The number of launches of one-dorm properties in Sao Paulo increased six fold since 2006. According to an article at news site iG, in 2011, as the Brazilian housing market was experiencing a mild hangover from the 2010 boom, the one-dorm condo was the only type of property that saw growth in units launched when compared to the previous year (see chart below). The city gained 6,577 of such units, equivalent to 15% of the total 2011 supply of 37,670 new homes. Five years ago, this share was less than 5%. Only in downtown Sao Paulo, there were about 1,500 units launched last year, an exorbitant number compared to the 300 units launched in 2009.
The builders are desperate… and “investors” are overpaying
Mirella Parpinelli, a director for the Brazilian homebuilder Lopes said the following: “One of our projects did not even have one bedroom units, but we scrapped and re-did it in the middle of the construction to accommodate this lucrative market”. The urgency in serving this market has an appealing reason to builders: the high prices. Depending on the city area, a new one-dorm condo in Sao Paulo cost today around R$410,000 (the average price of newly launched units in 2011). The price per square meter, about R$8,855, is higher than in any other segment of the market (see chart below). The size? According to a recent buyer, he could not even fit a king-sized bed in the apartment.
According to Lopes’ Parpinelli, “we see 70% of investors, 30% end user. Many of them buy several units.” The one-dorm units attract investors for the price (expensive but still cheaper than larger apartments), the expectation of capital gains and the “certainty” that it will be rented (considering the market will stay hot). “The buyer is the upper middle class that wants to invest and rent it,” says Luis Lopes Batista, real estate agent at Elisio Imoveis.
Our take: these “uninformed” investors probably have not made the simple math of rental “yield”, which is dividing the yearly rent by the price. But at current real estate price levels in Brazil, the yield should be less than 5%. If money is left in the bank, yields are closer to 9%…