Sao Paulo Real Estate Doesn’t Make Sense

I experienced the same unsettling feeling when we were in Manhattan. A lot of our friends were pushing us to buy something. They were buying (multiple properties actually) and they talked about the tax breaks and the great investment status. But when my hair dresser told me that he owned three houses, something screamed of the shoe shine boy giving out stock tips right before the 1929 stock market crash.

Here’s a little investment tip that one should always abide by. You’ll never make money on something that EVERYBODY is doing. It just doesn’t make mathematical, financial nor logical sense.

In Sao Paulo, you’ll find on every other corner someone holding a sign directing you to apartments for sale. Yesterday, we got out of the car to go to the park and were approached by a man passing out brochures for apartments for sale in a particular building. To me, this screams a market in which supply is higher than demand. Yet in some Sao Paulo neighborhoods, the price of real estate has nearly doubled in the past 12 months.

What gives?

Now Brazil does not have the credit problems that USA faced. My housekeepers is not going to get a mortgage for a million reis McMansion. But something is going on. And when 2+2 doesn’t equal 4, I tend to run in the other direction.

I actually did speak with a real estate professional, a family friend, a few months back who informed me that it is the movement in the market that is causing a false sense of demand. The incoming are being happily recorded but the outgoing, not so accurate. (If you know anything about Brazil, this is no big surprise.) And in a city where there is plenty of room to grow from a land mass perspective, there shouldn’t be this kind of growth in residential real estate returns (think Las Vegas). I’ve also seen a lot of store signs pulled down and replace with rental solicitations. I can only guess that the previous businesses couldn’t afford the hike in rent and the owners are convinced that more income is around the corner (think lower Manhattan). But some of these signs have been hanging for weeks and weeks…

Anyone have any other insights? All I can think is… buyer beware.

This entry was posted in Foreigner Insights, Living in Sao Paulo, New York City, What the h*ll is that? and tagged , , , , , , , , . Bookmark the permalink.

7 Responses to Sao Paulo Real Estate Doesn’t Make Sense

  1. Rachel says:

    I don’t know about Sao Paulo but Rio has its own special little bubble going on.

    Here it is quite common for entire buildings to be redone or demolished for new ones to be built. You can buy them while being built, which is the cheapest option, or after they are done (if there are any left). These kinds of buildings ALWAYS pass out flyers. It’s not because there isn’t demand. Trust me, most of them will be bought by the time the building is built. It’s just getting the word out.

    And if you think about it, there’s a limited amount of expansion that can happen in “good” neighborhoods. At least that is how it is in Rio. Prices have jumped higher in my neighborhood because of people who can not afford to buy in Ipanema/leblon are coming over this way. So technically the prices grew a higher percentage than in the “higher demand” area.

    • Rio is definitely its own real estate phenomenon. Rio is like Manhattan when it comes to land constraints, you can’t really expand the city since it is contained by a mountain and an ocean. Plus, you won’t see any drops until after the Olympics, even if the economy sways.

      In Sao Paulo, there are definitely neighborhood constraints. For example, you can’t build anymore in Jardins, where we currently live. But Sao Paulo is also creating new “good” neighborhoods. It has the land to do it. That’s what is concerning. If speculation outpaces demand, which in our greedy world is bound to happen, you’ll find a dive in the market. But not to the depths that was seen in credit crazy economies.

  2. nina says:

    But in Campinas and Paulinia is the same real estate is just insane. People are diving into personal construction business, my father’s eyes popped out of his head in Paulinia with Dollar signs. I told him forget it. I would want Ricardo to work for him, we have been done that road.

    Things are so outta this world with prices. Our land Ricardo purchased five years ago for 30,000 heals. Now, it’s valued at 65,000 heals. If we put a Good house on it, my good. 200,000. What? It’s insane.

    55 meter squared apartments, for 250,000 heals. In a city with NOTHING.

    • You bring up a very good point. This is what makes the rise in value all the more unreliable. Sao Paulo isn’t exactly a Paris or a New York. Don’t get me wrong Paulistanos, it’s a great city. But it’s also lacking quite a bit from an athestics point of view. There’s no body of water (except for a dried up river) and there is very little urban planning. It’s just not a beautiful city which makes the crazy real estate prices all the more nonsensical. There is a lot of city value build into the price of NYC, London and Paris. I don’t get that here.

  3. Jana says:

    My husband and I were talking about this and think a lot has to do with the fact that retirees with money tend to invest in real estate. People I know have parents buying 3 and 4 places at a time in nice neighborhoods to rent and live off of. They might be diversifying more now but from what I’ve seen brazilians still feel very comfortable with putting most of their money solely in properties. And i think that creates a false sense demand.

  4. Mark Bryers says:

    Great post! It’s really interesting to hear what’s going on in another part of the world – I just spent the last ten minutes searching for something about economics in Brazil at the recommendation of a colleague, it’s amazing how much it parallels markets in Australia and New Zealand in some ways , as there’s a “seeming” “undersupply” of residencies in “good” neighbourhoods so demand is high, yet it’s only just becoming easier to get credit now as rental prices increase. Is that maybe why there are so many people clamouring for property in Brazil? The residential rental occupancy rate in Sydney alone is 97-99% – I wasn’t able to find any comparative figures on residential in Sao Paolo but came across a 92% figure for commerical tenancies. If occupancy levels are so high – maybe that’s why prices are too? Just a thought! Real estate markets are so isolated they seem impenetrable at times!

    • It IS difficult to find accurate statistics about the residential real estate market here. Perhaps because it’s only recently become interesting! Yes, credit has only recently become available for homes. And it would make sense that there is more demand than supply in the “good” neighborhoods. But I live in a good neighborhood and some of the residences have had for sale signs up for months. Which means two things – either the sellers have an inflated perception of the value of their properties, or the demand is not there. I’m curious enough that I will be calling some realtors this weekend to see some of the properties, including the two in my building, just to get a sense of what people want for their real estate. I’ll keep you updated.
      Very interesting that similar activity is taking place in Australia and New Zealand!

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