I have spent hours debating my belief that Brazil is in the final stages of a housing bubble, most related to recent difficulties managing liquidity, consumer debt levels, and FDI trends.

Instead of boring everyone to tears, here are some personal observations. Admittedly my perspective is slanted because I have only seen what is happening in Brasilia (one of the hottest markets in the country) during the past 5 years.

Since 2008, Brazil has changed at a frightening pace. Prices are out of control, which partially accounts for the sharp jump in personal debt. To give you an idea, besides produce, university tuition costs, and healthcare (sort of), I literally can't think of anything in Brazil that is cheaper than the US now (even after converting to USD). Beer is about the same price (prior to 2008 it was always cheaper). My brother-in-law and some friends who have comparable jobs to mine earn about the same in BRL as I do in USD. I honestly don't know how the middle or upper middle class can squeek by.

In Dec 2008 - Jan 2009, when I traveled to Brasilia, housing prices were already elevated but had begun to decline modestly in response to the
the global meltdown. From a USD perspective, prices were high but still reasonable. A good 2-3 bedroom condo in an upscale downtown neighborhood was running for about 700,000 - 800,000BRL. A nice though not extravagant house in a luxurious south lakeside community was about 1.2 million BRL. Considering the 2.6 exchange rate, things were still reasonable.

I became convinced of a housing bubble in Jan 2010. Before that period, nobody ever talked about real estate unless I asked. Suddenly the topic became a favorite at parties I was going to. People we had known for a decade were suddenly all looking to buy or had just purchased RE to avoid being priced out of the market. A couple of people bought 45 minutes to one hour from their work - which was unheard of before because of the high gas prices. One person told me that the Brasilia market was being pushed up by investment buyers from SP and RdJ, given the relatively "cheap" prices in Brasilia (sound familiar?) During 2010, the same apartment mentioned about was going for $1.5-2.5 million reais. The nice exclusive south lakes neighborhood property was now selling for $1-2 million USD. That's right. Many of the higher end properties were now being listed in USD for the first time.

My Mar 2011 trip sealed this belief as I saw the real estate construction marching out of control with highly dense high-rise clusters emerging in a traditionally flat city and RE sales signs littering the roadsides.

Prior to 2008, most of the demand was clustered in the south side of the city, which housed the best restaurants, bars, etc. Suddenly the north downtown areas were outpricing the south due to the fact that there was more room for newer condos. The northern lakeside community, (which was always more excluded) now rivaled its southern counterpart in prices for the first time. Development was also spilling quickly into more remote areas and the bulk of the south lakes community was becoming dense with houses with miniscule yards (think McMansions). A poor outlying neighborhood (20-25km from the city center) was suddendly gentrified.

The most outrageous example was in a neighborhood 20km from the center, called Aguas Claras. Founded in 1993, the suburb in 2006, had 206 building with another 230 in construction with nearly 350 projected. I haven't seen newer stats, but wouldn't be surprised if most of the projects have been completed. With a new metro stop built in, it suddenly transformed into a sea of high rises. The visual impact on the landscape and up close is nothing less than terrifying. This neighborhood was so overbuilt and densely clustered that it was experiencing water supply issues during the dry season. Of course, all this building has severely strained road capacity as well, further deteriorating the quality of life in the city. Speculative greed at its finest.

Check out photo #31 on the first thread to see a great skyline shot.

http://www.skyscrapercity.com/showthread.php?t=988171

http://www.skyscrapercity.com/showthread.php?t=1169777&highlight=

Have a great weekend everyone!

ACO