Building boom hits South America

Homebuilders in Brazil, where the economy has grown at an average of 3.4 per cent a year since 2003, see sales rising as consumers gain easier access to mortgages in Brazil and neighbouring Argentina's economic expansion continues.

Major companies at the MZ Real Estate conference said the introduction of long-term, fixed-rate mortgages was creating a market for new homes among most income groups.

"Lower interest rates and the wider availability of credit create a very favourable scenario for the real estate industry," said Ricardo Setton, chief financial officer at Agra.

"We expect this scenario to persist."

Brascan, a Brazilian real estate company controlled by Canada's Brookfield Asset Management, may decide whether to build properties in Buenos Aires by the first half of next year. "The market in Argentina is similar to the Brazilian market 10 years ago," Brascan chief executive Marcos Levy said.

"We want to take advantage of being among the pioneers."

Argentina's economy is heading for a fifth straight year of growth after expanding 8.5 per cent a year since 2003. Brascan said it will begin construction this year in Brazil on homes with an estimated value of 900 million reals ($650 million) to 1 billion reals, up from 380 million reals last year. Next year, the company expects to start begin construction of homes with a total value of 1.2 billion reals.
Brookfield, based in Toronto, owns a 60 per cent stake of Brascan.

The rest is traded on the Sao Paulo stock exchange.

Cyrela, Brazil's biggest real estate developer, formed a joint venture in August with Argentina's Irsa to build houses in Argentina.

They expect to begin construction on 100 million reals of homes this year for middle and upper-income homebuyers in Buenos Aires.

"Argentina has good economic and social conditions and we found a well-known partner," Cyrela's investor relations director, Luis Largman, said. Gross margins on projects in Argentina can be three to four percentage points above the rate in Brazil because of lower competition.

Cyrela also plans to increase the share of homes for lower-income families from 20 to 30 per cent of revenue in two years, Largman said, with construction on 4 billion reals of homes starting this year. Demand for homes and credit is surging in Latin America's biggest economy after monetary policymakers lowered the benchmark interest rate 18 times in two years to a record 11.25 per cent last month, from 19.75 per cent.

Rossi, Brazil's third-biggest homebuilder, also expects lower interest rates and longer-term mortgages to stimulate home sales. Sergio Rossi, the company's investor relations director, said: "The majority of homebuyers depend on lower rates and longer maturities for loans. Now we have mortgages as long as 30 years. Not too long ago that maturity wasn't longer than 10 years."

Another sign of the potential growth of the Brazilian residential market is the comparison with other countries. About 200,000 homes were sold in Brazil last year compared with 750,000 in Mexico and 450,000 in South Africa.

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