Deceleration may be a sign of stability

In 2012, the Brazilian realty market suffered impacts triggered by the crisis in the world’s economies, reporting negative results. The sector is still cautious as regards the outlook for 2013.

As expected, the Brazilian economy has felt the brunt of the global economic crisis. Negative effects were felt in a wide range of sectors of production in Brazil, especially those directly related to ensuring levels of income and employment for the country’s population. Therefore, it comes as no surprise that the sector of residential and building construction reported a declining trend in its figures for 2012. Among the segments of industrial, commercial and residential realty construction, the number of projects dropped 5% and investment fell by 4.7% compared to 2011.

Analysts and representative associations that are active in the construction sector are cautious about their expectations for 2013. Most bet that the temperature of the market will remain very close to that of 2012, further distancing itself from the hearty, robust growth seen two years ago and confirming a new reality in the realty market. In 2010, a year of strong acceleration in the sector, growth was reported to have been 15.2%.

According to the projections of the ‘Sindicato da Indústria da Construção Civil no Estado de São Paulo’ (SindusCon-SP - Union of the Civil Construction Industry in the State of São Paulo), the sector’s results will be tied to the growth of the Gross Domestic Product (GDP), which is expected to be between 3.5% and 4% in 2013. The organization predicted growth of 5.2% for 2012, but throughout the year factors such as cutbacks in investment by companies, lower public investment in infrastructure and delays in granting realty construction permits led expectations to drop to 4% - which is lower than the result reported in 2011 when there was an increase of 4.8%.

To many economists, the reduction in the figures for the sector does not mean that the realty market is experiencing a downturn or period of retraction. Instead, the segment would in fact be seeking to adjust to new conditions; balancing supply and demand. The trend, therefore, would be for a more sustained level of growth. Thus, the realty segment is expected to deliver good results again in 2013 as well as throughout the coming years. In this context, one should consider the good expectations of continued growth in mortgage lending. The ‘Associação Brasileira das Entidades de Crédito Imobiliário e Poupança’ (Abecip -  Brazilian Association of Realty Credit and Savings Organizations) estimates that mortgage financing with funds from savings accounts will display growth of 15% in 2013.

“What we see up ahead is a scenario of stabilization in building construction and normalization of the level of activity and in the number of people employed”, says Eduardo Zaidan, vice-president for economics at SindusCon-SP.

Retraction in several indicators

According to a survey conducted by ITC - Inteligência Empresarial da Construção (Construction Business Intelligence) - an entity with 35 years of experience accompanying changes in the Brazilian realty market and producing information on all the projects that will be built or are underway in the country - the downward trend has manifested itself strongly in the segment of residential construction. In this segment, the decrease in the number of works in 2012 was 6.4% compared to the previous year. To establish this figure, ITC evaluated over 6,000 works in this segment all over the country. Investments totaled US$ 41.5 billion, representing a drop of 7% compared to 2011. Constructed area surpassed 84 million square meters but, nonetheless, this represented a reduction of 4.5% compared to the constructed area available in the previous year.

Of the total works reported in 2012, Commercial Buildings accounted for 39.4%; Hotels and Resorts accounted for 14.5%, and roadwork (Infrastructure, Highways, Railways, Urban Mobility) represented 13%. Investments in the sector totaled US$ 112.2 billion of which the outstanding shares were in road works with 36.6%; hotels with 23% of the total, and Corporate Buildings with 11.6%.

Industrial construction in 2012 began to recover as of the second half of the year with a total investment of US$ 247.2 billion.

Stages of the works

Phase 1, representing the initial stages of construction, added up to 38% of the total works for the period. Industrial works added up to 943; Commercial construction projects 1,421; and Residences 1,781 - 629 of which were Launches and 2,356 were works at the Project Design stage.

Phase 2, when works are already underway, represented 33.1% of the total works for the period. Industrial works totaled 332; Commercial construction 798; and Residences 2,490 - with 1,086 at the stage of Finishing and 948 Structure.

Per region

Analyzing the behavior of the market per region, we see that the Southeast Region of the country stood out with 6,178 works, representing 57% of the total. Next comes the North and Northeast Regions with 2,092 projects (19%), the South with 1,862 (17%) and the Center-West Region with 786 works (7.2%). The realty market in São Paulo closed 2012 with a rise of 17% in the average price per square meter, or R$ 6,678/m² (US$ 3,339/m²). The assessment is part of the report “Barômetro do Mercado Imobiliário de São Paulo” prepared by Agente Imóvel - Inteligência de Busca (a realty search website).

In a month by month comparison, the report noted a steady rise in the average price per square meter. The highest rates of property appreciation were recorded in October (2.8%), November (1.9%) and December (2.0%).

The report allows you to track the average price per square meter of the 20 most valued boroughs of São Paulo, the annual development of prices and, furthermore, keep track of the average price per m² compared to previous quarter (September to December).   ?? (October to December).

The Chácara Itaim borough has the highest-priced square meter in São Paulo at R$ 15,519/m² (US$ 7,759.50/m²). Next in line is Vila Nova Conceição with R$ 12,500/m² (US$ 6,250.00/ m²). In third place comes Jardim Europa with R$ 12,460.00 (US$ 6,230.00), followed closely by Jardim América at R$ 11,608.00/m² (US$ 5,804.00/m²).

Still regarding properties above the range of R$ 10,000 (US$ 5,000) per square meter, come the boroughs of Jardim Luzitânia (R$ 11,336/m² - US$ 5,683/m²), Jardim Paulistano (R$ 10,655/m² - US$ 5,327.50/m²) and Vila Uberabinha (R$ 10,058/m²  - US$ 5,029/m²).

The boroughs that reported the greatest increases in average prices per square meter in the last quarter (Oct.-Dec.) were: Vila Madalena which appreciated 13.7% (R$ 7,366/m² - US$ 3,683/m²), Vila Romana with growth of 12.7% (R$ 7,210/m² - US$ 3,605/m²), Butantã which rose 11.5% (R$ 4,954/m² - US$ 2,477/m² ) and, furthermore, the boroughs of Cidade Jardim (11.2% - R$ 7,961/m²), Jabaquara (10.8% - R$ 5,119/m²), Santo Amaro (9.2% - R$ 6,191/m²), Morumbi (8.9% - R$ 4,887/m²), Lapa (8.9% - R$ 6,425/m²), Saúde (8.6% - R$ 6,261/m²) and Jardim Marajoara (8.5% - R$ 5,068/m²).

Now, in the ranking of boroughs with the greatest depreciation in price per square meter in the last quarter (Oct. - Dec.), we find: Vila Uberabinha and Cerqueira César with -2.0% (R$ 10,058/m² - R$ 9,214/m², respectively), Jardim Fonte do Morumbi which depreciated -1.4% (R$ 9,214/m²), Pinheiros with a drop of -0.6% (R$ 8,286/m²) and Tatuapé which dropped -0.2% (R$ 5,119/m²). The boroughs of Brooklin Novo, Jardim Vila Mariana, Vila Cordeiro, Vila Andrade and Vila Congonhas suffered a depreciation that varied from 0.6% to 1.2%.

Analyzing the behavior of the market in Rio de Janeiro, the report further indicated the borough of Leblon as the most valued, with growth of 18% or R$ 21,483/m² (US$ 10,741.50). According to the report, Leblon is the most highly-valued borough in the country. In second place comes Ipanema with an increase of 11% for the year, and in third place comes Lagoa with a variation of 8% or R$ 14,551/m² (US$ 7,257.50/m²).

Grim scenario in Belo Horizonte

In 2012, all of the performance indicators for the realty market in the city of Belo Horizonte, capital of Minas Gerais state, displayed negative results. Sales, launches, speed of sales, and supply of realty reported numbers that were less expressive than in the previous year according to data from the survey “Pesquisa Construção e Comercialização” (Construction and Sales Survey) conducted by the ‘Instituto de Pesquisas Econômicas, Administrativas e Contábeis’ (IPEAD/UFMG - Federal University of Minas Gerais Institute of Economic Research Foundation), released by the ‘Sindicato da Indústria da Construção Civil no Estado de Minas Gerais’ (Sinduscon-MG - Union of the Construction Industry of Minas Gerais).

This survey refers to the results in sales for some 100 construction companies in Belo Horizonte. It does not, therefore, include all the sales that were made in the segment of real estate. Furthermore, the survey refers to sales of new apartments. Although the data in the survey was gathered from a limited group of companies, the result - within the general context - is capable of portraying the dynamism in the segment of realty in Belo Horizonte.

The decline in the performance indicators for the realty market did not apply to Belo Horizonte alone. Since it reflected the overall economic scenario, one can see a downturn in the segment in 2012 in most of Brazil’s main cities. Those are the findings of a survey conducted by Geoimóvel (a realty market research company). According to the company’s survey, realty launches dropped 61.3% in the nation’s capital Brasília, 6.6% in Recife, 8.5% in Porto Alegre and 56.5% in Salvador. The drop in sales in these capital cities was also expressive: Brasília (-77.8%), Salvador (-73.6%), Recife (-39.0%) and Porto Alegre (-19.3%).

In Belo Horizonte, the number of apartments that were sold declined 27.11% in 2012 compared to the previous year. The reduction in launches was also expressive: -29.04%. Since July 2012, the realty market in the capital of Minas Gerais state is reporting a more moderate pace of activity, which can be justified by nation’s economic scenario; also affected by the world economic crisis. This means that the segment of realty in the city has closely been mimicking the ups and downs in the status quo of the economy.

Launches of new apartments in Belo Horizonte declined in almost all the price ranges, even in those ranges where sales of apartments had actually increased (from US$ 50,000 to US$ 125,000), demonstrating that the year was one of readjustment or ‘right-sizing’ for companies following a period of intense, high-paced activity (2008-2011). In the range of property with prices between US$ 50,000 and US$125,000, growth in sales was 12.01%. For sure, greater facility of credit and better conditions in the financing of mortgages had an influence on this result.