June 09, 2008

TheMoveChannel.com takes a look at why Brazil is currently one of the world's most exciting destinations for international property investors.

1. The world's biggest emerging market

Brazil recently topped the Morgan Stanley Capital International (MSCI) Global Emerging Markets Index as the world's biggest emerging market, usurping global behemoth China for the first time.

Given the perennial confidence of international investors, this marvelous achievement should come as no surprise. Dan Johnson, Managing Director of TheMoveChannel.com explained why he believes Brazil is the world's top emerging market:

"Brazil has a unique blend of attractions for property investors - It has a strong economy, with good regional and global trade links, an increasingly diverse service sector and all sorts of natural resources that it can leverage. It also has the largest population in Latin America, which provide a huge pool of human capital to power the economy.

"The people of Brazil are aspirational, modern and increasingly forward thinking. The domestic economy is growing and the international profile is strengthening. With around 7,000 km of amazing coastline and a great climate, it has world class tourist potential, something which the major tour operators appear to have finally woken up to"

2. Huge increases in Foreign Direct Investment

The confidence of international investors is best exemplified by the massive growth of foreign direct investments (FDI) flowing into Brazil. FDI doubled in 2007 to $37.4bn, exceeding FDI for Japan and India.

Brazil was the third largest recipient - China was #1 and received $67.3bn. However, to put this into context, China's population is seven times larger than Brazil's yet its FDI struggles to be twice the size of Brazil's FDI.

The prosperity has continued into 2008, with the inflow of FDI reaching US$ 12.7 billion in the first four months of 2008. This represents an increase of 26.2% over the same period in 2007, according to a recent report by the Central Bank of Brazil.

The sectors that received the largest volume of funds were the ironworks, banking, trade, mining and vehicle industries.

3. A booming economy

The Brazilian economy is firing on all cylinders, increasing the attractiveness of the country as an investment destination.

- U.S. credit rating agency Standard & Poor recently upgraded its rating of Brazil to investment grade. Previously, Chile and Mexico were the only Latin American countries with the investment grade rating.

- According to Merrill Lynch, Brazil's new investment grade status is ‘yet more evidence of the country's continuing boom' and is a ‘lasting positive for the country'.

- Job creation is at a record 1.9 million whilst inflation recently reached a sixty year low. According to Urban Larson, Manager of F&C Latin America Fund, bank lending is growing ‘at about 25% year on year' and loan growth is accelerating to a 28% annual rate".

- According to the latest World Competitiveness Yearbook from Swiss-based business school IMD, Brazil jumped six spots to 43rd place out of 55 countries - an improvement over its previous ranking of 49 out of 55 countries in last year's survey.

- A recent report from HSBC highlighted Brazil's booming banking sector, revealing that total private sector loans rose to BRL973.2bn in March 2008, an increase of 31.7 percent in year -on-year terms.

- HSBC's loan growth forecast range for Brazil is 21-23 percent for 2008.

- The Central Bank of Brazil recently admitted that it had underestimated the strength of the economy and increased its previous forecast of 4.5% GDP growth to 4.8% for 2008.

- Finance Minister Guido Mantega recently argued that Brazil's economy has not been affected by the credit crunch'. Mr Mantega noted: "The subprime crisis hasn't arrived at the beaches of the Copacabana. As the crisis unfolds, Brazil stays unfazed. That shows that we are a solid economy".

4. Most popular South American market for UK buyers

Global Edge - the overseas property and marketing directory - recently carried out a comparative study in order to find out which locations were receiving the most internet searches from would-be property investors. Brazil came 22nd in a list of 101 destinations, making it the most popular location in South America as a whole.

This placed it ahead of many other investment hotspots across the world, including the Cape Verde islands, the Czech Republic and the Caribbean.

Commenting on the survey, Dan Johnson, Managing Director of themovechannel.com, noted: "Institutional investment into Brazil is soaring and it remains one of the most attractive destinations for private investors.

"As the economy grows, so too will the wealth of Brazilians, thereby having a knock on effect on their buying power. What's a little surprising is that more developers haven't turned their attention to building for the domestic market - a huge and growing population with immense potential.

5. The World Cup boom

The football World Cup in 2014 could be the icing on the cake for Brazil's booming economy.

Brazil's Ministry of Tourism recently revealed that plans to build a bullet train between Rio de Janeiro and Sao Paulo are currently under consideration. The new train - which is part of the Government's preparations for the football World Cup in 2014 - will provide a speedy and essential connection between two of Brazil's most vibrant cities, and could also have a positive impact on local property markets.

Tourism minister Marta Suplicy, commented: "The 2014 World Cup is a great opportunity for the country to raise its visibility before the world. The infrastructure upgrades and improved connectivity could enhance Brazil's status as a world-class sporting venue".

Brazil is ‘likely to enjoy numerous economic benefits' as a result of hosting the tournament, claims Carlos Navies Guimaraes, chairman of Invest Tur, with benefits likely to include ‘an acceleration of growth in the tourism and Buy-to-let industries'.

Mr Guimaraes further observed: "During the next few years, towns and cities will receive greater investment in local infrastructure. This could potentially push up property values as it would lead to these places being considered more desirable by prospective buyers".

6. The Oil boom

Two oil and gas discoveries in the last three months off the coast of Rio de Janeiro seem set to catapult Brazil into the top ten list of oil producing nations. With oil starting to flow in 2010, the economy of Brazil and property prices are expected to receive a major boost.

The magnitude of these discoveries is already having an effect on the Brazilian population, which is understandably euphoric. The discovery of such a large quantity of oil is expected by many industry experts to have a positive effect on small businesses and on economic growth in general.

The Brazilian National Statistics Institute (IBGE) predicts that the most significant increase in prosperity will occur in the North East of the country.

Norway and Dubai have experienced similar Oil booms in recent years, with each country's respective property markets posting record price increases year after year.

7. Booming Tourism

Brazil's tourism industry has experienced growth of almost 150% over the last few years, according to official Government figures.

The government is focused on reaching a target of 9 million tourists each year, and with more and more people visiting the country, the demand for short-term rentals is also increasing, further stimulating demand for Brazil property investment.

A large number of quality resorts and developments are currently under construction in and around the north east coast, most notably in Natal and Maceio. However, there is still a shortfall in the housing market, with demand outstripping supply, equating to a shortage of approximately 8 million properties.

Tourism in Brazil has soared to such a degree that aviation industry officials have estimated that Brazil could need more than 300 extra passenger aircraft over the next 20 years.

A spokesperson for Airbus explained: "Greater capacity is needed because the South American country is becoming more and more popular with leisure travellers. Indeed, the rate of growth during the next few years will outpace the global average.

"Since the mid-1990s, international passenger traffic has doubled, and with Brazil being the major economic player in Latin America, air traffic has grown immensely, and will continue to do so with even more amplitude during the next 20 years at least".

8. A growing ‘hipster hotspot'

A recent study carried out on the overseas property market by Datamonitor for Overseas Property Professional magazine (the largest of its kind ever undertaken in the UK and Ireland) found that younger buyers, who are increasingly driving the market, are looking to countries like Brazil due their high yields.

Commenting on the study, Samantha Gore, of Brazilian property expert uv10 agreed that Brazil is ‘definitely attracting younger buyers'. She added that, amongst twenty and thirty-somethings, emerging property markets such as Brazil which offer very high yields are fast becoming the ‘pensions of the 21st century'.

Ms Gore further noted: "Brazil, particularly the trendy towns such as Pipa close to Natal, appeals to the young on price, nightlife, sporting activities from dune buggy rides to kite-surfing, year-round sunshine and a low cost of living meaning of course cheap alcohol and food of a freshness and quality rarely seen in the UK".