Auctions as an Alternative to High Prices in the Brazilian Real Estate Market

It is common knowledge that great part of the families’ wealth, not only in Brazil but around the globe, is concentrated on real estate. Properties serve us as homes, but they also serve the purpose of diversifying our investments and assuring us a reserve throughout the years.

There has been a solid appreciation of the Brazilian real estate market in the last few years. The recent numbers from SECOVI-SP show us that this trend is far from over. There was a surprising increase of 46% in properties’ sales in the first half of 2013 in the city of São Paulo, compared to the same period in 2012.[i]

Even with persistent high prices, the Brazilian real estate market is still expected to grow significantly since there is a lot of room for the expansion of credit. According to a report from the Brazilian Central Bank (BACEN), the Brazilian housing deficit is still huge and the percentage of real estate financing in the GDP is still significantly low, of approximately 2%. In comparison, other countries have a much higher real estate financing/GDP ratio: US (68%); Germany (45%) or Chile (20%).[ii]

In this scenario, the best investment in Brazil in the past few years has been real estate. Property owners in large cities have seen their assets triplicate in prices in the past ten years.

Savvy investors that purchased properties in auctions or under foreclosures have had even more lucrative results, since those properties as a rule are acquired by prices that are lower than the average market prices.

For instance, in the auctions of the Labor Courts the minimum prices for purchase initiate in 40% of the properties’ appraised values. In the State Courts, the minimum prices may start at 60% of the appraisals, when those properties are auctioned by the second time (“segunda praça”).[iii]

A successful acquisition in an auction depends on knowledge, legal advice and also on some luck. Notwithstanding, for the investors that are willing to explore this sophisticated market, the profit margin can be incomparably higher that the investment products offered in the financial market.