(An excerpt from a recent article at Valor Economico)

“In the past few years, the value of houses rose much more than the Brazilians’ income, generating a mismatch between the capacity of families to contract debt and real-estate financing. While the average income of Brazilian workers rose 43% between 2007 and 2011, the average value of financing for acquisition of real estate done by the Housing Finance System, or SFH, which uses funds managed by the government, increased 83%. New financing rules announced recently by Caixa Economica Federal, the state-owned bank that manages most funds to finance housing, tend to ease access of new families to such credit.

In 2007, average loans were R$82,000 and monthly installments were absorbing 42% of an average Brazilian couple’s income, considering a 30-year maturity. Last year, average financing reached R$150,000, with initial installments accounting for 52% of the couples’ income.

Some of the largest real-estate developers in Brazil have indicated in the last few weeks that they are cancelling purchase and sale contracts signed a few years ago, in the boom of the housing market, because customers will not be able to pass bank credit analyses at the moment of transference of financing from construction companies to final borrowers, when keys are delivered.

Even before the announcement of new rules, though, the companies said they were finding new buyers for the properties and even profiting off the sale of apartments at higher prices. But since there is an enormous volume of real-estate deliveries expected for 2012 and 2013, the market started to ask itself about the size of this problem.

Banks work with the criteria that the financing installment should not exceed 30% of the couple’s available income (or two people that make up the income). This means that in order to get financing in 2007, available income had to be R$3,163 per month. Last year, this amount rose to R$5,640 per month.

If the average Brazilian could already not get financing in 2007, it was even harder in 2011…”

Source: Valor Economico

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30 Responses to Valor: Mismatch between credit and income growth exposes issues of Brazil’s housing bubble

  1. Jackson says:

    Too many people not enough houses. Prices go up.
    Look at Australia, too many houses not enough people houses go up anyway.

    I wonder if has anything to do with the Federal Reserve printing all this fiat money.

    Private Reserve would perhaps a better name for this Bank.

    Let’s call a Spade a Heart.

  2. Rodrigo Rodrigues says:

    You are forgetting one thing.. How about the amount of fraud that is going on in Brazil right now, fraudulent loans, income disclosure, bribes etc the so called ” jeitinho Brasileiro ” is working at full force, if happened in The States where things suposed to be regulated, can You imagine on a third world country like Brazil?
    Corruption is widespread,   The people will wait for a messiah( Dilma Roussef) with a magic wand and all problems regarding corruption will be resolved,this is a heritage from are colonial capitalism and it wont go away ,
    It  is a major constraint for doing business ,  A significant number of international companies report that they have been subjected to requests for bribes and other unofficial payments from public officials when applying for licenses and registrations necessary to conduct business in Brazil.
    Give a small number of people the power to enrich themselves beyond everyone’s wildest dreams, a philosophical rationale to explain all the damage they’re causing, and they will not stop until they’ve run the country economy off a cliff,the  uncomfortable truth is that we all enjoying the party far too much to query where all the booze is  coming from. Pretty soon We will be   lynching the barman for letting us get drunk and attacking the Government for letting us get a hangover,unfortunately 95% of the brazilian consumers have no idea what we talking about here ,when The RE farse get rich quick scheme blows up, you would be better ready,what is about to happen is not a failure of market economics. It is a reassertion of market economics after a decade in which we paid ourselves more than we were producing, and funded it precariously and temporarily by deceptive credit  instruments … The collapse of confidence is not irrational; it’s the correction to a long run of irrational confidence.
    In a market like this, every story is a positive one. Any news is good news. It’s pretty much taken for granted now that the market is hot very hot, most homeowners( MortgageOwners) will get burn at the end..

  3. There we go again sigh. Viva o Brasil.

  4. Roberto says:

    Dear Rodrigo Rodrigues … you wrote: Corruption in Brazil is a heritage from colonial capitalism and it wont go away… i understand you are putting the blame of all brazilian problems on the European Portuguese… that doenst make any sense at all, because Brazilians are an independent nation for how many years? 200, 300? I never heard before, the European Portuguese complaining during this debt crisis that is going on in europe about the fact they have been invaded by the spanish, italians (romans), celts, arabs and many other… if brazilains cant solve the same problems over and over again for the last 200, 300 years im sorry but that is just plain stupidity and ignorance from all the brazilians who only complain and do nothing like you…nothing to do with other nations. i understand you expect other nations to solve all the brazilian problems for you.

  5. REPX says:

    Moreover, look at house prices in Mumbai. On average, the population is poorer and house prices are waaaaaay higher than Sao Paulo and even Rio. How come they can afford that? I have no idea. Is it a bubble there? No clue.

    Those that can read in Portuguese and have access to Revista Exame (ed. 10.17.2012) can have a small (perhaps biased) insight on the buyers according to Lopes. Summarizing:
    56% are buying their 1st Real Estate (thus, 44% already bought one before, but does not necessarily owns more than one)
    96% of 1st time buyers are going to live in the Real Estate, whereas 72% of the 44% will do the same. Therefore, 85% of the purchases are for own use. Investors represent less than 15% (poll also included work, leisure and 3rd party users).

    In my opinion, investors are the most likely to dump the property in a crisis, so the % of houses available for sale would not be massive. Since the majority is acquiring a property for own use, they will do everything they can to not default on the mortgage, thus foreclosures and auctions should not skyrocket.

    Perhaps the biggest Real Estate bubble is in China, where developers built ghost towns with thousands of properties that are currently empty. Prices didn’t drop b/c there are no forced sellers (so far indirectly backed by US Fed), but for how long is that sustainable? What are the impacts worldwide? Good question.

  6. Wolfgang says:

    Roberto, I think you got it wrong what Rodrigo said. The corruption and fraud here, nobody expects nor wants this to be resolved from Europe. And, of course, from my german point of view I agree with Rodrigo once more: These colonialists like spanish and portuguese – they brought the corruption as these countries in Europe are the most corrupt!! No surprise that they exported their bad habits. And of course Brazil suffers from that. That is not to say that Brazil should not do everything to overcome this habit. Perhaps they will succeed in about 2- 300 years.

  7. Johny Germanicus says:

    Wolfgang is right and since the German Diaspora in Brazil is more than 10 Million German Offshoots, you better make that 1000 to 2000 Years, if you are lucky off course.

  8. Pat says:

    Wolfgang…im brazilian and i dont expect portugal to solve corruption problems in brazil , brazilains must stop crying and complaining about portugal like a baby…fact is thats pure imcompetence from most part of the population in hundreds of years after the indepencende and people cant or dont want to solve a problem everybody complains….do like me..everytime you see corruption DENOUNCE IT….if you always denounce it and teach your kids about it will be significantly reduced with time.

    Now, it looks you german you have short memory … the story of your country its one of the worst examples to the world if not the worst …first thing that comes to my mind when i think about Germany history is NAZIS, WAR AND MILLIONS OF PEOPLE ASSASINATED.

    While the South Europeans (Portugal,Spain,Italy) expand their own cultures worldwide and proudly accepted in many countries worldwide…like for example myself brazilian, nothing against the Portuguese…in my opinion better have a history related to Portugal then to Germany.

    … also, as far as im concern today the economic problem in south europe is a problem of spending more than they earn, (hello brazil did you ear what i say) not a endemic corruption problem…wich in fact SPENDING MONEY YOU DONT HAVE is good for germany, if germany stops selling their products to Portugal, Spain and Italy…germany will be in huge economic troubles to…germany depends a lot from this markets and rest of europe to balance its budget.

  9. Mr. P. says:

    Hey hey lad Wolfang, your comment on corruption is quite insulting to the iberic people.

    Actually it reflects the historical prejudices of protestant people against catholic ones. I think you should do better your homework and realize corruption is all over the world including Germany and other northern european countries (just remember the case of Christian Wulff’s resignation)

  10. Ben says:

    European president is Portuguese….and the ECB president is Italian….how can you german call corrupt this souther european countries if they are the ones who administrate europe in the first place?! fact is thousands of germans live their lifes in Portugal, Spain and Italy because they love the lifestyle… i repeat THEY LOVE THE CULTURE AND LIFESTYLE… but i dont ANY portuguese spanish or italian living in germany for the same reasons, some move there to make money ONLY and not much interest in german lifestyle or culture.

  11. Gordon D says:

    I think some miss understand Rodrigo. I interpret Rodrigo stating a legacy that has not been corrected/fixed and that this issue carried over from the European landed immigrants as an intangible that often gets over looked with in real estate conversations. Also, this intangible corruption has a negative impact on the real estate industry but is not quantifiable.

    My view is that to compare Brazil to other countries is too difficult. I think an analysis has to start from and within Brazil only and does the current economic circumstances justify the current real estate prices. IF there is a bubble, and knowing the dynamics around the world and here, there is a good bet that prices are frothy AND the legacy that Rodrigo talks about is still active and will have a material impact on the collapse of real estate prices IF it occurs. One indicator, banks engaged in questionable loan activities and the 3 banks that have gone bankrupt in a good economy. Repackaging loans sniffs of one element to support a price correction.

    Can anybody confirm whether banks sell off real estate loans as investments to unknowing pensions?

  12. João says:

    Excellent articles on the bubble in Brazil – which will probably blow soon, even though our government will try to delay it as much as they can to give Ms. President her reelection. I’d like to see some articles on our public debt as well. For the last 10 years government spending has been growing on a scary rate, and I feel Brazil will soon find it’s way to a catastrophic sovereign debt crisis.

  13. Ohgod says:

    Like others have said before “brazil is not a serious country” . If brazil can’t take responsability for its own problems it will never grow up. All you have to do is wait in line at an apple store in miami and watch the brazilians, cry about the lines, looking for discounts, and asking for freebeies. Typically Americans and Europeans pay and go, no crying.

  14. Wolfgang says:

    ok, then why do spanish people themselves call the habits in their country “economia de cuñados” – ask them!
    I can only tell you: If I talk here (Brazil) about the case of Wulff, people remain in a kind of frozen disbelief that such peanuts could make a president resign, a loughable case. He was shot away by those who dont like his economic point of view – he was just simply not “convenient”. Hence, a case was invented.

  15. Wolfgang says:

    You ask why and how instead of looking at reality. Fact is, in no other european countries is corruption higher than in Italy, Spain, Portugal and – topping all – Greece. And, you know what? I love Greece as many other germans do. So, where is your point? The majority of germans who move to southern areas are retired – so they dont need to cope with corruption. Those who run businesses there, I know some since I have lived in Spain, all have a lot of stories to tell on corruption, my god! Stop denying reality!! In Spain they build whole airports without any use because the construction firm’s owner is cuñado of XYZ politician. Everybody with ears and eyes knows this – just you miss the boat! ECB president is a puppet of Goldman and Barroso – well, seems to me there wasn’t any other job for someone as completely clueless as he is. Probably it was Portugal’s term or something like that. Europe will fail miserably the more latino europeans occupy important charges. Just wait a bit and you will witness what I mean.

  16. Wolfgang says:

    You say “first thing that comes to my mind when i think about Germany history is NAZIS”. It is sad that you have allowed someone to wash your brain. The “model” of economy which you tout here “SPENDING MONEY YOU DONT HAVE is good for germany”, in fact serves as proof that your brain was not just washed but removed, boy!
    The debt which the rest of Europe amassed against Germany will never be paid – or do you believe those +740 Bio EUR target 2 saldo in favor of Germany will at anytime in the future be balanced? I know and everybody in Germany knows, they are lost. Lost to those who spend money they dont have and who never will be capable to balance their debt.

  17. Wolfgang says:

    Just to add something to the matter: as a rule of thumb an installment for a house or apartment should usually not exceed 33% of the available income of a household. Means, already 2007 the credits had been dangerous and housing prices too high. So, how could this be even more extended? Answer: By the same concept as someone else here said “SPENDING MONEY YOU DONT HAVE is good” … until it is no more good (and that point seems to be coming soon).
    Another note: Where do they get the statistics of 43% income increase of the average worker?? I doubt this.

  18. Zaire says:

    I’m trying to understand what Ohgod said, and how it has any relationship with this discussion….

  19. henrique says:

    i’m middle class in sao paulo. can’t buy anything – too expensive – and will lose money on rent, also expensive. maybe it’s time to leave…

  20. Duda says:

    Another article, please…

  21. jayme says:

    dont worry, aint going to happen!

  22. jayme says:

    beautiful insights!!! :))

    bubblers will die homeless.

  23. jayme says:

    basically, this means : “oh well, what can we do, we are doomed and cursed, thats just it.. we got corruption in our dna”

    way to go :)

  24. Rodrigo Rodrigues says:

    One after the other, every government military or civilian In South America,has resorted to faked social policies, presented as a blessing to resolve problems of voters on sale, concubines, failed students and fake civil servants with a “machine gun” of dollars, in a demonstration of an effective extraction mechanism, undermining the initiative of the decent and dedicated citizens, workers and students, promoting a culture of government parasites. It is here where the initiative of the clever, bright and creative dies and “the corrupt extraction is born”; this became worst when we find out that, one after the other, every government evolves into the expert mechanics of commercialization of souls, having in favor the illiteracy of the citizen “trapping them into the corrupt loop” and kidnapping entire community with promises of instant wealth upon reaching the Government.
    This same patronage is seen in a mayor scale with direct engagements and monopolistic practices in public procurement which are destroying investment initiatives and progress of our Nations, a shown in every day new of Latin America.
    The chain is much more extensive, when leaders do not understand the role of the media of communication, freedom of expression, freedom of choice and independence of Governments as regulators of society that must persist until the end of time to ensure the continuous improvement of living conditions. Undermine any of the above, implies unimaginably bad events for our societies, cause it is a fact that due to the lack of inclusive social policies, sooner than expected, all the economic improvement gain will be lost in the decadent administration of resources, destroying all that was gain.
    INTEGRITY is the one word that matters. If organizations, including political organizations, have INTEGRITY, the nation prospers. If they do not, poverty prevails. INTEGRITY is about much more than personal “honor.” It is about being able to see the whole, connect the dots, achieve rapid constant open feed-back loops among all elements of the complex system, and so on.
    Nations fail when education is reserved for the elite, and the elite lose their INTEGRITY. When the burden becomes too great and the masses rebel, they can either re-create the corrupt system they are bringing down, or they can branch toward a system of systems where INTEGRITY prevails.
    Basically, it all comes down to one thing: if a nation’s politics allow people and institutions to prosper, they are inclusive. If a nation’s politics try to keep the already-rich elites in power while extracting every last cent from everyone else, they are extractive. A nation can go from one to the other, but usually what happens is that an extractive economy (Brazil, China,”Mexico,” or most of Latin America) will succeed for a time; then, because too many people are shut out from the process, _and_ because there is a lack of what’s called “creative destruction” (meaning there’s a lack of innovation, because innovative products create both winners and losers and extractive economies won’t gamble on anything even if the upside far outweighs the downside), they eventually stall out or fail (as we now see in Russia).
    Political processes, you see, are far more important than they seem. That’s why a country that favors innovation, like the United States has traditionally done, is an inclusive economy where more people are able to make a living and be able to get their needs met; it’s also why an extractive economy, like the former Soviet Union, eventually stalls out and ends up having to re-make itself both politically and economically,the amount of corruption in Brazil( America Latina in General), is out of control, The british did a better job colonizong  the United and and Canada,  Some readers were attacking myself and Mr Wolfgang , I personally have nothing against any race ( Portuguese Or Spanish) ,  but during the process of colonization something beyond my understanding happened in Brazil and Latin american countries and made us very different from North American countries.

  25. Mr. P. says:

    Thank you Wolfang for you racist point of view… Now we all know how unworth your comments are.

  26. Ben says:

    Germany is finished, game over, kaput.
    It will soon be taken over by Turks. Just ask any German that lives in Germany what’s really happening there.
    Soon they be begging S. American Countries to take them in.

  27. Tarik says:


    As far as I know is not Brazil who is waiting for an European bailout. Is it?
    Who are the ones complaining and doing nothing?
    Portugal spent it’s way into 1st world status and now can’t pay the bill. Guess where you guys find relieve?
    Brazil, Angola and Mocambique.

    If we are that bad and ignorant, why don’t you go back to “Tras dos Montes”?

  28. bruno says:

    The low percentage of “investors”, indeed, points to a different direction from the housing crisis as it developed in America, but that may be just a matter of magnitude.

    Please note dividing house buyers between investors and non-investors may not be the most precise way to examine their motivations, as many non-investors buy houses when they would not otherwise to so because they expect it to be, too, an investment.

    Naturally, they won’t dispose of the house in the event of a bubble. Yet, they’ll be underwater (the loan taken will be much more than the value of the house) and in that case, depending on the drop, it may seem good to them to let the bank take the house and buy another – or, perhaps, even to buy the same house again in the auction.

    Concluding, I admit the percentage of investors in America was much higher than here. Yet a bubble is a bubble anywhere, and as soon as demand goes away, sooner comes the drop – which will be higher in the case of an artificial demand.

    Homeless, perhaps. Underwater, never.

  29. bruno says:

    To put it another way, what would you do if you took a R$1 million loan, had already paid R$250.000 (20% first payment plus a few installments) and your house value dropped to R$700.000?

    In that case, you could either (a) keep the house and pay additional R$750.000 or (b) sell the house for R$700.000 and buy a similar one, or the same, for R$700.000, thus gaining R$50.000.

    It all depends on the size of the drop. Any point further of 20% will have an exponential effect on homeowners decisions.

  30. Cybersix says:

    Hi Wolfgang, sorry to read some german-bashing comments. It happens a lot. Here is some advice for you in the future: 1) Dont state you are german. Your name is german, people will know anyway. But stating you are german, triggers the Nazi-response almost automatically in the brains of closed-mided people. 2) Never reason with those people. Politely ignore their comments and move on to reply to more educated folks.
    The 43% income increase on the “average” worker refers to the increase of the minimum wage (salario minimo). Thats all. Meaning people who got paid US$250, now get paid U$360 a month. Also, it refers to the increase of the salaries of some people on the government, which get paid 20 to 40 times as much as the minimum wage. So those at the bottom of the social piramid really are better off than before, but those at the top are much better off… so much better, that it makes every other income seem laughable. All of us who are middle class have suffered enourmous drawbacks in the recent years, because taxes are totally out of this world right now. Industries are suffering, retail is suffering, private businesses are struggling to get by. In the meantime, the government is throwing money at every problem they create in order to keep everything more or less functional until the Olimpics and the World Cup years. After that, only god knows what will happen.

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