A recent article at Brasil Economico has caught our attention. While many analysts say that Brazil’s real estate bubble is not really a bubble because there is no speculation taking place, some other indicators (which don’t look like “speculation”) point to the contrary.

In recessionary times, traditionally, conservative investors flee the stock market and seek “safer” investments such as fixed-income securities. In Brazil, real estate-backed securities like CRIs (“Certificados de Recebiveis Imobiliarios”) and CCIs (“Cedulas de Credito Imobiliario”) have been growing like “bazookas” in the last four years. Just look at Cetip’s portfolio (below).

Since May 2008, Cetip’s R$16 billion real estate portfolio has grown to a whopping R$ 133.1 billion. In other words, in only four years the portfolios for these securities have grown by more than 8 times its original size. So, while many people are not “speculating” by buying and selling actual homes, they are investing their cash in “safe” fixed-income funds backed by (already expensive) real estate. Real estate fund managers in Brazil are marketing their portfolios as “safe because they are backed by fixed assets, the properties”. These securities also seem attractive to individual investors because they are exempt from income tax (which is always good in an environment of falling interest rates).

But watch out, investors: these funds’ performance lagged in 2011, and might get hammered in 2012 and 2013 if the bubble pops…

Source: Brasil Economico

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