Saturday, May 15, 2010
Dear Reader,
With the "flash crash" on the Dow, a multi-billion euro bailout to ward off Greece's financial crisis, and the UK's first coalition government in 70 years, we needed some good news this week. Right on cue, Brazil provided it--and then some.
Four of the key components in a powerful emerging economy are:
- energy,
- food and agricultural capacity,
- a strong manufacturing sector,
- a growing middle-class.
Brazil posted positive news on all four fronts this week--and that's good news for those of us invested, or planning on investing, here.
Brazil is already energy-sufficient. This week, they discovered another oil field containing 4.5 billion barrels of light oil. Oil giant Petrobras set a monthly record for oil production in April, too, of just under 2 billion barrels a day. The company expects to break records later this year when two new oil platforms come on stream.
Poultry sales surged for BRF, the world's largest poultry exporter. Their revenue in Brazil doubled, thanks to strong domestic demand. BRF says that sales growth in Brazil should continue to outpace that of Europe and the US.
Steel manufacturer Usiminas reported a first-quarter profit. Demand for steel from carmakers and builders soared. More Brazilians can afford luxury items like new cars, due to rising wages and lower unemployment levels.
The middle class here is certainly growing. More than 50% of Brazilians are now middle-class. Moreover, the purchasing power of the minimum wage almost doubled in the last seven years. The finance minister predicted growth in Brazilian consumption of 8-8.5% in 2010.
Demand for financial services--credit cards, mortgages, small business loans--looks set to explode in the next decade, driven by those middle class consumers. Consumer credit accounts for only 4% of GDP in Brazil right now, compared with 18% in the US. Banco Santander Brasil's CEO, Fabio Barbosa, talked about his bank's strategy for increasing their share of the local market. Santander will target Brazilians who don't have bank accounts, and they understand "that offering real estate loans is the most potent method for cementing its relationship with customers".
The mortgage market in Brazil stands at 5% of GDP, a fraction of the level in developed countries, where it can exceed 50% of GDP. Tight lending standards and high interest rates (more than 20% on personal loans in the past) meant that most Brazilians simply couldn't access or afford credit. That's changing, with interest rates currently below 10%, and banks like Santander opening up credit lines to more Brazilians. This should in turn give the real estate market a boost...which is excellent news for those already invested in Brazil.
Margaret Summerfield
P.S. If all this good news has whet your appetite for investing in Brazil's real estate market, stay tuned. Colleague Ronan McMahon's keeping his ear to the ground in his favorite investment hotspot on Brazil's northeast coast. There's been a backlog of new developments awaiting approval, caused by changes at local government level. The backlog is finally clearing. Ronan's scrutinizing some projects as we speak. Of course, members of his RETA group will be the first to hear about any new projects he cherry-picks that offer the most potential... and he'll get RETA members in at the best possible price. To find out more about RETA, click here.
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