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São Paulo’s Real Estate market

By Marcelo Montoro, Founding & Managing Partner

In 2019, the GDP of the municipality of São Paulo, in Brazil, represented 10% of the Brazilian GDP. It is incredibly relevant that São Paulo has a real estate market that influences the national environment. In 2020, Selic rate (Special System of Liquidation and Custody), the basic interest rate for the Brazilian economy, was at 2% per year, with there being cheap credits and a great demand for real estate. In the past three years, its value grew over 11%, reaching the 13.75% in 2022. This large period of high rates, among the highest in the world, retracted real estate financing. In the beginning of 2023, economic indicators and industry entities indicated a decrease in sales and credit grants. These reinforced the idea that 2023 would be more challenging for new releases and sales meant for the medium and high classes. As for “low rent” (low-income classes), which benefit from the “My House, My Life” programme (MCMV), these were expected to increase. Still, in 2022, according to the Brazilian Real Estate Incorporators Association (ABRAINC), commercialisation of real estate in Brazil increased by around 12% compared to 2021, the highest value since 2014.
For ABRAINC, despite the foreign real estate markets showing concerning signs since 2022, over 60% of Brazilian entrepreneurs believed 2023 would be better than 2022, backed by the Central Bank, who believed new real estate projects would be coming into action until the end of 2023.
Real estate financing interest is at a stabilising phase, with the expectation of access to credit increasing very soon. It is probable that 2023 will be better than the previous year in some segments.
Some excitement for segments that are not a part of the MCMV Programme is fed by the development of tax reform and new tax framework which will be able to give tax efficiency to the construction industry, contrary to the services industry which, for now, can be one of the most jeopardised.
Independently, there seems to be agreement on the fact that there will not be changes in the price trend of real estate continuing to increase discretely and moderately.
For good or bad reasons, in 2022, the São Paulo real estate market had a performance above expected, as did the national real estate market, indicating a probable growth. It is a complex, segmented market, with a notable niche for compact flats (with reduced square footage).
In the following chart, we can analyse the evolution of residential units sold (in thousands of units) accumulated over 12 months.

Far from a “bed of roses”, after the Pandemic, non-residential properties suffered a drastic fall in sales, with a probable recovery until the end of 2023, believed to be supported by foreign investments. “Green buildings” are part of this growth, having been valued and requested by the population and companies.
In São Paulo, and even in other capitals, price per m 2 of real estate has become increasingly more expensive, not reflecting salary updates, benefitting “compact” and functional properties, fitting into the main national programme for popular housing, with around 45m 2 . It is not a coincidence that half of new real estate releases in 2022 were of the “compact” kind.
Considering that the São Paulo real estate market has four stages: recovery, expansion, supply excess, and recession, in 2022, a series of factors led the market to an excess in supply. In December 2022, according to Secovi (Syndicate for Companies for the Purchase, Sale, and Administration of Real Estate), there was stock for 16 months of sale
for “high standard” (high class) and stock for 9 months for the sale of units for the housing programme. As such, it is probable that 2023 will end with a real estate stock excess or that the real estate market goes into recession.
There are also expectations for the revision of the directing plan that has improved construction potential, which might increase supply due to the pressure to densify the regions with more infrastructure in the city. There will be a reinforcement in supervision to consolidate projects for “low rent” (low income class) in regions with infrastructures, instead of high standards (high class) ventures, controlling the acquisition of undue exemptions.

There is also the new Law for Retrofit (Centre Requalify Programme), which will be extremely important for investments in built and unoccupied assets.
The São Paulo real estate market, especially the residential one, depends on good internal conditions, also influenced by external conditions. Due to the wish of the new federal government for positive economic results, it seems the second semester of 2023 and the year 2024 still lead to envisage a small slow down, a maintenance of levels or a discreet boom of São Paulo’s real estate market, mainly with the expectation of decreases in interest rates, a better tax framework, in addition to the declared federal support to the “My House My Life” programme. In other words, no one seems to bet on a new consistent growth period, as it happened after 2017, or a “nuclear explosion”. A foreign real estate crisis, an escalation in the war, or an insolvency crisis may inevitably contaminate us. We expect the good internal background, in case it happens, to mitigate the discomfort and at least maintain the same spirit. We are not restful!

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