Brazil’s economic recovery to enrich small real estate developer
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Brazil’s record low interest rates, low construction costs and higher real estate prices will likely boost residential demand in the future. CR2 Empreedimentos Imobiliarios SA (CR2), a real estate developer in the states of Rio de Janeiro and the Sao Paulo metropolitan area, is poised to benefit from higher residential and commercial prices.
The Monetary Policy Committee of the Brazilian central bank has left the country’s benchmark interest rate unchanged at a record low of 6.5 per cent as the economy emerges out of its worst recession ever recorded. The central bank’s latest statement in December pointed to a more dovish stance, meaning that interest rates could remain low before a likely hike next year. This could pressure mortgage rates lower, which has been on a downtrend which keeps the borrowing costs low for potential house owners.
According to the Fundacao Getulio Vargas think tank, the cost of many construction projects is decreasing as firms cope with labour surpluses and decreased costs for many of the materials they need for projects. The cost index for new building construction has dropped and many contractors were probably caught by unexpected cost decreases in late 2018. Lower construction prices will increase the margins of CR2 and could improve the company’s bottom line in new private-sector development projects.
On the demand side, real estate prices, albeit in negative territory has been falling at a slowing pace. The trajectory of national average housing prices trends upwards, and is likely to reach an annual gain by this year. The improvement in economic growth backed by higher credit lending will lift lending real estate demand and give CR2 in the real estate sector a much needed market cap increase.
CR2’s valuation is close to the sector’s median although it operates with a net cash position and lower financial leverage than its peers. Net income growth for the last quarter has also been impressive which outpaced competitors. Receivables from clients in Q3 however added to BRL 24mn, which is a drop of 35% from Q2 as the firm is still recovering from a receivable loss of BRL 7.5 in Q1. Overall, the firm’s main assets reside in Cidade Paradiso and Parque das Aguas which represent 89% of the company’s land bank.
Brazil’s record low interest rates, low construction costs and higher real estate prices will likely boost residential demand in the future. CR2 Empreedimentos Imobiliarios SA (CR2), a real estate developer in the states of Rio de Janeiro and the Sao Paulo metropolitan area, is poised to benefit from higher residential and commercial prices.
The Monetary Policy Committee of the Brazilian central bank has left the country’s benchmark interest rate unchanged at a record low of 6.5 per cent as the economy emerges out of its worst recession ever recorded. The central bank’s latest statement in December pointed to a more dovish stance, meaning that interest rates could remain low before a likely hike next year. This could pressure mortgage rates lower, which has been on a downtrend which keeps the borrowing costs low for potential house owners.
According to the Fundacao Getulio Vargas think tank, the cost of many construction projects is decreasing as firms cope with labour surpluses and decreased costs for many of the materials they need for projects. The cost index for new building construction has dropped and many contractors were probably caught by unexpected cost decreases in late 2018. Lower construction prices will increase the margins of CR2 and could improve the company’s bottom line in new private-sector development projects.
On the demand side, real estate prices, albeit in negative territory has been falling at a slowing pace. The trajectory of national average housing prices trends upwards, and is likely to reach an annual gain by this year. The improvement in economic growth backed by higher credit lending will lift lending real estate demand and give CR2 in the real estate sector a much needed market cap increase.
CR2’s valuation is close to the sector’s median although it operates with a net cash position and lower financial leverage than its peers. Net income growth for the last quarter has also been impressive which outpaced competitors. Receivables from clients in Q3 however added to BRL 24mn, which is a drop of 35% from Q2 as the firm is still recovering from a receivable loss of BRL 7.5 in Q1. Overall, the firm’s main assets reside in Cidade Paradiso and Parque das Aguas which represent 89% of the company’s land bank.
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