Right now Latin America, and Brazil in particular, is experiencing a sharp selloff in its real estate market. Latin American real estate stock returns have dived since the start of 2011, down over 12%, according to Citi Analysts.Brazil is getting trounced. Homebuilder stocks in the country have sank an average of 15%, year-to-date, according to Goldman Sachs.
The reason behind the sharp drop in homebuilder equity prices is that Brazil is in the midst of a round of tightening measures to combat inflation.
Some are now worried that those tightening measures will spill over into the mortgage market, limiting demand for new houses, and sending prices lower.
But, Goldman Sachs don’t see Brazilian tightening measures having this impact. Instead, they see this is an opportunity for investors to get in on the Brazilian story.
Nevertheless, housing demand is more than 3X what companies can build today, and should continue to outpace supply in the coming years, as it takes time for companies to build capacity. We expect real wages to grow 3% in 2011E, as unemployment remains low. Private banks are stepping up real-estate lending and increasing competition could lead banks to reduce mortgage rates, which are not tied to the benchmark Selic rate. Also, we do not expect macro-prudential measures towards slowing down real-estate loans.
While investors might immediately figure credit contraction is going to lead to a housing downturn, it appears there are several reasons why Brazil may escape this scenario.
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