At the moment foreigners cannot apply for mortgages in Brazil, but the mortgage market here is extremely young, and there’s lots of room for growth in the future, especially as the current level of mortgage lending accounts for just 4% of GDP. To put this into perspective, mortgage debt in the US accounted for 55% to 65% throughout the 90s, increasing to 70% by 2008.
The legal framework governing mortgage lending was changed in 2005, and according to José Carlos Oliveira, professor of economics at the University of Brasilia:
“The changes revolved around real estate guarantees. In the past cases of non-compliance, the person responsible for the financing did not recover an adequate amount.”
The changes to the law mean the buyer of the property only becomes the owner after the loan has been paid off, offering more protection for lenders.
Real estate values in Brazil have increased considerably over the past few years and economist José Roberto Mendoca thinks the increases are sustainable, saying “Our prices have increased as a result of liberated demand supported by a number of micro-economic factors such as higher incomes which are limiting the risk of artificial price rises.”
It’s expected that the growing middle class will support the growth of property values, and many of them own their homes outright so mortgage debt is extremely low. Some geographic areas have seen considerably higher appreciation such as Rio de Janeiro and São Paulo, but this is down to lack of supply. However the north-eastern part of the country is outperforming the rest of Brazil economically and prices here have considerable room for growth.
MDMY Investment has several property developments in the north-eastern state of Ceara, including social housing programs under the governments Minha Casa Minha Vida scheme, and luxury beachfront condominiums. The director of MDMY, Jamie MacDonald-Murray points out that the government has invested considerable sums of money into local infrastructure related to transportation and energy, and this investment should lead to a sustained boom in property values in areas such as Fortaleza and Pecem. The government is upgrading tourist destinations, especially those near big cities that are due to host the World Cup in 2014.