Real-Estate Bubble Deflating Without Pop

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This topic contains 33 replies, has 15 voices, and was last updated by  pedersenpaula 7 years, 4 months ago.

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  • #269885

    romanji
    Member

    Very interesting read from Bloomberg about the state of the real-estate market:

  • #269889

    ffm
    Member

    This is very Brazilian! Have you ever noticed there are no liquidations here? (Real ones, not fake take 5 reais off and call it a liquidation). Brazilians are so unsavvy, they would rather hold on to stock until it becomes completely worthless instead of letting it go for a cheap price.

    I went to a Kawasaki dealership around 2012 and they had Ninjas from 2010…at the same price as the 2012s!!!! I went to Renault recently and there was a two year old Sandero (still 0km) with a “huge” discount…..of 3 grand! WTF!!!!!!!
    So I don’t see a crash in price coming more due to the culture of not cutting prices. Add to the fact these people hardly move and you take away a lot of desperation selling you might see in the more mobile first world.
  • #269892

    Andrewfroboy
    Participant

    Ha, so true

  • #269896

    [QUOTE=The Abbot]This is very Brazilian! Have you ever noticed there are no liquidations here? (Real ones, not fake take 5 reais off and call it a liquidation). Brazilians are so unsavvy, they would rather hold on to stock until it becomes completely worthless instead of letting it go for a cheap price.

    I went to a Kawasaki dealership around 2012 and they had Ninjas from 2010…at the same price as the 2012s!!!! I went to Renault recently and there was a two year old Sandero (still 0km) with a “huge” discount…..of 3 grand! WTF!!!!!!!
    So I don’t see a crash in price coming more due to the culture of not cutting prices. Add to the fact these people hardly move and you take away a lot of desperation selling you might see in the more mobile first world.

    [/QUOTE]
    yeah, brazilians would rather gnaw off their arm instead of give up profit.
    Interesting thing: I’ve noticed a lot of businesses are changing hands right now. Some are closing. Because they are selling less, a lot of prices are going up.
    They see people leaving so they increase the price of fees, rent, cachaxa, feijão amigo, whatever it is to try to recoup the losses, which in turn makes even more people leave. Of course, there’s an exception here or there, but this is 99,9% of what I see.
    Even good old Brazilian bank increased my account fees from $26 to R$52. Soyonara. Now I’ll be using a free poupan√ɬßa. They are rich enough. They don’t need my money.

  • #269899

    Wellington
    Member

    Comments by The Abbot are spot on! My Brazilian wife was in the UK in July at the time of the Summer sales and was amazed by the extent of the sales. It was not just that stock was being discounted by 60% or 70% but the stock itself was still new, current and desirable. Obviously it has to be cleared out to make way for the new stock that is already on order. Brazilians don’t know what shop sales are and the Liquidacao you sometimes see here is merely a few items of really old rubbish that you could not give away free in other countries.

    Here we have so many shops that are laden with ancient stock that has been on the shelves for years. A toy shop that has stacks of merchandising from long-forgotten films and TV shows from years ago; the packaging is now old and tatty and there is no indication that they will ever be sold again for the same price. There is no room on the shelves for new stock yet the owners steadfastly refused to sell off. I really don’t understand what they are gaining from this policy.

    man of leisure2014-09-08 06:59:49

  • #269901

    sven van ‘t Veer
    Participant

    Looking at prices of toys, I’m amazed they sell anything. A simple 15 USD box of Lego goes for R$ 250.
    I use to lunch at Delirio Tropical, always around the same time. A year and a half ago, my ticket would be between client 1200 and 1300 of the day, nowadays it’s between 850 and 950. They keep increasing prices. This year alone they increased prices 5 times.
    I’ve seen clothing stores where they pack everything in plastic so it doesn’t get dirty while it’s waits for someone to buy it.
    On the other hand, I use to buy suits and shirts at borelli which have a liquidation twice a year, with good discounts.

  • #269902

    Wellington
    Member

    Yes, the Legos that are marketed in the UK and USA under the guise of pocket moneysets (because a kid can afford it from his mesada) would have to be referred to as salario minimosets here!

  • #269904

    ffm
    Member

    [QUOTE=man of leisure]Yes, the Legos that are marketed in the UK and USA under the guise of pocket moneysets (because a kid can afford it from his mesada) would have to be referred to as salario minimosets here![/QUOTE]

    LOLLOLLOL
  • #269905

    ffm
    Member

    [QUOTE=andrew_nofro]

    Interesting thing: I’ve noticed a lot of businesses are changing hands right now. Some are closing. Because they are selling less, a lot of prices are going up.
    [/QUOTE]

    I’ve been seeing a lot of this as well in both the city I live and the city I work (Both interior SP). The once vibrant center of Americana is seeing less sidewalk shoppers and more for rent signs. (With astronomical rents that show no signs of going down either!!!!!)
    In the city I work, there is a big avenue that is just respectable used car lots. Just in the past four months I have seen four of them clear out. Gone. No warning, no clearance sale. Just empty from one day to the next. It’s so weird. It’s like they don’t even try lowering prices as a tactic to stay afloat. They just call it a day and move on.
  • #269906

    sven van ‘t Veer
    Participant

    Talking about astronomical. They are pre-selling offices to be build at the Rua da Assembleia in Rio. Price is 20K R$ per square meter.

  • #269907

    sven van ‘t Veer
    Participant

    [QUOTE=man of leisure] Yes, the Legos that are marketed in the UK and USA under the guise of pocket moneysets (because a kid can afford it from his mesada) would have to be referred to as salario minimosets here! [/QUOTE]
    Lego and any toy actually.
    I bought a “canguru” in Taiwan, one of those strap on baby carriers, for R$ 45. Later I saw exactly the same product here for R$ 299.
    The other day I checked beer prices in the Netherlands. Heineken is much cheaper there than Antartica here. It’s even cheaper than Itaipava.
    Even Mangoes are cheaper in a Dutch supermarket than they are here.
    It’s about time prices deflate here too. If not, people making 10K a mont can only pay for rice and beans.

  • #269914

    Finrudd
    Participant

    I was looking at New Year’s Eve packages this weekend – Ilha da Comandatuba near Ilheus was an eye-watering R$28.000 for a couple for 5 nights, and not even in one of the bungalows! Other properties like Ponto Dos Ganchos was similarly priced, as was Nanai Nanai near Porto Galinhas in PE. For the same money, I calculated you could fly business class to NYC, stay in a high-end Hyatt, and still spend nearly US$1.000 per day on food and drink!

  • #270085

    sven van ‘t Veer
    Participant

    [QUOTE=frank4000]things are getting more expensive everywhere my friend[/QUOTE]

    As much as in Brazil?
  • #270219

    jeb2886
    Member

    The real estate market won’t crash for the small investor. They will hold on for quite awhile. They need real FEAR to sell.

    The people who have leveraged themselves to the hilt are the ones who will liquidate first. I think the big builders will be the ones who will do it first. In Natal they are already starting to do it. Offering up big discounts, 100% financing and very low interest rates.
    The thing is, they’ve made a fortune off these things. So if they sell a few of them, 10% or so? They have enough to pay for most of the building. It’s the ones that have leveraged themselves to the hilt and need to make payments who will be the ones who will panic first.
    These builders know what is happening, and they’re acting like they’re smarter than their comrades, but their comrades are doing the same thing at the same time. They’re trying to liquidate and as more and more get agressive, it’s going to cause more and more people to get more desperate.
    I doubt the average person will liquidate their holdings, they can probably hold onto it. They will lose massively, and be left paying bills for 10+ years, waiting for the prices to come back, but they don’t NEED to sell either.
    Look for those who are in debt and hugely over leveraged to go first.
  • #270220

    celso
    Member

    The funny thing is that Brazil is a sticky market subject to big swings up and down.
    Infationary pressure with Eike Batista now on billion reais in debt, is a prime example of Brazil boom bust mind set.
    So is that front row condo in Ipanema that sold for $300,000 twelve years ago really worth $2,000,000?

  • #270221

    graham
    Participant

    I am always interested in analysis of Brasilian markets which wisely states the obvious, but I am more interested in the real world niche things where a small profit can be made. People are always making and loosing money, no matter the market trends, and I don’t really care too much whether the builder/developer/incorporator is solvent or not. If a market is saturated, it is always painfully apparent. What to do?

  • #270230

    romanji
    Member

    In my wife’s hometown of Recife all I see are cranes across the skyline, putting up luxury apartment buildings. I always ask myself how much demand can there possibly be for these apartments? Brazil has made some impressive strides in reducing poverty, but only a very small percentage of Brazilians can buy a shoebox $400k apartment. The only thing keeping the party going is the rich buying up apartments as investments. But this speculative buying I think is masking the true weakness of the real estate market. Once the investors get their fill, and prices stop increasing by double digits every year, watch out.

  • #270231

    ffm
    Member

    [QUOTE=Zummbot]. I always ask myself how much demand can there possibly be for these apartments? Brazil has made some impressive strides in reducing poverty, but only a very small percentage of Brazilians can buy a shoebox $400k apartment. [/QUOTE]

    Replace shoebox apartment with EVERYTHING AND ANYTHING and this thought has crossed my mind as well.
  • #270236

    jeb2886
    Member

    Brazil has the same culture as all the other latin american countries. So it’s pretty easy to see where the country is headed. It’s a cultural thing, and I’ve said it before. The boom/bust cycle is always present in these countries, and it catches people with their pants down all the time it seems. The poor stay poor, sometimes more poor than other times, but generally just miserable, luckily they don’t know anything else in life. It’s far better to just be ignorant of how life can be. They might dream of riches, but they don’t understand the stability they are missing, the pressures to make the next payment, of how to pay for better health care, etc.

    We’ve definitely got a huge glut going on, and there is no way the middle class is working its way into that glut. With interest rates on the rise, it’s going to be harder and harder to get loans for those amounts, and the glut will become more and more obvious. Cash buyers can buy, investors can buy, but when they realize there are simply no real returns, only paper returns they’ll stop buying all together and that’s when we’ll see things dump.
    I’ve looked at some of these apartments in Natal, and I figure they cost anywhere from 50-60K to build, assuming land costs and very crappy management in building. They’re selling them for 200K+ Plenty of room to go down, and they only really need to sell one in four to make their investment back. But I don’t think they are even there yet on many of their newer buildings!
    I don’t really know the demographics and full housing numbers in Brazil yet, but I’m pretty sure that if I can find them, the US is unlike Brazil here. The US tears down and replaces 600K houses per year, and needs 1M further houses for new families and immigrants. Brazil probably has a far higher number of houses that need rebuilding a year, but the number of new properties needed is probably far less. And they probably don’t need these expensive houses, they need houses for the median income which is pretty low!
    In the US it was easy to figure out when the construction market was going to recover. Look back 5 years at the build numbers, compare that with 1.6M, and then take all the excess and spread it out over the next X years, when the number hits 0, construction picks up again.
    Brazil could have 10 or 15 years of supply in apartments now! There could be a massive lay off of people in the construction industry, in the manufacturing industry, in the supply chains, and in financing for many years. This could lead to a massive recession here!
    The only bright light I could see is if the government basically puts all those people to work on infrastructure projects, trying to reduce the impact of the recession.
  • #270241

    kevin owen
    Participant

    [QUOTE=jkennedy]

    I’ve looked at some of these apartments in Natal, and I figure they cost anywhere from 50-60K to build, assuming land costs and very crappy management in building. √Ǭ†They’re selling them for 200K+ √Ǭ†Plenty of room to go down, and they only really need to sell one in four to make their investment back. √Ǭ†But I don’t think they are even there yet on many of their newer buildings!

    [/QUOTE]
    Where do you get these figures from?

  • #270243

    jeb2886
    Member

    Basic math based on property values divided by apartments. Then avg cost to build * size of these tiny places. These places have some higher costs but also lots of shared costs, so I averaged them out. This is hugely dependant on land costs, but most of these are in cheaper areas, not prime real estate.

  • #270250

    As my Brazilian co-worker once remarked to me: “Brazil has a good economy for 10 years, then a bad one for 20…”

    As some recent studies have done on wealth inequality in the US (see Berkeley economist Emmanuel Saez), it’s not a coincidence that the two years that preceded the two largestfinancial crashes in US history were 1929 and 2007- the two years of peak wealth inequality. When you have an elite with excessive money speculating in the economy, bubbles invariably are created (i.e Real Estate, Stocks etc…). A lack of a middle class with spending power only exacerbates the problem. Latin American countries, especially ones with uber wealthy elites, and tiny middle classes, only mirror these economic cycles- to an even greater intensity. As long as Brazil is a natural resource based economy with extreme wealth inequality (let’s face it nothing has really changed in this model for 100 years), it will always have these boom and bust cycles. The US may or may not bust out of this trap- if it can reduce inequality. Brazil, doubtful…
  • #270260

    kevin owen
    Participant

    [QUOTE=jkennedy] Basic math based on property values divided by apartments. Then avg cost to build * size of these tiny places. These places have some higher costs but also lots of shared costs, so I averaged them out. This is hugely dependant on land costs, but most of these are in cheaper areas, not prime real estate.[/QUOTE]
    I don’t really want to argue with you but it is not quite so simple.
    A block with 10 60m2 flats build cost R$1000m2 does not amount to an overall cost of R$600,000.
    To start with you have parking and communal areas, probably another 200m2.
    As you said you have the land; in poor areas I pay about R$25000 per unit. Sure if you are building a large block this will come down.
    I pay an estate agent 5%.
    I pay 6% tax.
    If you are borrowing money you pay interest, if you use your own money you lose the interest you would get in the bank.
    If I were to draw a monthly wage build costs would go up ( my salary is the final profit).
    All of the risk is mine.
    The profits are decent but not fantastic. Nobody I know is making a fortune.
    For sure the market has slowed down and a number of people are stopping building. The biggest problem I hear voiced time and again is all the red tape and bureaucracy involved.
    There are buyers out there but it is much more difficult to get finance now. I had someone the other day who had a 60% deposit but the bank wouldn’t lend her the rest, I have other similar stories.
    I am concerned about starting my next job, but that is what I do here. Teaching English is just not an option.

  • #270261

    jeb2886
    Member

    I wasn’t looking at 10 flat buildings, I was thinking of these 15-20 story buildings, with 4-8 apartments per floor. They are in every city I’ve been to, and they’re all around 50sq/m.

    Parking and other areas will add extra costs but split over these large complexes, it doesn’t add that much to the build costs.

    I was looking for the barest costs they could build these things for and flip them for. The rock bottom prices that complexes that are putting up 10-15 towers per city are doing.
    I was just interested to see about where the break even points for these places were. Plus or minus 100% on my estimates still put these places at 100K versus the 200-300K they are asking around here.
  • #270264

    kevin owen
    Participant

    I agree if you are building a large development you get economies of scale and land costs are reduced per unit.
    The flip side is you have to have a LOT of money to invest/risk.
    And if the risk is great it is only fair that the potential returns are attractive.

  • #270265

    jeb2886
    Member

    Oh I agree with you there. I’m just looking at these buildings where they’e been on the market for 3+ years and barely hitting the 40% occupancy rates.

    If we’re in a recession now, and we’ve got a huge glut or properties, we’re going to see some major deals. When some over those companies with way too much to lose need to get out, they’ll have to liquidate.. and I was looking at their costs.. and what they could probably come down to, in the event things got extremely bloody.
    They’re already offering 35% off list price, 0% down, low interest… so they’re doing what they can. If they still can’t liquidate these things, they’re going to have to lower and lower and if things go badly quickly, they’re going to need to just drop the prices to nothing and try and get out.
    Like you said, if someone with 60% down can’t get a loan… then we’re basically at the end game for financing….. and there is still a glut in almost every major city I’ve seen, that needs to be cleared…
    That doesn’t even include investors who are going to realize they’e been duped at the 300K level and who want to just get out…
  • #270293

    Kathy2012
    Participant

    Kevbo, Goi√ɬ¢nia is insane and I don’t see any overt signs that it’s slowing. Have you considered moving to cow country? √∞≈∏Àú‚Ǩ

  • #270297

    kevin owen
    Participant

    My problem is that I quite like it here.

  • #270660

    An interesting article by Brazilian Economist and President of the Liberal Institute, Rodrigo Constantino says that the country is on the verge of collapse. You can read the article at Globo. I don’t remember if it’s ok to post a link here or not (forgive me) but it’s:
    http://oglobo.globo.com/opiniao/um-pais-beira-do-precipicio-14085681
    You can draw your own conclusion as I’ve done.

  • #270664

    ffm
    Member

    [QUOTE=zeezonyc]An interesting article by Brazilian Economist and President of the Liberal Institute, Rodrigo Constantino says that the country is on the verge of collapse. You can read the article at Globo. I don’t remember if it’s ok to post a link here or not (forgive me) but it’s:
    http://oglobo.globo.com/opiniao/um-pais-beira-do-precipicio-14085681
    You can draw your own conclusion as I’ve done.[/QUOTE]

    Very nice piece. The problem is, the people who need to read this the most are functionally illiterate!
  • #270668

    celso
    Member

    Real sliding providing a discount for Gringoes….Dilma wins and Real slides much lower.
    Brazil forced to import more oil since hydro is not performing due to drought.
    Falling prices of iron ore and commodities hurting Real.
    Inflation with stagflation, low worker productivity and credit downgrades to hurt for decades.

  • #270670

    jeb2886
    Member

    Mostly, it’s a very strong US dollar. Everyone is going down right now. The real probably has extra pressure on it, but it’s just following the trend like everyone else.

    It’s kind of hard to follow those doom and gloom stories. While things are definitely going to need correct, the government has a lot of tricks it can pull out of it’s bag to keep things going for longer than most expect. History says we should have some major gloom coming up regardless… but impending immediate doom? Probably not..
  • #270677

    A lot of what is happening in Brazil, particularly with inflation, reminds me of when I was backpacking through Buenos Aires in 2001. A coffee cost $5, a beer $8, taxi’s -forget it! Everything was absurdly overpriced compared to the rest of S. America. I spent a week there and decided to go on to Chile as Argentina was just too expensive for my student budget. When I arrived in Chile a few days later, I opened the daily paper, and there was the plaza in front of Congress and the Presidential Palace aflame with overturned cars and guys in red bandanas and Che t-shirts throwing molotov cocktails. 5 presidents stepped down in 2 weeks- a world record I think! What a complete F-up… Total banking and economic collapse. Although, I know the circumstances of the currency and economy at the time were different, I still worry about Brazil. Let’s hope things are a slow landing rather than a hard one…

  • #27829

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