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With Brazilian Real Estate In Tatters, Foreign Investors Advance

With the country still in free fall, investors are swooping in on a liquidation sale.

By Jeff Vasishta January 11, 2017

Brazilian real estate is having a moment—a 2008 moment. If you ever wanted to live or own in this South American country, now may be the time to buy. Prices have sunk lower than the necklines of carnival costumes, with 2016’s prices down 5.5 percent on the previous year.

This follows a drop of up to 20 percent in 2015, according to Moody’s credit-rating agency. The Brazilian Institute for Geography and Statistics (IBGE) says the bottom may not be reached.

After a decade-long bubble, the combination of a weak economy and political unrest saw Rio de Janeiro down over two percent last year. The capital Brasilia went down 1.2 percent and Sao Paolo – minus six percent.

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Exxpon is Brazilian real estate growth company that specializes in high-risk investments. They are looking at discounts on houses of up to sixty percent. “The greatest opportunities today are in the residential segment, with the high number of cancellations (returns/foreclosures),” founder Jonathan Franklin told newspaper O Estado de São Paulo.

With experts predicting no positive shift until 2019, US investors have also been circling the burning real estate wagons. Blackstone LP have been actively looking to snap up distressed commercial properties. In 2015, private equity firm GTIS Partners took a 35 percent replacement cost purchase ($400 million) of Brazil Hospitality Group, one of Brazil’s largest hotel chains. They then set their sights on Brazil’s tattered housing market, the Wall Street Journal reported. International buyers have been equally as opportunistic. But stepping into foreign territories can be problematic for those without a well oiled machine in place. Related Co’s hit a massive legal delay with a residential deal over governmental policies and permits.

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“We had tried development and exploiting  our knowledge into foreign markets…first we went to China and then Brazil ,” Stephen Ross, Related Chairman said at an investment conference. “I gotta say those didn’t work out well.”

Compounding Brazil’s problem has been the number of properties built during the boom years and now lying vacant. High interest rates have only made matters worse, with developers counting on the government to provide subsidized loans for low-income housing.

One can trace the economic collapse, which snowballed to a real estate implosion, back to problems in the oil industry. Oil giant Petroleo Brasileiro SA halted new business deals with about 30 suppliers. That happened after an investigation found evidence of kickbacks to win contracts, forcing at least seven companies with large operations in the city to file for bankruptcy protection. Standard & Poor’s stripped the country of its investment-grade credit rating. This came on the heels of a slump in crude prices which effected the industry world wide.

“A good portion of the market was based on the oil industry,” Raul Correa, a partner at commercial agent Office International Realty told Bloomberg News. “Now a lot of them are retreating.”

Which, for the bold and brave, is the perfect time to advance.

Jeff Vasishta

ABOUT THE AUTHOR Jeff Vasishta

ABOUT THE AUTHOR Jeff Vasishta

Jeff is a writer, husband and father but not necessarily in that order. As a music journalist he counts Prince, Beyonce and Quincy Jones amongst those he’s interviewed. He's also owned and flipped homes in Brooklyn, NJ, CT and PA.

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