lift All Boats

The housing market will not be the only economic segment to expand over the near term. Brazil’s Ministério da Economia, the economy ministry, in early November predicted overall GDP growth between 1.4% to 2.9% range in 2023, worth some R$ 2.4 trillion (about $470 billion) and according to Instituto Brasileiro de Geografia e Estatistica, the Brazilian institute of geography and statistics (IBGE), a federal agency.

Brazilian industry, led in large part by the automotive segment, is also expected to continue its recovery over the near term. The industry segment represented 23% of total GDP a decade ago, but dropped to less than 18% in 2020, according to Statista. Last year, the figure was back up to nearly 19%, the analysts calculated as of September 2022.

Within the industry segment, automotive recovery has been very strong. The Associacao Nacional dos Fabricantes de Veiculor Automotores (ANFAVEA), the national automakers’ association, reported that vehicle production was up 15% in October of this year, and that vehicle exports were up nearly 44% in the same month, compared with year-earlier months. The year-to-date increase as of October amounted to more than 7%, the association said.

Private sector investment will be a key driver to Brazilian infrastructure growth over the next few years, according to a September 2022 analysis by Kroll. “Private capital investment in infrastructure continues to be supported by economic policies and programs sponsored by the Brazilian government, and recent policy changes at Brazil’s development bank, Banco Nacional do Desenvolvimento Econômico e Social (BNDES), are expected to result in expanded private market activity going forward,” Kroll reports. 

“The current Ministry of Infrastructure (Ministério da Infraestrutura) has focused on privatizing assets through Investments Partnerships Program (PPI) and in reducing barriers for private investments, such as in the sewage and gas distribution sectors, with the discussion of a new regulatory/legal framework. Between 2019 and 2021, the PPI auctioned a total of 77 transport projects, 27 oil, gas and mining projects, and 23 other projects, totaling R$ 829 billion (about $161 billion) of scheduled investments,” Kroll detailed.