Mortgages in Brazil

 

Until relatively recently, mortgage lending in Brazil was highly restricted, due to a combination of limited products, chronically high inflation rates and a prolonged financial crises that impacted confidence in the financial market.

There are only 6 operational lending institutions and the market is dominated by one major player, the main lender in Brazil has been the Caiza Economica Federal (Brazil Central Bank) which originates 70% of Brazilian mortgages, financing USD $11.2 bn of Brazils total USD 16bn residential mortgage market.  The remaining 30% is serviced by private and state-owned multi-chartered banks.  There is a sever housing shortage in Brazil, and population growth rates (0.98% in 2008) mean that this deficit will grow from 7.2 million to 12.45 million in the next 15 years.  Brazil owner occupier rates were 73.7% in 2004, a level which is not thought to have changed significantly in that time.  In 2005, 594,000 properties were sold domestically in Brazil; out of this only 38% were financed with mortgages.

The government of President Lula has devoted to resources to tackle the housing shortage.  His main aims and results were the provision of more funds for the purchase of affordable homes, increase of housing loan-products and making bank finance available that would relieve real estate developers from the burden of lending money and thus exposing themselves to credit risks and additional operation costs.  As interest rates maintain their downwards trend in Brazil, competitors have started to introduce diverse products able to compete with the Caiza Economica Federal.  These retail banks are showing an increasing ability to service every-large portions of the population, which will likely result in more widespread use of loan products such as mortgages in the medium and long term.

With demand for new build property and real estate prices both set to continue increasing in the coming years in line with the country demographic growth, the increasing stability of the local economy and the increasing access to credit, investors and developers operating in the Brazilian domestic housing market should see several years of plenty  ahead of them.