As a market for property, Brazil is relatively new. However, in just a few years, Brazilian real estate has come to represent one of the best opportunities for property investment anywhere. This potential for high returns is set to continue at least until 2030 since the Brazilian property market combines high demand with lack of supply.
As well as lack of supply, the Brazil property market is also being driven by the two major sporting events that will be held in Brazil between 2014 and 2016. Between them, the World Cup (to be held at locations throughout Brazil) and the Rio de Janeiro Olympics will generate huge Brazilian investment, a substantial part of which will be property-related.
All sectors of the market for real estate in Brazil suffer from a shortage of available property. This deficit is found in commercial property in Brazil (such as office, industrial and retail), particularly in the largest cities in Brazil and also in residential property.
Commercial Property in Brazil
Commercial property investment globally is now showing signs of recovery and the prospects for Brazilian commercial property are excellent. Jones Lang LaSalle in their Global Market Perspective Real Estate Outlook for 2011 claim that “Latin America will continue to build momentum with Brazil taking the lead”.
The potential for commercial property investment in Brazil is driven by high tenant demand – top quality offices in Sao Paulo are particularly sought-after by international and Brazilian businesses – and lack of available space. For CB Richard Ellis, “constrained supply and robust demand” are pushing up rental prices for offices in Rio de Janeiro.
The forthcoming 2014 World Cup and 2016 Olympics mean Brazil needs to increase its hotel accommodation, making property investment in hotels in Brazil an attractive option. Like Brazilian commercial property, the hotel market suffers from a lack of supply.
Branded hotels are relatively uncommon in Brazil, but the country’s recent economic rise and the expected influx of tourists for the sporting events has led many hotel chains to expand in Brazil. For example, Hyatt and Marriott are each opening 50 hotels over the next decade.
Hotel investment in Brazil is not easy and reliable local partners are essential. However, for the right investment, rewards will be high. Ernst & Young in Brazilian Hotel Investment Opportunities report that annual yields for hotels in Brazil should be between 20% and 25%.
The Market for Residential Real Estate in Brazil
2010 was an exceptional year for investment in Brazilian real estate. Returns were high throughout the country, reaching triple figures in some parts. According to Knight Frank, prices for property in Brazil increased by 20% in 2010, the highest rise in their Global Forecast 2011. 2011 is widely expected to bring similar results since the drivers – high demand and low supply – will remain in place. For PricewaterhouseCoopers, the Brazilian real estate situation can be described as “there’s a ton of demand for a ton of new space”. Investment in property in Brazil therefore has an excellent future.