At the end of this article, any real investor or person interested in a sustainable future should ask the question; “What’s really best for us all.” And while this may ring of pure altruism and ideological naivety, thinking costs so little and can bring so much. 

Dilma Vana Rousseff – Courtesy Wikipedia

The Cost of a Kinder, More Gentle Rio

News from the BBC this morning tells of the march of progress, and the oft-time bulldozing of dreams too. As Rio 2016 draws nearer, developers and especially the administration of President Dilma Vana Rousseff (above in an interview)  have to quicken the pace of progress. Let’s not forget FIFA is coming to town ahead of the IOC cavalcade for soccer’s super bowl, the World Cup. And with the “quickening”, as has been the case always, the poor and influential often suffer. Robin Lustig’s BBC story unveils speaks the names of a few who did live in the once destitute slums overlooking the beaches of Copacabana and Ipanema.

Berenice Maria das Neves, the heroin of Lustig’s version of “imminent domain” 21st Century style, resided with her children for 8 years on the muddy hillsides surrounding Rio. Then she was called to the hallowed steps of City Hall, presented with a check for $5000 (US), only to return to find her meager home leveled by bulldozer. If I am reading the story correctly, Rio decision makers got residents out of their homes just long enough to make them homeless in one fell swoop.

Rocinha is the largest hill favela in Rio de Janeiro – courtesy Wikipedia

She is not alone, the government says they intend to level 3000 homes in the area, while “treating people as fairly as possible”, according to the BBC report. I’m sorry, but for this writer fair is fair – unfair is unfair. The actual number of homes to be leveled is reportedly much higher. Fairness for this whole gentrification process seems to equal building some classy shacks an hour and a half away from the city center, where most of the poor work in Rio. In the most publicized move preceding these sporting events, security forces  essentially occupied the notorious Rocinha slum back in 2011. Real estate prices climbed by 50% by the next morning.

The neighborhood, once a haven for squatters, is situated on a hill between two rich areas of Rio’s richest zone. Now, former residents can no longer even afford their own neighborhood. And that $5000 handout to Berenice?  Clearly someone will make many times that just from her tiny speck of a home.

Beneath the Human Factor, Another Humanity Factor

But this is only the tip of a restructuring iceberg for Rousseff’s administration. Getting the drug lords out of Rio’s hills, building on a massive scale including infrastructure projects of monumental scale, Rio is the latest in a line of Olympic transformations. The nightmares of environmental calamity and displacement from Sochi, Russia still echo – and Vancouver’s Native Americans having only just now been shut up. “Nothing stands in the way of progress” is today, and even more powerful sentiment than before the Robber Barons and manifest destiny.

One does not have to work for Greenpeace or a humanitarian organization to understand the poor have nothing to gain from real estate booms like the one beginning in Rio. As is always the case, the best Berenice Maria das Neves and her children can hope for will likely be the crumbs from beneath the proverbial tables of the rich. Ah, but Bernice got hers in advance. Tickets to the events may have proved more useful.

What’s left of the great Atlantic Forests – courtesy Wikipedia

My final note is actually a recurring sort of environmental and bad business nightmarish one. You see, the Olympics and other business operations are really about making money for a relative few companies and individuals. There’s not sense mixing metaphors and beating about the bushes. What is left of the great Atlantic Forest (above)that once surrounded Rio, all Brazil in fact, will certainly disappear from the Earth once the new roads and infrastructure is cut out there. Of course every expert (PDF from MIT Sloan Sports Analytics Conference) is being beaten from the woodwork to justify these games. But despite all the rabble rousing of profiteers, housing and other economic problems of Brazil will cease to worry investors once these games move elsewhere. Capetown should be a fine example here.

Vancouver, Sochi, even the 2018 Olympics in Pyeongchang, South Korea are in part the result of what you might call “classical profiteering selection”, or sites chosen largely because of a natural resource. Timber (think of this as you watch the video below), of rare and unique quality and value if it were weighed properly. But the machinations of the IOC’s ruling members and the companies behind them is fodder for an upcoming piece. Suffice it to say the poor of the world are once again being transplanted to serve the rich. Ironically though, the bigger cost in terms of what we all lose environmentally, is a veritable gentrification of Earth, with only one tenant on prime real estate.

To be continued….

The movie Twilight: Breaking Dawn could have an unforseen positive impact on Brazil's real estate market. Image courtesy Philan23

The newlyweds are pictured flying to Mamangua Bay in Brazil where they are able to relax in a glamorous 11,000 square foot beachfront property, designed by renowned architect Thiago Bernandes and which was featured in Architectural Digest earlier on this year. True Twilight aficionados will be interested to know they can rent the very same property for a mere $4,000 a night. At that price most of us are likely to have to settle for a package holiday, but Brazil is seeing increased demand for both vacation homes and residential property, and Twilight is just about certain to have a positive impact upon a tourism industry which is already booming.

Brazil is also currently concentrating on creating more affordable homes for its growing middle class through the popular Minha Casa Minha Vida scheme, and is improving infrastructure in anticipation of the FIFA World Cup and Olympic Games. Ernst and Young recently released their latest report on Brazil, which predicts the current growth is likely to continue until at least 2016, something that is good news for potential investors.

This year has seen record levels of foreign direct investment in the country, which in the 12 months to May reached $64 billion. Experts Say they expect this year to be the best on record for Brazilian investments. Much of this foreign interest is down to Brazil’s continuing excellent GDP growth, which was 6.9% last year, and which is predicted to be 4.9% annually between now and 2015. Brazil is currently the seventh largest economy in the world, and many think it may edge past the UK this year.

Investment in Brazilian real estate looking good © mozZz - Fotolia.com

Real estate experts believe that the Brazilian market offers excellent opportunities for investors. David Lynn, of Clarion Partners in New York, says that this can be put down to a number of “positive fundamentals” that should ensure the market stays stable, offering good returns for number of years.

Anthony Johnson, an analysis partner at AAA, also agreed, saying “We welcome Mr Lynn’s assertions that Brazilian real estate could be a safe haven for investors in the coming years. His comments support our own view that Brazil is a fantastic place to invest as it will continue to seek economic growth in the future.”

Figures recently released by the Brazilian central bank show foreign direct investment increased during the first six months of this year, to its highest level since 1947 when records first began. A total of US$32.5 billion was invested, which is equal to 67% of the total FDI invested for the whole of 2010.

While much of the investment is in real estate, there is also interest in alternative asset classes such as sustainable forestry projects. These offer direct investment opportunities in plantations of non-native trees including teak and eucalyptus. The market for timber is currently expanding and moment due to the huge economic growth in Asia which is creating high demand. The Brazilian domestic steel industry is also seeing increased demand due to the FIFA World Cup which is due to be held in 2014, and the Olympics which are due to be held in the country in 2016.

Alternative Assets Analysis provides global news on a wide range of alternative asset classes which include real estate, hedge funds is, private equity, forestry, foreign exchange and venture capital, and the company is based in Boston, Massachusetts.

Brazilian mortgages showing huge potential © sfmthd - Fotolia.com

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.

The hotel is being renovated by Brazilian billionaire Elke Batista’s holding company EBX Group Co. Ltd, and should have opened this year, but the project has run into engineering difficulties. EBX bought the property in 2008 for $50 million.

Computer image of how the refurbished Hotel Gloria in Rio will look. Image courtesy of Casaeimoveis

At the moment hotels in Rio are enjoying high capacity rates on the back of the country’s spectacular economic growth which has increased business travel. According to a survey by the state of Rio’s hotel association, occupancy for 91 hotels in April was at 79%, which is a record level for the month. In addition to the World Cup, the country will also be hosting the 2016 Olympics.

The Hotel Gloria was once famous for hosting several heads of state and Albert Einstein, and originally opened in 1922. By the time Batista bought the property it had fallen into a state of disrepair, and the fashionable residents of Rio had moved to more southerly neighborhoods such as Ipanema and Leblon. Once the hotel re-opens it will have 231 rooms, two restaurants and a conference center. The hotels art deco exterior is to be restored to its original design and color.

Eike Batista, Brazilian billionaire and owner of the Hotel Gloria. Image courtesy of Abril

Batista, who is the world’s eighth richest person according to Forbes magazine, used to be a powerboat racer, and plans to expand the marina adjacent to the hotel so it will be ready to host various events during the Olympics.  It is estimated that Rio will need another 2,430 hotel units for the World Cup, in addition to its existing stock of 19,413 units.