Tighter Credit, Weakening Consumer Confidence to Impact Brazil Real Estate

Brazil’s real estate sector has slowed significantly as a result of a deepening recession spreading throughout the country. Mortgage financing has taken a hit and sales have been on a downward trajectory over the past two years. The sector will remain weak, says Moody’s Investors Service, as the nation’s recession hits consumer confidence while at the same time banks continue to become even more selective in terms of the loans they extend.

As the ongoing recession in Brazil steadily leads to rising unemployment, Moody’s expects payment delays and defaults on mortgage debt to increase in coming years. This, despite delinquencies, having remained stable at around 2% over the last five years.

“A sizeable share of outstanding mortgages were originated when the  economy was much healthier,” explains Ceres Lisboa, a senior vice president at Moody’s, in a commentary published this week. “At the time banks were extending credit to new sets of household borrowers, many of which had limited payment track records.”

Banks in Brazil will also now have to consider alternative funding sources to support loan origination, as saving deposits dwindle during the country’s worsening recession. The report, titled: “Brazil – FAQ on the Real Estate Market Outlook,” noted the main themes discussed and issues raised at a Moody’s roundtable session with market participants on March 22nd.

São Paulo, Brazil, December 22, 2015. Crane and Workers in the building site construction in São Paulo city
São Paulo, Brazil. Crane and workers in the building site construction

“As the weak housing market fundamentals persist, there is an increased likelihood that homebuilders will have to restructure their debt over the next 18 months”, said Cristiane Spercel, a Vice President and senior analyst at Moody´s, in published commentary.

The agency expects revenues of home builders’ to fall 10% in 2016. Moody’s is also predicting that gross margins will remain flat, as the inventory of completed and unsold units across the country continue to rise. Also, companies could face asset impairments because real estate prices are falling as sales cancellations increase.

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