The Brazilian Bet
Rio de Janeiro Luxury Real Estate
With an impressive start to 2019 investors are rejoicing with renewed optimism over Brazil’s predicted upward trajectory. As the 2019 leader in emerging markets, there are strong opportunities in a reformed and economically strong Brazil. However, investors are still currently in a game of decision making over which direction Brazil’s luxury real estate market will go.
Like an intensely charged poker game, Brazil´s 2019 luxury real estate market outlook is more and more looking like an environment containing obscure clues and incomplete information. Under this veil of uncertainty, the outcomes of investor bets are predicated upon a combination of both luck and the quality of their decisions. However, as with any great investor bet, we need to attempt to first accurately understand the information that we do know and what that can mean for potential opportunities in the market.
A Horizon of Economic and Political Change
A history of political instability coupled with Brazil´s worst economic crisis to date has taken a toll on the country and its citizens. Many Brazilians fed up with living in uncertainty have left or plan to leave in search of stability. However, with the political scandal that tore apart Brazil´s government in the past and a new although controversial President taking the helm, the overall mood in Brazil is one of let us wait and see rather than pop the champagne.
Markets have reacted favorably to President Bolsonaro’s victory as the Brazilian stock market surged in January placing it on track to being one of the best-performing markets of 2019. Investors are still unsure the direction Bolsonaro will take the country and are waiting until his Presidential honeymoon period comes to an end before placing their bets.
A successful Bolsonaro administration will be a huge win for Brazil and international investors. The President will need to pull Brazil out of an economic collapse, pacify a national crime wave, regain the public´s belief in the political establishment, and put in place long-lasting political and economic reforms. What Brazilians and investors are uncertain about is whether Bolsonaro will be as successful in introducing lasting change as he has in mobilizing public anger towards Brazil´s status quo.
With potential change on the horizon, Rio´s most sought after neighborhoods could become magnets for the wave of benefactors of an economically successful and safe Brazil. With more wealth and a new sense of safety, Rio´s top neighborhoods have the potential to attract an increase in domestic and international demand that the city has not seen since the spotlight of the World Cup and Olympic games.
Rio Under the Lens
Rio´s luxury real estate market is currently in a precarious state. In top neighborhoods such as Leblon and Ipanema which often are looked at as the most expensive neighborhoods in all of Latin America, the market in 2019 is off to a slow start. The Carioca´s that call these two neighborhoods and its beautiful beaches home are still holding out for prices to regain their World Cup and Olympic peaks and are not desperate to sell. However, there are still deals out there and with Brazil slowly recovering from its historic economic crisis there are distressed property owners in the market that need to sell.
Brazil´s economic crisis and crime wave has created a market of mainly international buyers seeking opportunities while Brazil´s currency is still at a historically low valuation. These buyers are made up mostly of part-time or holiday residents who may seek passive income from renting properties to tourists. What all these international buyers have in common is their love and belief in Rio as one of the top international destinations in the world.
As a result of the World Cup and the Olympic games, the property along Rio´s famous beaches has become a new status symbol of wealth and prestige with international clientele. Rio de Janeiro is strategically ideal for European and North American buyers seeking an international city to holiday and call home during the frigid winter months. The outdoor lifestyle, beautiful weather, and the modern convenience of an international city are the main reasons driving international demand.
As Rio has cemented itself as a world-renowned city attracting continued international demand, it is then important to look at Brazil as an international tourist destination. According to a 2017 report from Brazil`s Ministry of Tourism, approximately 6.5 million international travelers visited Brazil in 2017 with more than half hailing from Latin America. As the 5th largest nation in the world and one of the most important emerging economies to keep an eye on in 2019, Brazil has not yet joined in on the wave of international travelers. To put this in perspective the United States receives on average approximately 77 million international travelers per year. In fact, the tiny Spanish island of Ibiza receives more travelers then Brazil per year at around 7 million and Ibiza is only 45 Kilometers long.
While investors are waiting for Brazil´s pending economic and political climate to develop there has already been a major game changer for Brazil´s tourism industry. That game changer is Brazil´s new implementation of electronic visas for the United States, Canada, Australia, and Japan. Whereas before if you wanted to visit Brazil you would have the arduous task of going directly to the Brazilian Embassy now you can request a visa in as little as 3 business days in the comfort of your home. Brazil´s new policy coupled with renewed international and political optimism is already affecting Brazil´s tourism numbers with significant increases in visa applications from international travelers.
With the potential for Brazil’s tourism industry to significantly increase and Rio being the top destination for international travelers, Rio’s luxury real estate market could benefit from riding the coattails of the increase in tourism. As increased numbers of international tourists from the United States and Canada continue to rise, luxury real estate demand has the potential to rise as well.
Currently, in Rio, there has been little development since the World Cup and Olympic games. There are no cranes in the air and the housing stock is decades old. With the potential for a flood of new visitors on the horizon, Rio is ripe for development opportunities as there are few properties that can cater to a discerning clientele.
Investors from around the world will be placing their bets over the next several months. Only time will tell how each investor´s cards will play out. However, what investors know all too well is that a good opportunity should never be wasted. It is those investors who see opportunity and believe in that opportunity that will come out on top, and if the cards don´t play out as planned, at least those who place their bets will have a home in paradise. That is definite in a veil of uncertainty.