The Brazilian government has just introduced an economic stimulus package, designed principally to build more properties in Brazil, particularly for the middle classes. Additional measures in the package bring welcome changes to financing in Brazil and are expected to both relieve household debt and stimulate spending.
The package, due to become effective throughout 2017, proposes fundamental changes in several key areas of Brazilian legislation. These include raising the ceiling on eligible income for homes built within the government housing programme Minha Casa Minha Vida; allowing Brazilians to withdraw savings to alleviate debt; and implementing a dramatic reduction of credit card interest rates.
More properties in Brazil
The nationwide Minha Casa Minha Vida subsidised housing programme has to date concentrated on lower income families. However, the huge demand for more properties in Brazil across the board has led to the call from real estate developers to widen the programme to include higher-incomes.
In measures announced in early December, the Brazilian government ruled that more middle classes would be able to access the programme. Under the new regulations, the fourth phase would build more properties in Brazil for families earning at least R$6,500 a month. The maximum monthly salary is likely to be R$10,000, although the Brazilian real estate developers association (ABRAINC in Brazilian) has requested that the ceiling be raised to R$15,000.
ABRAINC believes there is strong demand from Brazilian middle classes. “There is currently a vacuum between the three current bands in the housing programme and the rest of the Brazilian population,” the association said in a press statement. ABRAINC announced that it would be concentrating on two to four bedroom homes and focusing on families rather than the investors in 2017.
The association expects the measure to create around 200,000 jobs in construction in the first half of 2017 plus thousands more indirectly. One of the most important knock-on effects of Minha Casa Minha Vida has been to stimulate local economies as the programme builds more properties in Brazil.
Better access to funds for employees
Along with building more properties in Brazil for higher income families, the government also proposed three actions regarding the Guaranteed Service Fund (FGTS in Brazilian). The FGTS, funded by employers and employee savings, will from 2017 increase its payments to shareholders by 17 per cent. They are currently around 3 per cent a year, below the rate of inflation.
In addition, the government will allow employees to take out a maximum of R$1,500 from their savings funds to pay off household debt. This measure is expected to bring a welcome stimulus to consumer spending in Brazil.
Lower credit card interest rates
In tandem with this comes the proposal to dramatically reduce credit card interest rates in Brazil. These currently stand at around 450 per cent, although higher rates are not uncommon. These three-digit rates clearly impede consumer spending and far exceed official interest rates in Brazil (12.5 per cent).
Brazilian banks welcomed this measure, which many analysts believe is long over-due. With access to savings and lower credit card rates, consumer spending will receive a welcome boost, particularly among the middle classes.
“While low-cost housing is very necessary, it’s important to cater for higher incomes as well,” says Dies Poppeliers, Managing Director of BRIC Group. “There’s huge pent-up demand for more properties in Brazil, particularly among the middle classes, so this measure is certainly timely.”
An investment company specialising in global real estate opportunities, BRIC Group is currently developing The Coral resort, in Northeast Brazil, a luxury beachfront resort. BRIC Group also offers US real estate investments including turnkey properties in Florida and Houston, and land plots in Florida. BRIC Group has been creating wealth for its clients since 1996 and has offices in Brazil, Dubai (consulting office), Hungary, Spain and the US.
(Source: ABECIP, ABRAINC)