2018 saw loans for mortgages in Brazil rise by 15% as lower interest rates and a stable property market encouraged more people to buy. Private banks now dominate the credit market and will continue to do so in 2019. This year, analysis expect another increase in mortgage loans and big interest in guaranteed property bonds from foreign investors.
Increase in lending in 2018
According to figures released by the Brazilian Mortgage Association (ABECIP in Portuguese), the number of loans approved last year went up by 15%. Mortgages in Brazil had a total value of R$117 billion.
Loans for the purchase of resale properties in Brazil went up by 35% while those for new-build homes rose by 26%. The number of mortgages issued to developers for construction increased by 43%. The ABECIP expects 2019 to follow last year’s pattern and predicts mortgage loans to the tune of R$126 billion this year.
The state-owned Caixa Economica Federal has traditionally led the market for mortgages in Brazil, but in 2018, it lost its leadership to Bradesco. Topping the list for most loans, Bradesco approved R$15.1 billion in loans for property purchase and construction last year. This represents a 93.6% increase on 2017 when the bank ranked in third position.
The Caixa stood in second place with loans to the value of R$13.2 billion, down from R$16.4 billion in 2017. It was the only bank to loan less in 2018. Other Brazilian banks saw big hikes in their mortgage lending. For example, Itau Unibanco increased its credit by 42.3% and Santander Brasil by 64.5%. Analysts believe that loans will follow a similar pattern this year when the Caixa may well fall further in the lending table.
One of the reasons behind the higher number of mortgages in Brazil in 2018 comes in lower interest rates. The SELIC dropped to a historic low in late 2017 and has remained at 6.5% ever since. Market observers believe the rate will vary little this year, although much depends on Brazil’s economic performance.
“Long-term interest rates may fall if the government approves reform,” commented Gilberto Duarte, President of ABECIP. “That’s why the trend in all sectors, including the banks, is of more confidence in loans.”
Property demand in 2019
The Brazilian property market ended the year on a stable note with growth expected in 2019. Some analysts including Duarte believe that the residential construction sector will see strong growth this year.
“The sector finished 2018 on a high with more launches and so the market should grow exponentially with higher demand for mortgages in Brazil,” he said.
Big interest in guaranteed property bonds
Duarte also highlighted the appearance of guaranteed property bonds (Letras Imobiliárias Garantidas/LIGs) in 2018. Despite their recent appearance, they have already attracted investment of over R$2 billion. “They could increase by tens of thousands of millions of real over the short term,” he said, because of the security they offer and the appetite for them among Brazilian banks.
ABECIP is in advanced conversations with the Brazilian Central Bank (Banco Central/BC) to open the LIGs market to foreign investors. They currently have to open a bank account in Brazil and buy in Brazilian Real in order to invest in LIGs. ABECIP is negotiating for the possibility of buying LIGs from outside Brazil and in a foreign currency. Current interest rates make this type of investment in Brazil very attractive.