It’s been a common falacy in Brazil that the World Cup (2014) and Olympics (2016) will boost the value of real estate and lift the economy substantially. This has been used over and over by real estate agents, developers and financiers to keep propping the prices of apartments in Rio, Sao Paulo and Brasilia. These are now among the most expensive cities in the world! We often tell our brazilian fellows to not get caught up with claims of “this time is different” … in our opinion, the “Brazilian Bubble” is in full motion and these sports events are used as an excuse for irrational pricing behavior . To corroborate with this view, a nice piece from “A Football Report” calls for “cautious optimism” for wealth expectations… here is a paragraph:
“Taking the World Cup in isolation, Brazil’s government can afford to be cautiously optimistic that the wealth it accrues over the course of the tournament will provide its economy with a welcome fillip. Much was made of the disparity in economic outcomes following South Africa’s World Cup with regards the nation in comparison to FIFA, with South Africa’s economy said to have been boosted by 0.5% through hosting the tournament while FIFA’s profits would have been greater than this, possibly as high as an equivalent of 0.7% of South African GDP. Such a comparison is relatively meaningless: however, as by profiting less than FIFA, South Africa does not lose out in any way – we are not comparing too equivalent parties here. The 0.5% boost to South Africa’s economy is just that, a boost.”
We doubt it that South African real estate has doubled in price because of the World Cup 2010. Actually, evidence shows that some South African businesses and investments have suffered because of overly optimistic ROI expectations. In addition, I was reading a Forbes article here (its title is “Olympian Bust”) describing the distressed real estate situation left in China after the Olympics 2008.
We believe that Brazil is a beautiful country with excellent growth prospects for many years to come, but let’s get real and not put the cart before the horse. We have a hunch that the brazilian real estate bubble is starting to deflate and may accelerate its downward pricing in 2012.
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