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  • #257768


    Hi all,
    I’d like to pick the brains of the Gringoes.com community. I found a great apt in my neighborhood and it is below market prices for this area. There doesn’t appear to be anything wrong with it.
    My question is.. should I wait and see if the “bubble bursts” or buy it now. My friend who is realtor (he is not representing the seller) said it’s a great deal and to buy it. But I’m just concerned with the potential bubble and then what do I do with it if I need to move back to the US. I’d obviously sell it, but not sure if I’d lose a lot of $$ or not. I thought I could always rent it out if I move back.
    It’s just that I can’t see paying R$2000-2600 a month in rent when I can have my own place. And I am a “regular” here. This is the third time I’ve lived/worked in Brazil. :)
    Any ideas/suggestions!? Thanks

  • #257770


    Think yourself out of buying it and five – ten years from now you can tell the story of the one that got away.

  • #257771

    kevin owen

    If you are here for the long term (at least a few years) at some point it is going to be beneficial to buy. Long term paying rent is just throwing money away.

    If you have found a good property in a good, sought after area, I would buy.
    Sure short term, if the bubble bursts you may theoretically lose a little (you only lose if you sell) but long term I am sure you will win. Decent areas tend to be a little insulated from major crashes, it is the peripheral “up and coming” spots that tend to be the worst hit.
    If you wait trying to second guess the market for a year, property may have gone up another 10%, you will have paid another 30k in rent.
    It is a gamble, but I would go for it.
  • #257773


    Rent is not long term throwing money away. Investments tend to rise at a higher rate that houses, there is so much at play in the rent/buy decision. Most financial analysis people argue against buying. Think about major businesses, Wal-mart doesn’t own their stores, they don’t want to lock up capital in real estate, they rent. Are they throwing money away? It all depends where you are putting your money. Not as simple as renting being throwing money away. andrewfroboy2013-10-25 11:11:28

  • #257774

    kevin owen

    If you are a major business in need of capital to invest, and if those investments give a greater return than property, sure rent.

    Most investments that perform better than property are probably riskier. Private pension plans= rip off, stocks and shares= risky, coconut plantations=sure fire winner.
    If however you are not Wal-Mart long term renting is akin to throwing money down the drain.
    Property is safe, simple, takes away the need to pay rent and you get somewhere to live.
  • #257775

    kevin owen

    Another thing, I bet all the Wal-Mart directors own their own houses.

  • #257777


    The original question is pretty meaningless without the context of location. Property in some areas is perhaps 50% overpriced but that does not necessarily mean the price is ever going to drop, as some locations will always be desirable above the market rate.

  • #257786


    This is like all the posts about dollars for reais when it hit 2.20. Exchange now or wait until it hits 3.20.
    If it’s a good deal now and affordable and you like the apartment and location I don’t see how you can go wrong.

  • #257818


    It is getting into the ‘high’ season for property sales. Spring is in the air and the summer/holiday time is about to hit. Seller’s market.

    If you think it will still be there in March – wait. Buyer’s market.
    Why is the property below local value? To me, this says be careful – I have learned to be very cynical about ‘good deals’ in Brazil.
  • #257824


    Hi , for me Don’ t buy ! The quare foot or M2 is very Hight !!!! , a median salary is all estates in brazil of +/- 1400 reals .. Clown… I don’t know where do you live in brazil but if you see internet site .. Zap.com.br , bomnegocio.com.br,olx.com.br you cant see the real estate market less expansive with apartement of 70- 80 m2 ( 20-30%) and flat with apartment with 1 or 2 bedrooms and if you analyse this situation ..is not a good deal for the future .. For me 2 options : 1-If your seller don’t have a possibility to wait .. You buy with a speculation “market ” but with the list price of max ..2008 ( nothing venture nothing gain !) 2- Don’t buy and keep you’re money Here in bank with “fund ” DI ( indexaìßao taxa selic ) Now is 9,5% /Year in the next month the BC ( banco central ) go to + 0,25 or more 0,5 % .. this money to the bank is your “rent ” or more Thumbs UpBut I imagine a market more ” safe ” < 18 month … wait again the stock is not in the sky after go to the supermarket for buy ! Keep in touch ( sorry for my english ).. Regards , Chris , São luis , MA Brasil .

  • #257826


    Without knowing your financial strength, but assuming you plan to stay here awhile (4-5 years), I suggest “buy,” assuming it is as good of a deal as you describe – you didn’t say anything about where this property is located. If it is in Sampa proper, remember that the IPTU was just increased and will probably go up 100% over the next 3 years. This will, undoubtedly, cause some people to sell and move out, which of course, will impact property values.

    good luck
  • #257828


    I’d buy. I can’t claim to know Brazilian RE, but before I got my job I was thinking about getting into different RE things. I’d personally never rent. Why make someone else rich? That 2-2.6k could be going towards your own place, where you can do whatever you want to do with it. Even renting it out in the future and making someone pay you 2-2.6k a month. Then you could upgrade to something even better if you wanted, but that’s what I’d do. I don’t want to give people my money. I want my money to make me more money.

  • #257829


    Hi , Open your eyes 19000 apartements in stock ( really much more !!!!) : http://g1.globo.com/jornal-da-globo/noticia/2013/09/venda-de-imoveis-novos-registra-queda-nos-ultimos-cinco-anos.htmlI repeat if you deal is very good buy with the price list of year 2008 ( maximum ) if you pay ” cash ” it’s more 10-15% of discount . Or +/- 500 K r$ in bank with fund DI ( with administration tax 0,30-0,75% /year ) = 2300 Rs /month free …of tax federal ..in you pocket ( without inflation clear !) = Your apartement ( rent ).. and wait and see … But if you want to keep in brasil more of 4-5 I ok … buy ! but with very good conditions ..and Be careful with ” refurbished” apart !!!!!!!!!!!!!! Good luck , regards chris

  • #257854


    Thanks everyone!

    The apt. is in Praca da Arvore neighborhood in Sao Paulo. So, it’s not one ofthose trendy Zona Sul areas with fancy new buildings which normally have thejacked-up price tags.
    I did some digging and found that the owner bought it originally as aninvestment property and that it’s been vacant for 6 months. I am going to checkit out today with some friends (more eyes to spot any issues). But I noticed on zap.com.br and theother sites that the owner has 4 different real estate companies trying to sellit. So, I am thinking that this man needs to sell. Especially if it is an investment property.

    It’s a 100 sq m apartment and when I priced it against the otherapts of this size, it was cheaper than the rest in the Saude-Sta Cruz-Praca daArvore area. I am thinking that it isdue to the bright plum colored walls in 2 of the rooms and the fact that it’s acobertura of an semi-novo building (1997). Everyone says “it’s going to be hotup there”

    I will be here at least 3 years since that’s when my workvisa turns into a permanent one and then I can surely stay for longer. Believeme, I’ve been waiting 20 yrs to get a permanent visa without having to marrysomeone or have a kid. Hahaha. but to be serious, I believe I will be here for more than 5 yrs due to my job.

  • #257873


    [QUOTE=KSaudades]Thanks everyone!…

    The apt. is in Praca da Arvore neighborhood in Sao Paulo. So, it’s not one ofthose trendy Zona Sul areas with fancy new buildings which normally have thejacked-up price tags.

    I believe I will be here for more than 5 yrs due to my job. Normal0falsefalsefalseEN-USX-NONEX-NONE[/QUOTE]

    Then I’d suggest buy, if you can afford it. Now it looks like the Sampa IPTU’s may only go up about 50% in the next 3 years. Maybe won’t be so bad.
  • #257886


    If you find a good deal then buy it. Just keep in mind that in general real estate in Brazil is currently overpriced, relative to rents. According to the website Global Property Guide, the average rental yield in nine countries in Latin America is 7.5%. In Brazil, it is 6%.
    Apart from Brazil, we also own rental properties in two neighboring countries as well. Our own back-of-envelope numbers of rental yields to purchase prices are approximately 11%, 8% and 5% (with the latter being Brazil).

  • #257887

  • #257896


    The gripping I get around from buyers is that housing prices in Metro São Paulo tripled over the last 5 years. I assume it had to do with a repressed demand fueling this buy frenzi, and interest rates are ever so more affordable in Brazil. To say property values will climb even further, well that sounds like your typical Corretor’s drumbeat to get a buyer into signing off on a P&S Agreement. That will only work so far. I see markets jumping, tapering off, to get another hump in. 10 years, there is if job creation is strong.
    On the great deal you are having: Off course you owe yourself due diligence. Contrary to the US, fair housing laws ( which deals more with discrimination issues and redlining ) and due disclosure are non mandatory here. So the burden is on you to gather facts on the property, neighborhood. Aside the fact most lawyers are incompetent in this country, you will need one to get certidìµes negativas , or proof of liens as we call back in the US.
    You might, after all have a great deal, who knows. Yet , since there is no such a thing as MLS data here to baseline and compare your deal in relative terms ( MLS does a great job with logging sold units as well ) it is hard to say, in absolute terms , if you really have a great deal.
    Feel free to throw me more specifics about the property , granted it is in Greater Metro São Paulo, and I will tell you if it is a great deal or not. Incidentally, try 123i.com.br, assuming this is a condo unit. You can plug the building’s name and get a snapshot of a recent closed transaction.

  • #257897


    Praìßa. Da ìÅrvore is a great location. Japanese descendants will buy without beating an eyelid out there. And they are great neighbors. Very quiet. The better part is what’s called Chì°cara Inglesa, which is towards Ricardo Jaffet. Mirandopolis, on the opposite side of Av. Jabaquara.
    You are on the blue line, so you cannot go wrong. 10 min to Metro stop is the golden rule. Don’t worry about migrant workers around ( nordestinos ). They were there before that place was worth anything. The only thing that is annoying in the neighborhood is the fact there are too many cat houses around ( prive/ relax ).
    Neighborhood has gone upscale recently. Lots of sushi places, newer buildings. Av Jabaquara will take you to Imigrantes, ABC and Paulista. You’re made a Good value pick

  • #260214


    Dude from São Luì≠s probably meant to say CD yields are on the 9.5% bracket for your available cash.
    Your typical investor chasing rent money might get, in São Paulo , a 6-7% annual yield. So money on hand is the best deal for folks chasing returns.
    Since the buy frenzy of. 3-4 years ago is all but gone ( except maybe for a few well placed buildouts, and this is something that might apply only for layaways on new buildings that will be delivered on 3 year schedules ), you may want to hold onto your cash. Unless there is, you find a good bargain. And they are out there to be found.
    What most people here fail to realize is that supply and demand determines what you pay for it. The resale of used housing units dovetails what newly built units sell for. The majority of buyers for new units are made of speculators who will flip units once they are certified for occupancy and the loan installments will take over.
    A smaller percentage buys to hedge against real estate rising tide, so that they can acquire their homes at rate they can afford. Couples planning their first home, parents buying the apt for their kids college, you name it.
    Some of the folks in this forum do not realize the buying and selling is constant in São Paulo , markedly pronounced when the cost of money is lower. It is a result of job changing, life styles changes. And the ever frustrating task of getting home in less than an hour after a days work, night school, picking kids at school, battling traffic and jam packed public transportation. If you live in Tatuape, and work in Itaim Bibi, both São Paulo neighborhoods, you might spend 1-1/2 hours getting around on a. 20 mile stretch each way.
    So the end result of all of this is: the Purchasing Cost of your apartment in 1-2 years might have nothing to do with the so called “Bubble” and more to supply and demand as result of localized job generation, internal migrating paths ( folks escaping Morumbi on the account of rising crime rates nearby ), and more important of all, the cost of money to finance the purchase.
    Some of you outsiders might not realize, the expansion booms in São Paulo occurred despite high cost of money, and in spite of hyper inflation trends (80’s ). The saving rates then were higher, and even today, a considerable number of buyers make their purchases in cash.

  • #260383


    you are saying that saving rates were higher in the high inflation years?

    seems against economic logic
    can you provide some data on this?
  • #260394


    Glad you pointed out this…..
    Back then, people with cash kept tip n’ toe with spiraling inflation Rates by rolling into overnight and open market deposits.
    Since the private sector and consumer ‘s borrowing competed with government borrowing
    ( the US equivalent being T Bills and or debentures ) on rates, not many people would dare, or for that matter qualify, on taking a long term bank loan. Your money instead was going to finance the public debt through a bank deposit where you would elect to roll funds onto a Money Market ( thus then termed overnight or open market accounts ) for a better yield.
    Every large purchase had at least a 50% downstroke, the note being carried on short term loan many
    Times seller financed with full recourse.
    So when the opportunity to make a real estate investment presented itself, you withdrew from those non term accounts as well as from you FGTS ( an equivalent to pension and or 401k ) , themselves indexed by inflation.
    A lot, and by then I meant a lot , purchase a lot, and put away towards construction materials through a layaway
    Account you would have with your supplier. The supplier would take cash up front, invest in the business and also
    Speculate on Open Market deposits, so as to prevent cash to lose value overnight.
    Most families, the breadwinner , predominantly male, would bring in money, and wives would pound pavement on banks for better returns, as well as on penny pinching to get the most out of every Cruzeiro earned.
    Don’t worry about if makes sense. Back then you were a lot more frugal, as a middle class, than they are these days. A food wife was worth as much or more than a good breadwinner. They’ve made more out of the resources than married couples on two incomes make nowadays.
    People bought real estate and improved their properties. Condo units then were for the very affluent. You bought a townhouse or home, with barely nothing in it, and over time it would become a palace.
    Also notoriously ingrained in the Brazilian psyche was the custom of parents helping their off springs on their first home purchase.
    Also be mindful then, and now, the only safe put away was real estate. Virtually nobody trusted financial markets, banks, risky investments, passing the hat, overseas investments. Land, bricks and mortar was and still is, where it was all.

  • #260397



    seems like the open money markets may have higher rates
    We dont seem to find much info on these economic indices, you got any clue?
    What I have read was that the ‘real plan’ was supposed to stem inflation and later it stabilised, What also happend was the depreciation of real.
    but still I attribute most of the recent rise in prices due to lower interest rates (still very high compared to world standards), but historically have been almost impossible.
    What i see is different in brazil is that bank interest rate (i assume the Selic) is higher compared to rental yield. In Western Europe (UK for example), the yield is higher than interest rate on deposits. Combined with lower borrowing costs, this pushes up demand.
    For small improvements by improvements to the house , its probably no need to finance it with a 20 year mortgage.
    Again, think we need more data.
  • #260399


    You could look into reams of data and stil not make any sense of it. You had to live it.
    I will give you a current example …. Shanti towns. Back then most were tin shacks. They are still shanti towns , only they are in brick and mortars. Every surplus penny goes back into improving your home ( the weekend project, putting up an upper floor, the mutirão ).
    Also, you couldn’t , and probably can’t still gather such data only because it didn’t exist. So stop looking for such data, cause you ain’t finding it. You had to live it then to realize how things worked.
    People took money out of their cash outflows and rolled into Open Market and Over Night bank accounts, purchased Dollars, plowed the resulting surplus into construction and buying land. And in many cases, plowed profits back into your business. Since cost of money was too high, large purchases were made on cash.
    If you couldn’t afford that type of investment, and lived from paycheck to paycheck , then you rented, or bought your property through BNH, or rented.

  • #260400


    One more thing…. It was not Real. Back then was Cruzeiro, then Cruzeiro Novo, then Cruzado and way further, Real.

  • #264114


    I’ve done a lot of investment buying in the US, and have learned quite a bit about the market from it. While I don’t have specific answers for you, I do have specific questions you should be asking yourself and some general tips.

    Housing follows inflation — This is why many consider it a bad investment, it doesn’t go up in value, it simply follows inflation. However, if you have a mortgage and have it leveraged, all of a sudden your investment is increasing much faster. If you’re renting the property on top of that, then you’re investment is growing even faster. Most of mine are doing about 20-30% ROI right now. That is extremely high, but I bought when the market was low, and had someone cherry picking the lowest properties for me.
    Housing follows inflation for a reason, people can’t simply grow money, they need to earn it. They historically pay 1/3rd of their income to housing. This has been true for 100+ years, so a pretty solid rule. They only “extra” money they can pay towards a mortgage/house is what comes from inflation. Think of a minimum wage earner, the most he can offer is set by inflation, because his wages aren’t increasing any faster than that. If you get a raise at your job because you’re doing more complex work, then you’ve improved yourself, but the person replacing you (and potentially buying your old house) is making what you started out with + inflation adjustments! If housing goes up faster than inflation, then it MUST correct itself. Housing has followed inflation for 300+ years. Look at the work case shiller has done on this. Housing follows inflation. #1 Rule.
    How do interest rates affect housing prices? People are paying 1/3rd of their monthly income to housing, so 1/3rd * maximum they can borrow. If interest rates drop, they can borrow more.
    Rental rates tend to follow inflation much more closer than housing rates, housing tends to jump around a lot more, but prices are generally best when rents are the same as buying. Eg $1200 Rent and $1200 mortgage payment for the same house, when those numbers get out of wack, then it’s often better to rent.
    Remember: Housing follows inflation, but inflation is local as well. I suspect a place like SP has much higher inflation than many other areas in the country.
    Finally, while housing follows inflation, neighbourhoods will fill up and force new people to look further out, displacing those people. So you might have a neighbourhood of plumbers and then next door a neighbourhood of lawyers. When there are more laywers than houses, they will start buying up the plumbers houses. The plumbers houses will now follow the WAGES of the laywers, not their wages, so they will increase much faster. That is why you will see someone who has an apartment in the middle of the city who makes nothing, while all their neighbours make masses of money, they bought when that area of the city was dominated by poorer people.
    So look around you, see how much you could rent the place for versus buy.
    Has housing been following inflation or not?
    If those two questions are out of wack, don’t buy until a correction takes place.
  • #264115


    Well, in so many ways, what you just told us, is that it does not pay to own outright, given the cost of money a mortgagee is paying for, on interest alone, for someone who is buying their living house.

    Yes and no.
    And yes, you are spot on on housing following inflation.
    Now, there is a cap on Dollars you can buy, therefore, you can’t play the currency game at will , and stem losses on your cash on hand. And there are capì≠tal gains taxes, so you have to hide the money somewhere. Hence why people in Brazil pille up on Real Estate. Add the fact folks around here don’t trust financial markets, and are risk averse to invest on risky ventures, then Real Estate fits the bill.
    Now, to reap the benefits of being a landlord, and accrue rent towards equity paid at rock bottom prices, you need to have cash or access to financing, and purchase at buyer’s market.
    You also outlined gentrification. You buy into a neighborhood that is characteristically blue collar and move onto motivated sellers, knowing the signposts that such neighborhood is due to turn around. The only problem here is that in Brazil, there’s no HUD programs to bankroll your buys, while the neighborhood is in transition. So forget about getting bank loans on projected incomes of a guaranteed Sec 8 program.
    Money and patience play a huge factor in your line of thought. In Brazil, wiser and older people are used to the rollercoaster of the economy. So they have patience, and in many cases, money.
    I could use the Greater Boston as my template, as I witnessed changes in neighborhood and property values. Jamaica Plain, South End, South Boston, Charlestown. They fit your model both from the influx of tenants, and buyers. They were not as great in the 70’s, and 80’s, yet, now they as hot as you can get. And throw in Roxbury, as frown upon it might be, there is a huge upside there.
    A lot of people who bought into certain neighborhoods as dwellers made out pretty well. I’ve seen South End to triple and quadruple values in a 10 year’s span. Those were not your average investors.
    The math there is not a simple Cap Ratio. So your ROI might as well be a Cash In, Cash out. And if you are landlord, then you cash flow might look as follows:
    Cash out= Equity Payments+Property Taxes+Condo Fees+Interest Payments+Improvements
    Cash in = Rent + Selling Price ( often at markup over buying price )
    You don’t need to hold the property until the mortgage is fully paid. As soon as you realize a profit over the purchase price, then you made pretty good.
    So up to this point, I have agreed entirely with your stated thoughts. Just adding my observations. Question my points as you may wish.
    Betting on the come or betting on the came?
    Now, using the Metro São Paulo ( we can’t call it São Paulo proper, it is too cumbersomely large to fit in such a fishbowl ) as template, there’s some factors in considering real estate investment from….
    Employment trends. We’re adding white collar jobs, and losing blue collar jobs.
    *West of the City
    ( Pinheiros, Barra Funda, Agua Branca, Perdizes, Butanta, Sumare, Vila Madalena )
    ( Vila Olimpia, Chacara Santo Antonio, Berrini, Vila Cordeiro, Itaim Bibi, Brooklin Novo & Paulista )
    *Health Care jobs are still strong
    (Vila Mariana, Aclimaìßão, Sumare, Perdizes, Bela Vista, Paraiso )
    *Paulista refuses to go away ( Bela Vista, Paraiso, Jardim Paulista, Consolaìßão, Cerqueira Cesar )
    *Old downtown is slowly getting a new influx of mid income young professionals ( Republica, Bela Vista, Santa Cecilia, Cambuci, Liberdade, and surprise, Bras )
    Outflux of middle class folks escaping urban violence with decreasing property values
    * ( Morumbi, parts of Butanta, Parts of Santo Amaro, Diadema)
    *Your search of quality of life, away from verticalized neighborhoods ( Mooca, Ipiranga, Santana, Tucuruvi, Butanta, Saude, Chacara Santo Antonio, Alto Boa Vista, São Caetano do Sul, Santo Andre, São Bernardo/Rudge Ramos
    *Folks moving closer to the city, and cutting on commuting, and drawn to urban life
    (Jardim Paulista, Higienopolis, Sumare, Vila Mariana, Aclimaìßão, Liberdade )
    *Growing neighborhoods ( Tatuape, Vila Carrão, Itaquera, Jabaquara, Mooca, Vila Olimpia, Taboao da Serra )
    *Planned neighbhorhoods ( A Developer’s Dream ) –
    (Varzea da Barra Funda, Vila Olimpia, Panamby)
    Property Values. Hard to pin. There’s no MLS data to substantiate your decision here. Everyone prices according to what they perceive their neighbors are getting away with, or what they want out of a deal ( their needs, your pocketbook, their sense of urgency ).
    Now being a suspect myself…..
    I am yet too see a RE Broker who bothers to compile a Comps sheet while taking a listing. Most of their price guessing, is just guessing. Most brokers here can’t talk real numbers. Particularly with launches, most of their blabbler about numbers, is based on fictional data spilled by the Developer’s marketing dept or their bosses. They all good at the art of parroting.
    And since few RE offices do have a good rental dept, then there’s seldom good data on what a rent is worth. In here, is whatever the market can bear, rent or sale prices.
  • #264120


    @jpkennedy: You are obviously an investment “player” and astute analyst of the US/intl. realestate, et al $$ markets. I read with interest your explanations. I would agree with most of what you say above for US and othermarkets, and some of this also applies to Brasilâ‚Ǩ¬¶but not all. It is not so muchyour viewpoint as it is your oversight of not noting the meaningful differences betweenBrasil’s real estate market and the US, etcâ‚Ǩ¬¶especially when it applies to thehuge amount of smaller markets in the interior of Brasil

    I would qualify some of your science with what experience has taught mehere. Generally speaking:

    · Forgetmortgages. Do not deal with anyone needing one.

    · Alot of money trades hands under the table and in cash.

    · Dealsoften include property trades.

    · Donot carry a note for any buyer for more than one year.

    · Turningresidential property into commercial is excellent strategy, especially if it is short term.

    · Ifthe rental price of a property is close to 10% of its commercial value, this is ROI parity, then rent or sell depending on your need for cash flow,development or what the market seems to be doing.

    · Themarket is driven from the bottom up; the well at the bottom still has a longway to go to be filled.

    · Interestrates have been high (and will probably remain so) for a long time; this issimply a static given.

    Finally, businessin the interior is simpler than the US or large BR metros. While factorsrelated to the economic barometer and consumer confidence do make a difference, other aspects you mentioned are not too important. It is especially problematicto apply all of the numerical machinations of the mature US market to the smaller marketdemographics of the interior of Brasil. In meaningful ways they have very differentdynamics. It has only been the last few years since many people have been ableto attain decent housing, and again, growth in this segment still has a lot ofupside to quench its thirsty saturation. And, as long as Brasilians continue tohide away cash and underreport transactions, an exact analysis of Brasilian realestate markets, particularly in the interior, is difficult to accurately quantifyunless you are on the ground doing business here. There are a lot of small wheeler and dealers. Many are hot air, but some who apply themselves and workhard do make an excellent, though very tricky, living.

    Still,thank you very much for your detailed explanations of markets. I always learnsomething.

  • #264121


    I would be very careful in comparing the us property market with an emerging one. In the us, interest rate is much lower, and middle class can access funding much easier. You can compare rent and buy quite easily as rental markets are quite suppressed. The middle class can put down 20% and get on the housing ladder quite easily compared to brazil. In brazil on the other hand, interest rates are about 10-12%, a ridiculous rate for many, yet you have high price growth.
    Data on prices in inflationary periods are not available, only data is very recent. This makes tracking very difficult. As real prices increased 100% in the past year, you think it certainly doesn’t track inflation!
    What I would say is this:
    If you can afford the mortgage, why not? Brazilian market is still divided between who have and who have not.Alexbaggio2014-03-05 15:58:59

  • #264127

    kevin owen

    I’m sorry jkennedy but your statement that housing follows inflation is just too simplistic to be of any meaning.
    And here is why:
    1. People can’t grow money but mortgages can be taken out over a longer term, 35 year mortgages are not unheard of in the UK.
    People are living with their parents for longer in order to save a bigger deposit.
    People quite often buy their first property with a friend or relative.
    Interest only mortgages are common.
    Parents are increasingly having to help their kids with a deposit to buy their first home.
    All of these factors add to property prices.
    2. How can inflation be local unless you are talking about property inflation? If property inflation is different to normal inflation you obviously accept they may vary.
    3.Your point about a plumbers house becoming a solicitors house illustrates perfectly than the housing market is far more complex. You just can’t say they all simply follow inflation.
    4. If you buy at the bottom of a slump and I buy at the peak of a boom, how does this factor in with your statement?
    I buy a house for 100k, a few weeks later the local mine closes and my house falls 20k in value. You buy a house for 100k in a town where it is decided a new factory opens and your house goes up to 130k. Result is property inflation of 5% overall, but that is just statistics.
    Don’t get me wrong I agree with a lot of what you said, but just to say property follows inflation and has done for 300 years is meaningless.

  • #264128


    1) I said 1/3rd of monthly income. Mortgage length, and interest rates both affect prices but the 1/3rd number isn’t affected. Thus, you can figure out the inflation adjusted rate pretty quickly. Take whoever is renting those places, (rent will be roughly 1/3rd) and see if they could buy that house with a mortgage. Assuming they had a downpayment or the minimum requirements, COULD they buy it? If not, the market is asking too much.

    2) Inflation is usually local to cities. Ever wonder why big cities pay more for a job than the urban areas? After all is said and done, both people can afford the same life styles because of the cost difference. The higher inflation over time makes it much more expensive in the cities, but they earn more to compesate for that, due to inflation. They aren’t become millionaires in the city doing a plumbers job, they’re just being paid more to live the same life style they would elsewhere…
    3) A plumbers house from 1900 NYC would be a DREAM house of some lawyer, he wouldn’t be able to afford it today. That plumber would probably live in some of the most expensive land in NYC today, but because of population growth, the plumbers slowly get pushed out, while the higher income earners take their homes. That is why the slogan in real estate is location location location, because if you can get a place that becomes the next lawyers neighbourhood, your house will appreciate much faster than it would under your current plumbers wages.
    4) Yes and no. Housing follows a pretty cyclical pattern, in the US it’s about 10 years, Brazil has typically been shorter. The point of housing following inflation is very important, but you need to use it as a baseline for pricing a house only. Over a 2 year period, it’s simply too small of a time frame, but using 300 years (generations!) is far too long, so we need to mix and match here. The 300 year data point shows us housing follows inflation, but it can go above and below that number over shorter periods of time, but always returns to it over time. That is the important thing to take away from housing follows inflation.
    So use inflation numbers to see if housing is above or below that line. If it’s WAY above, then a correction is going to take place. Eg, if people are now paying 100% of their income to mortgages instead of the 1/3rd number that has been steady for hundreds of years, we know something is going to give, it has to.
    If people are paying 25% of their income to mortgages, we know more people are going to start buying up soon, and that housing is a bargain at this point.
    Housing is FAR too complex to actually create meaningful data points, that is why I use inflation and the 1/3rd numbers to decide when a market is about to correct, or is a bargain.
    It’s hard to wait, I waited from around 2002 to 2010 before buying in the US, most people can’t do that, but if you’re into investing, it’s how it’s done. Now I have a half dozen properties in one of the most expensive cities in the world, all rented to professionals and all cash flow positive. That’s unheard of, but if you buy at the bottom of a cycle, it’s what you get.
    When you stand back and look at most of the cycles, you can see a general pattern as well:
    1) Housing is so-so… 1-2 years… lots of all cash buyers, 20% people down.
    2) Housing starts to pick up… 1-2 years (higher than inflation now..). Builders start really building out homes now. They’re selling easily (new homes cost more than used, so you need a strong market to sell into). Cash buyers are backing off, the deals aren’t as good. 20% is turning into 15% because people can’t save as fast as prices are going up…
    3) Housing really starts to take off (2-4 years). Builders now realize they can build for cheaper than used homes and they double down, triple down, and quadruple down. They know it’s a bubble, but they will get out before it bursts…… People are paying with 10% then 5% then 3.5% then 0% then negative equity loans, then exotic strange loans… It’s always the same, in the US it got a lot more attention this time around.
    4) People can’t get money, they’ve tapped all the exotic, 0%, negative loans and things stall a bit. Builders are swimming in cash and suddenly realize they’ve waited too long.. they try and liquidate, but there still aren’t any buyers…. inventory is high, people with mortgages they can’t afford who were sitting on large capital gains want out, they’re trying to get out… collapse
    5) 2-3 years of corrections, while builders do nothing. In the US, 1.6M new homes are needed a year, 1M for new families, 600K for rebuilding tear down buildings, so builders aren’t building, but new homes are needed, 2-3 years later the inventory dries up… and presto.. goto step 1.
    This has been going on for decades in the US, in other parts of the world it happens slightly differently, but it’s always due to glut from building, and inability of people to obtain credit that causes the crash. At some point those two cross paths, and a correction takes place.
    Is it worth it worth it for someone to wait 5 or 7 years for a correction? Most don’t care, they are just living in their homes and don’t consider it an investment. If they can afford the mortgage, they don’t care what the price is, or was. I always looked at it as an investment, so it was definitely worth it for me. I ended up way ahead of the game because of my patience.
  • #264152

    kevin owen

    1. I accept the 1/3 of income, but if you pay over a longer period, pay interest only you can and will pay more.
    2.Property inflation is local to cities not inflation in general. Cars don’t cost more in cities nor do fridges, furniture or clothes. You can’t buy a house elsewhere and live in SP but you can buy your cooker somewhere else therefore shops have to be competitive.
    People tend to earn more in big cities because that is where the big firms tend to operate. Do you really think everything goes up 5% in a small town and more in capital cities? And this has been going on for how long?
    3. Yes some areas do better than others, so they can’t both be following inflation.
    4. I would certainly agree the housing market is cyclical, but continually going up with periodic corrections.
    I know it can’t carry on going up for ever but I thought London had peaked several times and each time I was wrong.
    your description of the housing cycle seems about spot on.
    As you say a house, for most people, is somewhere to live and not primarily an investment. But it is nice when your house goes up in value.

  • #264154


    Do take care not to mix the apples with the oranges. Kennedy gives good advice on the US market, but go back a page and re-read what Grads has to say because it is much more specific to the conditions of real estate in a developing country such as Brazil.
    picolino2014-10-07 12:48:43

  • #264164


    Yes, you can pay over a longer period of time, interest only, etc. However, it comes out to 1/3rd of your income, when you match up current offerings with mortgages and current earnings can’t support those mortgages, then a correction needs to take place. “needs to” being it will be forced on people, when sellers can’t buy, and buyers need to liquidate and can’t find a seller.

    The maximum housing can go up, is inflation adjusted levels of peoples incomes… using roughly 1/3rd of their income. So if you go from 10% interest to 1%, housing WILL go up a lot, but the amount people pay will remain the same, at 1/3rd of their income. When housing prices go up so far, that 1% with some new 80 year mortgage is more than 1/3rd, then a correction needs to take place.
    However, in most mature markets, you will see interest rates locked in a range. The US tends to be about 3% now to about 8%. Mortgages have been about 30 years for quite awhile, offering 45 years gave people a bit more leverage, and interest only gave a bit more, but it’s not a huge amount and most homes will fall into the 30yr fixed mortgage in the US, with the fringes doing the 45 or interest only.
    The reason housing can keep going up in places like london is that incomes keep going up. Or in my lawyers displacing plumbers scenario, the poor who can no longer afford the prices are pushed further out, while the rich who can afford those houses pay up for them. Now the prices of the plumbers homes can continue going up, because they’re now owned by a group of people who earn more.
    Really, the breaking point just needs to take place in a few areas of the country, not the whole thing. Once a few people start getting burned, they will re-evaluate how they are calculating their loans and will back off. Once they start backing off, even healthy cities will fall apart, because they will be squeezed out of the credit they need.
    As far as cities paying more, they’re paying more because inflation is higher. (Cities being the larger ones, not the average city).
    Housing is also a sponge of all available income, and one of the reasons these places get more expensive. I always hear about people who would never pay $X to live in a studio in NYC, but it’s not THEM that are setting the prices, it’s the people who are willing to pay those prices who are setting the prices. If you make $100K/year, and you’re happy renting some house for $1000/month in NYC, well guess what, someone who is making 80K will out bid you. They will pay the most they can, to get into your nice neighbourhood. The only way for you to stay there, is to pay MORE than the 80K earner can afford, thus setting a bottom level price. Bill Gates might look at your house and say “I could offer 10X that and boot him out, but it’s a DUMP, why would I live there?” So the richer people set a ceiling for how high it will go, and the poor set a ceiling for how long it can go, and you pay in between those prices.
    I am not trying to create some definitive guide here on when the exact moment to buy is. There are plenty of external factors that can effect a couple of houses (eg a new factory opens up) but the OVERALL market has some decently easy to read indicators.
    When prices start to stall, when the government starts pushing new loans to get new people into houses, when builders are going absolutely nuts on building, there is a very high probability of the entire market correcting. When it will happen, how it will happen or why exactly it will happen is for others. I look for the warning signs, and that’s when it’s time to get out, or start collecting up your cash and prepare to buy.
    I don’t know if the market will correct, I suspect it will, however I do know housing can’t go faster than inflation adjusted rates. So if you don’t buy today, and things go up further, tomorrow you’ll still be able to afford it. If you CAN’T afford it, then a bubble has formed because the prices have gone up too high. Your wages increases each year should make the houses you’re interested in still affordable, if they aren’t, then you’re in a bubble or the lawyers are pushing the plumbers out… Housing is expensive, it should be just expensive enough to make you cry, but affordable enough to not make you go bankrupt, it’s taking up 1/3rd of your income after all!
    I’m looking at Natal and just seeing masses of buildings going up. I’ve talked to people who say they’re having a hard time selling them, yet they’re building MORE and MORE. This is the glut stage if I’ve ever seen one. At the end of this round of building, they’ll need to drop prices to try and attract more buyers here, but that drop will likely trigger panic in other builders/individual investors.
    I say wait until you see a solid correction then buy.
  • #264165

    kevin owen

    I think we will have to agree to disagree about inflation/house prices, but I suspect we would agree on many factors.
    What concerns me is what you say about Natal as I see that being mirrored here.
    I have a construction business and it is extremely difficult to know when to jump ship. This is what I do for a living, teaching English just isn’t an option.
    I suspect I will carry on and hope Grads is correct in saying the bottom of the market will take a lot of filling.
    I could ride out a downturn but it just takes the fun out of things.

  • #264166


    Think of house prices in terms of a pyramid scheme (basically when everyone says housing can go up at this rate because we have the money!). Where does the money come from? Everyone says you just need to sell to the next guy and you’re rich, but get a few levels deep and the whole thing crashes. Housing follows a specific rate of return, and that return is inflation. People simply CAN’T pay more for a house than they earn, some might pull it off for a few years while eating ramen noodles but in the long run they can’t do it. Not the majority of them anyway, and you need the majority to support super high prices.

    Housing has to follow inflation, because a plumber with 5 years experience today, makes the same as a plumber 15 years ago with 5 years of experience, if you adjust for inflation, otherwise they’re just magically going to turn into Bill Gates after another few generations, but that can’t happen. They aren’t magically making way more money, their customers aren’t magically making 10x more money and paying them 10x more for their services, they’re paying them exactly what they paid them 20 years ago, but inflation adjusted. They might be more efficient today, might have better tools, but they’re being paid the same thing. (Ok, use US numbers for this one).
    The thing is, inflation is the key here. It’s truly the most important factor of what I’m saying. So I’m just looking at explaining it in a better way now… :)
    While Brazil needs a lot more housing, the biggest problem is that the people who need it, can’t afford these prices, thus they aren’t part of the buying pool until they can afford it.
    How much house, can a minimum wage worker afford? How about 2x minimum wages? 3x? Give them the best rates possible, 30 years fixed and use 1/3rd of their salary, how much is that in terms of a mortgage? Probably a LOT less than your cheapest house, but if the glut of houses is going to be absorbed, that’s where they will have to be priced.
    For me, when I purchased in the US, I purchased at about 20 cents on the dollar! People don’t realize HOW cheap it got in the US. I didn’t buy at the bottom either! I bought on the upswing, but still paid 20 cents on the dollar. That is HUGE. Now I didn’t pay 20 cents on the dollar per say, what I paid was about 50 cents on the dollar BUT I had 1/2 the interest rates of those who bought at the peak, and I had about 4 years of inflation that wasn’t accounted for… net/net it was 20 cents on the dollar.
  • #264172


    Ah inflation. It is the omniscient companion of modern society. When it’s low do one thing; when it’s high do another…and inbetween??? When I wipe my butt, I do so knowing that the price of paper has really gotten expensive lately. Will I economize and use fewer squares? Inflation is a factor, but it isn’t THE ONLY factor…in every market and absolutely overriding at all times.

    @jkennedy: Will you please dissertate about the effects of inflation and the program of Minha Casa/MV? Or the minimum/lower wage family who inherits/saves enough for a decent down to an incorporator and then pays their way clear in 5 years, then continues to move up the housing ladder…all the way contending with inflation like the whole country? How are property swaps and some cash governed by inflation?
    How are the demand for better housing, availability and market saturation related to inflation?
    Here also is an interesting question: Why do property renovadas seem so popular these days compared to 5-10 years ago? Hint: It has little do with inflation, except for the fact that there is some sort of inflation/deflation economically at all times and in all places.
    Actually, in Brasil, the exchange rate to the dollar (another inflation related variable) is usually taken more into consideration in real estate transactions than the rising cost of toilete paper.
    Inflation is a depressing fact of life, but life goes on.
  • #264177



    This isn’t what I’m saying. Inflation is part of life, it’s neither good or bad for housing, but it is the only true factor in pricing a house. Housing follows inflation, not more, not less.
    Here is my example for NYC. 90 Year old Grandma wakes up one morning and says I’m selling, finds a real estate agent that will do exactly what she wants. She says “This house I have across from Central Park, that I bought in 1923, I want to sell it. I paid $30,000 for it back then! I would like to get that much money for it now. List it for $30,000.
    3am, Mcdonald employee wakes up, looking for ahouse, sees this and says “Oh my god! That is an 8M piece of property, lets tell her we’ll give her $30,000!!!”
    4am, Mcdonaolds smarter employee says “Bid the maximum we can get a loan for! $55,000!!!!”
    5am, Plumber wakes up and says “Outbid that Mcdonalds employee with $75,000!”. Now the Mcdonalds employees are simply priced out, they have NO more cash available to them, their entire income bracket has been priced out with this one offer.
    9am a lawyer wakes up and says this property is worth 8M, lets bid 7M. Now everyone not making as much as a lawyer is outbid, they simply can’t get into this market
    10am a lawyer who wants it bids 7.9M
    11am Bill Gates wakes up, says that’s a great deal even at 8M! But why the !@#$ would I want to live there.
    Housing has a minimum value, and a maximum value and they are set by the economic group of people who want to live there. People with less money simply can’t get access to a large enough loan to get the house, and richer people simply don’t want to live there.
    With an upper and lower boundary, we have only one economic factor that changes these prices, inflation. hence why housing follows inflation.
    People are offering the MAXIMUM they can for the houses, because they are in a competitive market. They are forced to outbid the people with less economic power than themselves, but don’t need to compete with the richer people because they have better places they want to live.
    Inflation == Long term trend line, housing can’t go above or below this line for very long. 10 years max!
    So when “market conditions” change, there isn’t any more buying power available, it’s just foolishness. People believe they can afford more, so they pay more than the maximum they can afford and eventually that pyramid scheme collapses, and swings WAY down. When things get over saturated they fall and fall and fall.. but they will eventually level of and index themselves back to inflation adjusted values.
    Short term, market saturation, availability and other factors will play into pricing houses, BUT only temporarily, they will have to move back to the inflation adjusted prices.
    So the only question to answer is: Is housing above 1/3rd of the income of the average buyer? if yes, then it’s too high, if not, then it’s too low. 1/3rd income can be used to get a mortgage with any terms, but what is the maximum of money you can get your hands on with 1/3rd of your income.
  • #264183



    · Dealsoften include property trades.

    · [/QUOTE]

    Very true. This is a peculiar characteristic of the Brazilian market. Up here (Tocantins), involving some sort of asset swap in the deal is common. People trade cattle for apartments, pick-up trucks for businesses, motorcycles for plots of land. Really interesting. 100% cash payments aren’t that common, especially if you are trying to sell something like a business.

    I am not quite sure why this happens. I suspect that some of the behavior is just an inheritance from the time of hyperinflation when solid assets where preferred over money. But a lot of it is also driven by money of shady/undeclared origin.



  • #264188



    So the only question to answer is: Is housing above 1/3rd of the income of the average buyer? if yes, then it’s too high, if not, then it’s too low. 1/3rd income can be used to get a mortgage with any terms, but what is the maximum of money you can get your hands on with 1/3rd of your income.
    This “answer” may be valid, but the question is not necessarily of great import in Brasil. Brasil’s parameters are much more fuzzy, and trend analysis accuracy is only a general indicator, not a paradigm.
  • #264190


    What I tried to explain is that it isn’t trend analysis. Its a definitive number. It can’t go up, it can’t go down and its been shown with data going back 300 years.
    What I’m explaining is these are hard numbers that can’t be broken…. They can go up down for 5-10 years but must correct.
    What your trying to figure out is how long and how high can they go. Which can be within that 10 year window. What I say is that outside that time frame things will correct themselves.

  • #264215


    JK Kennedy has a point, yet markets can run and keep running much longer than most people think. Look at Rio And SP. Even in these markets you have pockets that have gone through the roof. In these cases you have bidders from all over the country and world messing with the market. So if you have a home in a nice place like La Jolla, you can get way above what local wages justify….Same with other prime cities…
    This too happens in the USA.
    Yes, corrections happen and in third world countries prices really swing. Both up and down.
    Up here in the NE of Brazil prices vary tremendously from street to street. You might get lucky.
    Buy what you love and can use. Buy if it can generate income. Buy with cash if you can.
    GreatBallsoFire2014-03-06 20:51:45

  • #264217


    It’s kind of hard to compare markets where outside influence is fueling them. You also have to realize that at some point, it’s not longer wages that support those houses, it’s pure wealth. If you can’t get a loan of that size, then it’s wealth that’s supporting it.

    But yet, people can eat rice and beans for a long time to hold onto their homes, but eventually the pyramid scheme has to end, at some point people simply can’t figure out how to get ahold of enough money to buy… nothing they can do will give them enough money and that’s when things are nearing the end.
  • #265378


    Once you have property, you are open to all kinds of law suits, most of them frivolous.
    Anyone can sue you for labor rights (justiìßa do trabalho). If you don’t reply within 5 (days), all his claims are considered valid and he can get tens and hundreds of thousands.
    I lost a house to a brick layer that claimed he was not paid by the prior owner. In another case I paid 80 000 to a guy I had never seen in my life, plus another R$ 80 000 to lawyers and the guys retirement fund.
    You can also be sued for taxes, child support, alimony by alleged partners (even of same sex) etc.

  • #265383

    Eliana FB


    Are you talking about building or buying ready for the market??
    If you are talking building a rough contract typed out and “reconicer firma” by you and the builder is good for a court of law in brazil.
    How can you lose a house to a brick layer?? sounds unbelievable but I know in Brasil anything possible.
  • #265387


    Anyone can sue you for labor rights (justiìßa do trabalho). If you don’t reply within 5 (days), all his claims are considered valid and he can get tens and hundreds of thousands.
    My partner works for the Justiìßia do Trabalho. He said what you claim simply is not true.

  • #265406


    Anyone can sue you for labor rights (justiìßa do trabalho). If you don’t reply within 5 (days), all his claims are considered valid and he can get tens and hundreds of thousands.
    My partner works for the Justiìßia do Trabalho. He said what you claim simply is not true.
    It is called revelia.
    Perdeu o prazo, confissou a divida.
    The employee can screw up. I have one that between her and her witnesses lost 5 audiencias.
    I lost one session and got slammed, got saved only with a R$ 15000 appeal
    Then I got slammed again, though the complainant was the spouse of my tenant and the manager of the business. I had nothing to do with it.
    You are supposed to be a company. Any mail delivered to your place of work is considered delivered, even if your janitor or door man screws up.
    you have xx days to reply
    I got slammed in another case, by a guy I had never seen in my life. He earned 1000 per month, with interest, penalty, and math errors (anatocismo) it accrued to R$ 180 000. I got away with 60 k plus 60 k legal fees, plus 40 k INSS taxes
    Study the terms: solidariedade, sucessão, grupo economico.
    Each of these is used to get innocent people to pay labor law suits.
    Also be aware that companies with limited liability have unlimited liabilities for taxes and labor law suits.
    reason enough not to do business in Brazil

  • #265407



    Are you talking about building or buying ready for the market??
    If you are talking building a rough contract typed out and “reconicer firma” by you and the builder is good for a court of law in brazil.
    did not understand
    How can you lose a house to a brick layer?? sounds unbelievable but I know in Brasil anything possible.

    Justiìßa de trabalho is unknown in the US.
    There are about 3 million labor law suits in Brazil, I believe a couple of ten thousands in Germany, and a few hundreds in the US. Per year.
    It is the biggest branch of the judiciary
    Their judges are basically communists. They want to screw the bad rich employers. And the law is on their side. There is a reason, because before, employers screwed employees in all possible ways.
    The rule is: the employee MUST be paid.
    They are worse then family courts for men. Employers have almost no rights.
    The brick layer sued the prior house owner.
    Was not opposed, won a default judgement of US$ 3000.
    The judge declared the sale invalid, because of the debt
    Ordered 3 houses, each worth 10 000 to be auctioned off. One was mine
    He bought them all for US$ 1000 with no cash.
    I did not go to the auction, because I felt safe knowing I had a registered title and thought people were joking. Could have bought my house for 1000.

  • #265408


    Nightmare of labor law suits:
    people make “sociedade Limitada”. Say R$ 10 000 capital money. Second fake partner is 1%, R$ 100 money in limited partnership.
    Gets sued for labor rights. Ordered to pay R$ 100 0000. the partner with R$ 100 participation has to pay.
    If that guy has a partner in another business, that partner has to pay (“grupo economico”, solidariedade)
    If you start a similar business in the same place you have to pay (sucessão)
    A total nightmare
    Add your incompetent corrupt lawyer and you are doomed
    Only salvation: have no property here, and nobody bothers to sue.

  • #265409


    Anyone can sue you for labor rights (justiìßa do trabalho). If you don’t reply within 5 (days), all his claims are considered valid and he can get tens and hundreds of thousands.
    My partner works for the Justiìßia do Trabalho. He said what you claim simply is not true.
    in case of revelia it does not matter if the entire law suit is unfounded.
    If the guy never worked for you
    Or if he worked for you, but never did all the extra hours he claims he did
    Whatever he claimed is considered proven if you once screw up and miss a court date, a filing deadline.
    It does not matter if you paid all his rights and he signed off on it.
    This is why some employers pay only in court. Only in court, if a payment is agreed to, it is final. All other employee payments and final agreements can be overturned in court.
    And usually the judge wants to get you to sign a “acordo”, an agreement. Even if you own nothing.
    I was lucky to win 2 cases. One was a guy I worked for, for free. He sued me. I got a top lawyer, flew in witnesses, and escaped judgment
    Another one was one that only made sandwiches sunday morning, for my tenant, not for me, and had another full time job.
    But the tenant won her law suit against me. R$ 50 000 for her, R$ 50 000 for her retirement funds INSS. My fault not having made an acordo for feeling righteous as she was nobody’s employee but the boss. I could have gotten away with R$ 15 000. A good honest lawyer could, probably have saved me too. But there always is a danger of losing labor law suits
    A total nightmare. Reason not to own property in Brazil.
    German-Gring02014-04-07 06:22:39

  • #26716


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