All posts by Dan Clark

Brazil seeks ban on Monsanto herbicide

 

Brazil wants to place a ban on Monsanto and get rid of genetically modified organisms. In a historic ruling on the 13 March 2014, Brazil’s Federal Appeal Court cancelled its contract with biotechnology giant Bayer for the cultivation of genetically modified corn known as Liberty Link  in its North and Northeast regions, where risk assessment studies were not conducted. In a different action Monsanto’s Roundup may get phased out. If Brazil’s Federal Public Prosecutor wins the current battle, a countrywide ban on glyphosate, the active ingredient in the world’s number one herbicide Roundup, will begin and it will surely set the stage for increasing scrutiny over human health, the environment, and the toxic methods used in conventional agriculture.

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UK Chancellor outlines export lending plan: Brazil

UK Chancellor George Osborne outlines export lending plan on Brazil trip

On his first day of a recent trade trip to Brazil, Chancellor George Osborne said he was an “unabashed salesman for the best of British” as well as announcing plans to open up private sector lending for exporters.

In a speech to business leaders in Rio de Janeiro, the Chancellor outlined a scheme to ease conditions for lending to encourage British exports while promoting British-Brazilian relationships.

The announcement was said to have the potential to reduce the cost of private sector export loans. Citing a 54% increase in exports to Brazil in the past four years, Mr Osborne said he was visiting as an “unabashed salesman for the best of British” as he sought to consolidate links following the visit of the Prime Minister, David Cameron, two years ago.

The Chancellor also unveiled plans for a new £22m Rolls-Royce marine facility in Rio and met the heads of leading British businesses in the country.

Mr Osborne said the UK had “mistakenly” overlooked Brazil’s potential in recent years but said increasing trade relations with Brazil and the rest of South America was a priority. He described how he had first visited the Amazon region as a student 25 years ago and said he was the first British finance minister to travel to Brazil in 17 years.

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First Apple Store in Brazil draws large crowds

Opening of first Apple Store in Brazil draws large crowds despite high prices

Around 1,700 people attended the opening of Apple’s first retail store in Brazil, in the popular Village Mall in a suburb of Rio de Janeiro despite steep import tariffs meaning prices 80 percent higher than in the USA.

A 16GB iPhone 5s sells for the equivalent of $1,174 in Brazil, compared to $649 in the U.S. The store was planned back in 2012 and to avoid the high tariffs imposed on imported goods, Apple has been working with Foxconn since 2011 to set up manufacturing or assembly plants in the country.

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Brazilian housing market remains strong

Special Report

Contrary to the predictions of an abrupt bubble burst, Brazil’s housing market remains strong, with stable house price increases. Brazil’s composite FIPEZAP house price index rose by 12.7% (6.5% inflation-adjusted) during 2013 from a year earlier. In the fourth quarter of 2013, house prices increased by 3.5% (1.4% inflation-adjusted) from the previous quarter.

During 2013:

  • In Sao Paulo, house prices rose by 13.9% (7.6% inflation-adjusted), the lowest year-on-year rise since 2008. House prices in Sao Paulo increased 15.8% in 2012, 27% in 2011, 24% in 2010, and 21.6% in 2009.
  • In Rio de Janeiro, house prices increased by 15.2% (8.8% inflation-adjusted), slightly higher than the 15% annual increase recorded in the previous year but far lower than the 34.9% y-o-y rise seen in 2011.
  • All the other major Brazilian cities also saw robust house price increases during 2013.Curitiba recorded the highest annual rise of 37.3% (29.7% inflation-adjusted), followed byFlorianópolis (17.9%), and Vitória (16.9%). Double-digit house price rises also occured inFortaleza, with house prices rising by 14.1% during 2013, Porto Alegre (14%), Recife (13.4%),Vila Velha (12.2%), Santo André (11.6%), São Caetano do Sul (11.5%), Salvador (10.7%), andNiteroi (10.1%). Modest house price rises were seen in Belo Horizonte (9.7%), São Bernardo do Campo (9.5%) and DF (4.2%).

From January 2008 to December 2012, average house prices in São Paulo and Rio de Janeiro rose by 159% (98% inflation-adjusted), and by 194% (124% inflation-adjusted), respectively. The mortgage market also grew from just 1.5% of GDP in 2007 to about 6.2% of GDP in 2012.

Brazil’s housing boom has mainly been propelled by a continuous decline in interest rates in recent years. From a high of 26% in 2003, the Banco Central do Brasil’s Selic rate fell to 7.25% in 2012. Mortgage interest rates followed the Selic rate down. However, in the first half 2013, the central bank raised the benchmark interest rate seven times to 10.5% in January 2014, from 7.25% in April 2013, to rein in inflation.“The surge in Brazil’s home prices was mainly driven by massive credit expansion, which followed the sustained decrease of historically high interest rates, the increased availability of cheap savings deposits that partly have to be used to fund mortgages, and legal reforms that streamlined the foreclosure process,” according to Fitch Ratings.

Foreign investors remain optimistic, as Rio de Janeiro will host the FIFA World Cup final match this June 2014 and the Olympics in 2016, which are now seen to have positive impact on house prices.

President Dilma Rousseff has been pouring money into the housing market using federal subsidies and state bank loans. Rouseff has nearly doubled spending on the country’s plan to build two million affordable homes by end-2014. Brazil’s housing market is therefore expected to remain strong this year. House prices, along with South African house prices, are forecast to see higher price-gains than any other countries’ housing markets by end-2014, according to one research house, Fitch Ratings’ Global Housing and Mortgage Outlook.

Brazil’s consumer credit explosion resulted from a 10-year economic boom and increased domestic consumption, especially among the poorer classes. Mortgage credit in particular has been pushed by banks to homebuyers especially to low and middle income first-time homebuyers who are very sensitive to interest rate movements. Despite being at a historic low of 8%, Brazil’s key interest rate remains high, and a rise in rates could make first-time buyers struggle to finance their mortgages.

The International Monetary Fund (IMF) however points to risk-mitigating factors:

  • Relative to international standards, Brazil’s credit-to-GDP ratio remains low. The benefits of macroeconomic stabilization and gains in financial inclusion make up a significant portion in the recent credit expansion;
  • Credit expansion has slowed in recent months, especially household credit. The estimated credit-to-GDP ratio has fallen significantly from its 2009-peak;
  • Banks are seemingly resilient to adverse shocks;
  • Bank supervision is strong. If the bubble bursts, the impact of any price decline on the wider economy may be somewhat moderated by the low share of housing loans in banks’ loan portfolios, the (IMF) notes.

The rise of the middle class

 

Brazil’s president Dilma Rousseff has been pushing Brazil further on the road to development charted by Lula da Silva’s, lifting many Brazilians from poverty into the middle class. The successful poverty reduction program has led to real average incomes rising by 9% from 2002 to 2012, according to the Instituto Brasileiro de Geografia e Estatistic (IBGE).

“What I want my legacy to be is this country to be increasing middle class, to be highly competitive and highly educated,” Rousseff told Forbes.

In 2011, 54% of Brazilians were middle class, up from 34% in 2004, according to Cetelem BGN and Ipsos Research Institute –a total of 103 million middle class Brazilians, who account for 46% of the country’s purchasing power. Rousseff predicts that around 60% of Brazilians will be middle class by 2018.

The expansion of the Brazilian middle class has been significant replacing wealthy international buyers who used to dominate the market in major cities like São Paulo and Rio de Janeiro.

Housing credit is expanding; mortgage market remains small

 

 

 

Lula’s pro-market reforms have greatly helped expand Brazil’s mortgage market. The first big break was the government’s approval of fiduciary alienation, whereby the buyer becomes the owner of the property only after it has been fully paid. The bank or lending institution holds ownership of property, while the loan is being repaid.

This gives banks security, if buyers default. In the past, banks were reluctant to lend to households, because Brazilian courts were biased in favour of borrowers.

In June 2012, the Caixa Economica Federal (CEF) announced the expansion of 30 to 35 years maximum terms for home financing. Interest rates were also reduced from 9% to 8.85% for properties funded by the SFH. Depending on the level of relationship with Caixa, the rate could reach 7.8%.

Brazil’s mortgage market remains small at 3.8% of GDP in 2011, up from 1.4% in 2005. On the other hand, financial system credit for housing increased by five times from BRL 29 billion (US$ 14.1 billion) in 2005 to BRL 200 billion (US$ 97.7 billion) in 2011.

In June 2012, financial system credit for housing expanded by 40.6% to BRL 235 billion (US$ 114.8 billion) from the same period last year.

 

Northeast Brazil’s growing popularity

North east Brazil once seen as the poorest region in Brazil is now catching up with prosperous Southern Brazil. Though the North east region remains the poorest, with 27.8% of the country’s total population but accounting for just 13.5% of GDP in 2011, the region has been the country’s star economic performer over the past decade.

From 2000 to 2010, Northeast’s real GDP growth rose by an annual average of 4.2%, higher than the 3.6% annual growth for the rest of the country. The Northeast has also become a popular holiday destination for wealthy Brazilians in recent years, thanks to its spectacular beaches. This growth and interest in the north east is likely to continue for some considerable time with many seeing growth for at least another 10 years plus.

The areas, particularly the cities of NatalRecife, Joao Pessoa and Fortaleza is benefiting largely from the residential property boom and improved tourism infrastructure.

Second-home buyers from the southern and central regions have also turned their attention to north east Brazil. Coastline properties in north east Brazil are still a lot cheaper than those near São Paulo or Rio de Janeiro.

“Right now, the north east is one big building site,” says Federal Integration Minister Fernando Bezerra Coelho. The port and industrial complex of Suape is being expanded. A petrochemical plant and a huge car factory are under construction. The government is expanding the Atlantic coastal highway. Over a hundred firms have moved in.

With house prices on the increase the north east still offers tremendous value compared with the richer south who have already seen this growth achieved from previous years.

The magazine “Exame” recently produced a price chart showing the cost of an average property on an average 70m2 plot of land in cities across Brazil with the results as follows:

Rio de Janeiro

Value of a 70m² property in the city: R$ 717,500.00 (£205,000)

Average price per m²: R$ 10,250.00 (£2,929)

Brasília

Value of a 70m² property in the city: R$ 570,220.00 (£162,920)

Average price per m²: R$ 8,146.00 (£2,327)

São Paulo

Value of a 70m² property in the city: R$ 548,730.00 (£156,780)

Average price per m²: R$ 7,839.00 (£2,240)

Recife

Value of a 70m² property in the city: R$ 393,610.00 (£112,460)

Average price per m²: R$ 5,623.00 (£1,606)

 

 

Fortaleza

Value of a 70m² property in the city: R$ 359,450.00 (£102,700)

Average price per m²: R$ 5,135.00 (£1,467)

(The above are extracts. To see the full report go to Exame )

 

The city of Joao Pessoa is situated approximately between Recife and Fortaleza and is seen as a more exclusive and up market city with prices reflected accordingly.

Tambaba Country Club Resort

Value of a 120m² property within the resort: R$ 660,000 (£188,571)

Average price per m²: R$ 5,500 (£1,571)

When we look at the prices in the “Exame” report, property built within Tambaba Country Club Resort (TCCR) offers amazing value. Within a typical 70m2 property the style will be based on either as an apartment or a small 1 – 2 bedroom condo. The property representing the 120m2 on Tambaba will be a luxury 3 bedroom detached bungalow style villa situated on an freehold area of land of 800m2. TCCR was unable to confirm figures for a 70m2 property as its minimum property size confirmed in its licenses is 120m2.

With the 2013 Knight Frank index still showing Brazil in the top ten, it is clear that Brazil property prices are still on the increase especially in the north east and offers investors an opportunity for real growth over the medium to long term.

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JLR Now in Brazil

Jaguar Land Rover has confirmed plans to build a car plant in Brazil capable of producing 24,000 vehicles a year. The UK car company had been in talks about the project with authorities in Rio de Janeiro for months. JLR, the luxury car unit of India’s Tata, said that it would invest £240m (750m reais) in the factory, which would begin production in 2016. Dr Ralf Speth, chief executive of JLR, said: “Brazil and the surrounding regions are very important. Customers there have an increasing appetite for highly capable premium products.” JLR’s sales in Brazil for the first ten months of 2013 have increased by more than 40% to 9,549 vehicles. The company’s best-selling models in the country are the Range Rover Evoque, Freelander and Discovery Producing cars locally means JLR will avoid Brazil’s high import tariffs. Nor does JLR have to form a partnership with a Brazilian company, as it had to in China. In September, JLR announced plans to create 1,700 jobs at its plant in Solihull in the UK as part of a £1.5bn investment to expand its product range.

 

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