By Irineu Tolentino.
The high property prices in Brazil have gotten me pretty worried lately.
We all know that there is a “housing deficit” in the country, though this deficit is not due to the lack of housing supply, but mainly due to the lack of properties for sale at fair prices.
There are many people holding several properties and many people without any property.
With the real estate speculation caused by the heated Brazilian housing market, many people ventured to acquire properties to invest. Others, who were simply looking for a house to live, entered the danger zone of long-term mortgage at “low interest rates”, but only forgot that low interest rates at very inflated prices have the same (or worse) effect of high interest rates on low prices. It doesn’t matter where the money is going to (bank or builders), but it does matter where it’s coming from, and that is the consumer’s pocket. And that is increasingly undermining the consumer’s future income.
It is bizarre to think that middle class citizens, which are extremely vulnerable to a crisis, are financing R$500,000 homes. Large loans like this are being originated without any criteria or economic sense. And to further aggravate the situation, this same consumer is financing other long-term loans like cars, furniture and travel, seriously stretching their future income.
If the current economic crisis deepen, many of these speculative properties held in portfolio will be dumped on the market, driving down prices, whereas those who bought homes to live, will be paying dearly for something that is worth much less than the price they payed for.
If I’m not mistaken (and I hope I am), we might need to run fast to the hills.
Source: Em Tese