(An excerpt from an article recently written by Valor Economico’s Fernando Torres).

The balance of real-estate loans in Brazil, according to data from the Central Bank (BC), represents 4.8% of GDP. This is a significantly lower ratio when compared to other countries. In the US the ratio is 81%, while in Mexico it’s 11%.

The low ratio in Brazil is constantly used as justification by companies and banks to deny the existence of a real-estate bubble in Brazil and prove how the country is still making its first steps in the market.

But those 4.8% reflect more the past than the present.

The BC’s data cover all real-estate credit for consumers. If the loan is R$150,000, that’s the amount that is booked by the bank as credit and the number included in the monetary authority’s statistics.

But if the loan is made to a developer, the balance accounts only for units effectively cleared, something that depends on how the works are progressing. This means a relevant share of loans already approved for developers is still not represented by BC’s data.

This difference in criteria helps explain why Itaú Unibanco and Bradesco manage to fulfill the requirement of having 65% of savings deposits invested in real-estate credit. Whoever studies both banks balance sheets will see the balance invested in housing loans is around 30% of assets from savings accounts.

The remaining 35% comes from approved loans – but not yet paid – for developers and also other investments considered by the BC as real-estate finance tools, like real-estate investment trusts and certificates of real-estate receivables.

With this more wide-ranging concept, real-estate credit now represents 8.3% of GDP. The ratio is still considered low internationally, but it’s bigger than the most widely-used index.

It’s worth noting that when developers transfer loans to buyers, financing value tends to increase in the BC’s statistics, since it also includes the developer’s margin. The expansion usually is around 30%.

There’s another factor that is likely to expand credit as a proportion of GDP. Balances for those loans are adjusted by contract interest rates, usually from 10% to 12% plus TR, while the projection for yearly growth in nominal GDP for the next years is around 9% a year.

So if no new loans are extended (something unlikely), housing credit’s share of GDP will expand at only the replacement rate before declining as loans are paid.

Source: Valor Economico

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10 Responses to Here is why Brazil’s mortgage-to-GDP ratio is higher than published officially

  1. Rodrigo Rodrigues says:

    It’s all that’s left
    Pensions have been looted
    The stock markets are scams run by the same old scammers
    All the jobs are in China
    Any that come back can’t pay enough to keep up on the interests on household , The Bank cartel brought down The states , Europe, now They want to the same with Brasil. The bankters are a front for Wall Street interests who want to finish raping, burning and pillaging the domestic economy and send the world into catastrophic financial ruin
    You got Jesus and the hope you can ride a bubble and sell off a house to the next generation for 10x what you paid for it, cash out and retire in Guatamala
    It’s a belief system for a people with nothing left to believe in,Because first-time buyers have all been ruthlessly exploited and the 
    supply of new victims is very low. We were all corrupted by the 
    housing boom, to some extent. People talked endlessly about how 
    their houses were earning more than they did, never asking where 
    all this free money was coming from. Well the truth is that it was 
    being stolen from the next generation,
    People those deny are the couch potatoes – relaxing on their butts and calculating(dreaming!) 20% To 30% yearly  home price appreciation. This is completely against basic laws of economics,making money while doing nothing,

    It’s not that they don’t believe the bubble is real. It’s that they think they can convince a fool that it isn’t and get the fool to pay much more for their house than its worth. When money is on the line, the truth goes out the window.
    Nobody wants to believe because it is easy not be responsible when You are using bank’s money( Financed) not your HARD CASH SWEAT EARNED MONEY!
    We all got brain washed … Imovel e o melhor negocio !! BS !
    Look what happened in the states, the big guys  on Wall Street, preach capitalism for  everyone but themselves, and when faced with the consequences of their games of decepection( derivatives ) they were rescued by the federal government aka american tax payer.

  2. Pablo says:

    Where are the link?

  3. Wolfgang says:

    @Rodrigo, you are absolutely right. I tell you, my house in Rio was recently evaluated 100% increased in value since december 2010. Ok, I did an extensive refurbishing but … my god!! It was already overpriced when I bought it. Now it’s rediculous. The kinda funny thing is: I couldn’t sell it for less because if I did, I could only buy a piece of bosta to live in. I am seriously considering to leave Rio for a more reasonably priced area. Because it’s not only the house prices which are rediculous…

  4. Scott says:

    Wolfgang, where are you going to go? I frequent Fortaleza in the NE to kitesurf and that is considered a “poor” area. On the Beira Mar, you are going to pay R8000 – R9000 per square meter. Off the beaten path, a 50 m2 relatively new studio sells for R300k. Don’t know if there is a real estate bubble, but this poor American can’t afford to buy in that “developing country”. Wonder what property will cost when it is “developed”? And when you spend that kind of money, you get garbage. Cheap appliances (if your lucky to get any at all), a toilet that isn’t worth reading on…..and by the way, don’t flush to paper down the toilet, sewers aren’t preparted for it. Heck, new Range Rovers are a dime a dozen at $200k US. Everytime I see one I say “Ferrari”. I’m happy the Brazilians can spread their wings, but I am also happy to not be Brazilian and have to live there.

  5. Roberto says:

    Rodrigo Rodrigues: first you blame the European Portuguese for all corruption that is going on in brazil today and since brazil its a independent country … as i already wrote in another post i totally disaagree with you…thats such a small mentality you have uncapable of solving your own problems and expecting other nations to solve the corruption in brazil for you. And now, i read on this post you love the brazilian real estate bubble like thats something good for the future of our kids….lets just flip a property and retire in guatemala…well i have a question: Have you been in guatemala before? i have and have news for you….GUATEMALA MEANS VALUE FOR MONEY on all services and products, something you cant find in brazil, where all products and services are overpriced with extremely poor quality much because of people who think and act like you.

  6. Wolfgang says:

    Scott, nice to hear about you. “Where to go?”, well, I find some reasonable priced houses near Saquarema.This is a town close to Buzios. The area is called “Região dos Lagos”, great for kite surfing, BTW. Then I see also more reasonably priced areas close to Paraty which I personally prefer more. I said “close” because in Paraty itself, they are crazy as well. Or, go to an Island, like Ilha Grande, where it is hard to arrive (I recently saw a nice pousada for sale there for 250kUSD, I am still considering to buy it). It all depends: Do you need infrastructure, like web access, airport, roads? If not, then go to less famous locations. You may contact me throught the contact form of the above linked website for more info (no, I am not a RE broker!)

  7. Rodrigo Rodrigues says:

    Dear Wolfgang, use
    Leverage as much as possible, with 250k( I assume you paying cash) , You can purchase 5 aps in South Florida, that will net you $500.00 to $600.00 a month , Between the Worst and Best case scenario $2750.00 a month cash Flow , Which translates into about 5500 reais , you have to put yourself on a in and out situation, cause you never know what the future it might hold, all the real estate markets have a status called ” sellers ” market and ” buyers ” market ,Rio, Sao Paulo, Brasilia, are sellers market, Please read one of previous posts explaining the dynamics what Buying , Think economics not Emotionomics.

  8. Pat says:

    wolfgang, did you consider go back to your country GERMANY? ITS CHEAP THERE…your money goes a long way… if you are so proud of your country and the great germany history (nazis, wars and assasinations of millions of people) what are you doing in a country like brazil, colonized by the corrupted portuguese like you call then ?

  9. Pedro says:

    Such a shame that this discussion has turned into arguing what is the good country and what is the bad country… Come on ppl, you’re so much better than that!

    The real estate prices are insane, you don’t need any newspaper or your regular tv news to see that! Brazilians are paying their hard earned money to live in poorly constructed apartments: if that is not exploitation, I don’t know what it is… We are in the middle of a housing bubble and the only question is not IF it will burst, but WHEN…

    Funny thing is that the same politicians who once claimed to fight for the workers and poor people now are helping home builders and banks in every way possible! So much for a “people’s government”…

  10. Nicholas says:

    Sadly to read many idiotic comments here from foreign clowns to low self esteem Brazilians that types about banksters with no influance at all in Brazil.

    Germany cheap? Seriously, what do you smoke?

    “with 250k( I assume you paying cash) , You can purchase 5 aps in South Florida,”

    Really Rodrigo? What are you smoking? You show me where in Miami (where I live and still witness the epic real estate bubble bursting, home values continue to drop, rising unemployment, lack of job creations and a federal government that manipulates statistics for statistic freaks) or in Fort Lauderdale I can by 5 appartments for 250k. It doesn’t exist boy. Another hype in the media is the number of foreigners buying here in South Florida. The facts are, it’s a very small number (of foreign speculators) that only buy here but don’t live here at all because of rising taxes.

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