Property prices should experience a severe devaluation after the 2014 World Cup, said FGV’s economics professor Samy Dana.
Mr. Dana estimates that prices of many properties in the 12 host cities can plummet by up to 50% after the event, especially in the city of São Paulo. “I am certain that housing prices within the central regions of Sao Paulo will fall substantially,” he points out.
Demand for properties does, in fact, exist, but Dana argues that the current price levels seem unfounded.
“For some reason Brazilians believe that all of our country’s infrastructure, health and security problems will be solved in the next two years, which should theoretically justify higher prices,” says the professor. “Hence, current prices are following a dream, an idealistic belief, not the actual reality.”
And it is not only the illusion that should pull prices down, says Dana. As mortgage was given with more intensity between 2009 and 2010, the year of the World Cup can mark a period of great delinquencies in the sector.
“The buildings will start to be delivered, new bills will show up, and the consumer will start defaulting on his debt,” explains the professor. That, according to him, would trigger a wave of real estate selling, which will bring down prices.
He is confident in stating that real estate is not a good investment at this time. “Whoever is buying to sell, will lose money after the World Cup,” he believes.
As the homeowner does not want to lose money on the deal, at first, it will be reluctant to reduce the asking price. But the problem, according to Dana, that buyers are not willing to pay anymore. In other words, there will be a moment where there is simply no deals taking place.
“The first sign is not the price decrease, but the shrinking volume of deals. The price correction is a process that takes a little longer to start, but as more people want to sell out and less buyers want in, prices will fall naturally,” he says.