Tuesday, February 23, 2010

The Brazilian Building Boom Is Only Beginning, Stock To Watch

Gafisa, GFA on the NYSE, is the phenomenal Brazilian builder whose stock has climbed 247% since January 2009. Please see our live tracking of latin-american ADRs:

(please click to enlarge)

While its performance has been extraordinary, the question is whether its performance, and whether actually the Brazilian building boom is sustainable. Comments, in general are quite favorable. Newspaper O Estado de Sao Paulo provided comments and interviews.

It turns out that Brazilians have never bought as much property as they did in 2009, and the trend is that new records will be beaten this year. The country is in living a boom in real estate, however, many analysts say that it is only the beginning since there is a housing deficit of between 6 million and 8 million units.

The industry experienced its best time in recent history. Brazilian banks are looking at alternative ways to fund the expansion. Today, most of the money (about 70%) comes from traditional national savings (The Caderneta de Poupanca), but experts say this source is expected to be exhausted by 2011.

Last year, 302,700 units were financed by savings deposits in a total of R$34B (US $18.9B).

Luiz France, director of Mortgage Itaú Unibanco (ITUB on the NYSE), who also heads the Brazilian Association of Real Estate Credit and Savings lists the factors that explain the recent performance and prospects:

  • legislation changes promoted in 2004. That established the mechanism of liens, which facilitates the repossession of property in case of defaults
  • the long delays in funding for up to 30 years, which allowed the reduction of monthly payments.
  • the stability of the economy.
On one hand, these more stable conditions have paved the way for lower interest rates. On the other hand, increased the purchasing power of the population (as shown in the rise of millions of Brazilians to class C), which reduces the cap. Another factor is the latest government program, "My House, My Life".

In this environment, private banks, which have always been reluctant to invest in real estate, now show great appetite. On average, they predict a 30% to 40% increase in loans this year. In 2009, according to central bank, credit for housing increased by 41.5% against 14.9% of total loans. "We see the mortgage as a driver of overall credit expansion," says José Roberto Machado, the executive director of the Real Estate Business Santander Brazil. According to him, globally, real estate financing accounts on average for 65% of the loan portfolio of the bank. In Brazil, only 5%.

Antonio Barbosa, director of HSBC Mortgage, said that the institution's goal is to increase participation in the segment in coming years. "We want to grow above the market average," he explains. The focus of the bank is in Barbosa calls "differentiated service".

As for Bradesco, the speech is similar. "We want more market," says Nilton Pellegrino, director of the Department of Loans and Financing. The goal is to harness that "there is no citizen in Brazil does not want to have his or her own property."

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1 comment:

Deming said...

FWIW, GFA split 2 for 1 for shareholders of record Feb 22, 2010


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