São Paulo – The buildings are not shaped like sailing boats, are not among the tallest in the world and are not on artificial islands, as in the United Arab Emirates. But Brazil does have luxury real estate. It is more discreet, with more classic than extravagant enterprises, which are almost always close to green areas, and this market has no cash flow problems in Brazil. Top-end houses and apartments, different from real estate for middle and lower classes, are paid for on the spot in the country. The construction of luxury buildings is too.
The justification is the existence of people with cash in the bank who are craving for new enterprises, whose offer is not very abundant. “In the case of very high standard units, an area in which sales are very fast, sales cover investment and the construction works themselves. The budget even generates a surplus," said Fabio Romano, incorporation director at Yuny, a real estate developer in São Paulo that operates in luxury real estate.
That is, the construction is developed with money provided by the buyers of the real estate and with funds supplied by the real estate developer, with no financing. Payment in instalments by clients goes only until the keys are handed in. The balance is usually covered at that moment. “As most of the enterprises are released as constructions at cost price, the partners (clients) do not use bank financing," said Construtora Kauffmann, a construction company that also operates in the extremely luxury sector.
And what is luxury or extremely luxury real estate in Brazil? The president at the São Paulo State Housing Syndicate (Secovi-SP), João Crestana, stated that real estate at prices of over 1 million Brazilian reals (US$ 562,000) may be considered "special" standard. But the square meter of luxury itself, say those who operate in the area, is over 10,000 reals (US$ 5,600). As the residential apartments in this sector normally cover over 300 square meters, they cost at least 3 million reals (US$ 1.7 million). Most, however, are larger in area and cost around 5 million reals (US$ 2.8 million).
Kauffmann has four residential buildings recently concluded, which it calls Kauffmann Mansions, in Chácara Itaim neighbourhood, alongside Parque do Povo (People’s Park), a green area with leisure opportunities in the southern zone of São Paulo. The apartments in buildings Palazzo Di Ferrara, Palazzo di Savoia, Palazzo Piemonte and Palazzo Nobile cost between 10,000 reals (US$ 5,600) and 12,000 reals (US$ 6,800) per square metre. A third project, named Celebrity, is being released in the same region. All have four bedrooms with en suite bathrooms.
Yuny has among its luxury releases a residential building named Marquise Ibirapuera, close to Ibirapuera Park. The average price of the apartments, covering 400 square meters, is 5 million reals. The penthouse, with an area of 900 square meters, costs 12 million reals (US$ 6.7 million), and the fourth floor, covering 800 square metres, costs 8 million reals (US$ 4.5 million). What is most attractive about the project, according to Romano, is the location. "In all areas of the world, anything that is beside a park, a large park, like Ibirapuera, has great appreciation," he said.
The architecture brings to mind classic English style, as the building uses apparent bricks, but it is modern, with much glass and aluminium. In the internal area of apartments, despite the extensive social area, the idea was also to bring a little back from the style of the 1960s, with large rooms, bathrooms and kitchens. Another Yuny building, Seridó, in Jardim Europa, has as its differential views into the São Paulo Jockey Club and Pinheiros Club, one of the most traditional in the city of São Paulo. The apartments cost between 6 million reals (US$ 3.4 million) and 6.5 million reals (US$ 3.7 million), covering areas of 400 to 500 square meters.
Millionaires
Most of the buyers of luxury real estate in Brazil are Brazilians and the number of people who may purchase a house or apartment in the sector is growing, say specialists in the area. “The generation of riches due to the opening of company capital is making many people rich. There are also many funds coming from abroad for the purchase of local companies, generating net millionaires among the Brazilians," explained the president of the Association for the Real Estate and Tourism Development of the Brazilian Northeast (ADIT-Brasil), Felipe Cavalcante. He pointed out that the luxury of real estate in Brazil, however, is concentrated in Rio de Janeiro and São Paulo.
“If there is a place in the world where the luxury real estate sector is growing, it is here. Brazilian consumers are testing and using different things. If having a 1 million real (US$ 562,000) or 1.5 million real (US$ 843,000) house was for few people, there are now many more with this possibility. This may be seen over the last three or four years," said Alejandro Moreno, director at RCI Brasil, a provider of services who works with projects for shared housing, purchase of leisure real estate for more than one person, for shared use.
Crestana, from Secovi, recalls that despite the luxury market being small in the country, due to the Brazilian social pyramid, the business volume is very expressive. “In Brazil, there are 200 million inhabitants. I believe that 5% is in this market," he said. The volume of the Brazilian population with the highest income in the country, however, has been rising. For four years they were 13.16% of Brazilians in the upper classes. Late last year, the percentage was 15.63%. The figures are included in a research by Getúlio Vargas Foundation (FGV), which considers the upper classes people with family income over 4,807 Brazilian reals (US$ 2,700).
High return
But if there are more Brazilians with money to buy luxury apartments, there are also foreigners with great interest in the purchase of real estate for investment. "Seventy percent of our buyers are end users. Thirty percent are investors. And investors are people who come from all over, from abroad, large businessmen who decide to invest in real estate," said Romano, from Yuny.
Foreigners normally seek generation of income through the rent or premium on sales. And for that, luxury enterprises show great promise. Kauffmann said that it expects the appreciation of its completed buildings to reach 25% in two years. But the company points out that the real estate delivered in 2008 has appreciated 40%. The appreciation at Yuny is also high. “We are releasing the real estate at a price of 12,000 reals per square meter (Marquise Ibirapuera). As real estate in the area is lacking, in this kind of product, and the area surrounding it is appreciating, we believe that when ready, the price should reach 20,000 reals (US$ 11,200) per square meter," said Romano.
There is also foreign presence in investment in projects, or release. According to specialists, however, this presence has reduced in recent years due to the international crisis. “They have already been here and are going to return," said Moreno, from RCI. “It fell very much in 2009, due to the crisis. But it is returning. The whole world invests in real estate," said Cavalcante, from Adit. Foreign money for projects, explained the president at Adit, normally comes from investment funds.
Yuny itself has in some of its enterprises, like Marquise Ibirapuera, participation of the North American Golden Tree private equity fund. The partnership with Golden Tree was signed in 2007. Kauffmann has been releasing its luxury projects alone, according to the organisation, but does not discard a partnership with companies and investment funds. Of the Arabs, for the time being, there is not much news in the release of luxury real estate in Brazil. Romano said that Yuny was sought by businessmen in the region, who wanted to operate as developers, but their projects were beyond the Brazilian company’s plans.
*Translated by Mark Ament
