The real estate companies in Brazil are under pressure as the prices of property continue to fall. According to the projections from a top credit rating agency, the industry will continue to be under intense pressure at least until the halfway of 2017.
The price of an average property is said to have dropped by nine percent in up to twenty cities in 2015, but the accepted price is usually lower than the advertised price. This decline is considered to be part of the cyclical downturn which has been in motion since 2011 and was followed by a period of massive growth. This can be attributed to the slow growth of the economy and the frequent political unrest.
The drop in prices in the real estate is believed to be caused by the sharp contraction in the confidence of the consumers which is majorly based on the uncertainty of the economy in Brazil including the high rates of inflation and low employment.
The sale of the real estate properties is expected to decline by at least ten percent in 2016 compared to 2015. Liquidity of the real estate companies is considered to be the most serious concern. According to Spercel, Moody’s vice president, the since of contraction in the real estate industry was first noted in 2012, but tighter funding and reduction of the property prices have been the greatest challenge for the builders.
The Brazilian real estate has also been suffering from oversupply. The perception of a flooded market has still remained despite the ongoing reduction in the launching of new releases. Poor sales and terminated contracts are said to have left most properties on the balance sheets.
Two biggest real estate companies in terms of revenue in Brazil Rossi Residential SA and Cyrela Brazil Realty are reported to have posted very weak results in the first quarter which has been attributed to the ever decreasing sales caused by Brazil’s sluggish economy.
Construcap together with an American construction company Flour has invested a total of 25 millionreais just in coming up with a joint venture that will offer engineering services for real estate projects. Each company will hold 50% of the new venture to CFPS Engenharia e Projetos. This will ensure all the real estate projects which have been brought by the customers are well taken care of by Construcap.