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São Paulo, Brazil's Housing Market Makes A Strong Recovery

In 2013 more than 33,000 residential units were constructed in the city of São Paulo, Brazil, with an overall volume of sales exceeding U.S. $19 billion. If we consider the entire metropolitan area, the number grows to 58,000 homes and sales exceed U.S. $26 billion. Moreover, the sector accounted for 3.4 million formal jobs in Brazil. These results demonstrate the strong recovery of the housing market in the state capital over the last two years, resulting in an annual average of 27,000 new homes.

Some important factors contributed to the recovery, starting with the supply of credit. In 2013 U.S. $109 billion was lent to consumers for the final financing of the homes and for investment in construction. According to the Brazilian Association of Savings and Loan (ABECIP), this number is 32% higher than 2012. Many sources have recently reported a record sales of savings, which in 2013 ended the year with R $467 billion, 20% higher than in 2012, and there is no expectation of a contraction of credit in the short term.

View of high rise buildings at sunset in Sao Paulo, Brazil.

Equally important has been the interest rate and the inflation rate. In 2013 we had the lowest historical interest rates in Brazil, with 7.25% per year. Even with successive increases, initiated since May, the Special Clearance and Escrow System (SELIC) rate in the single digits favored the expansion of the market. Inflation, despite having been at the extremely high rate of 5.90%, has not yet caused a decline of consumption.

The revitalization of the suburbs, with urban mobility infrastructure projects undertaken by the government, such as road systems, bus lanes and subways, among others, and also the private sector, with shopping malls and office buildings, has created new niche markets, adding a great boom to the real estate market. Furthermore, the inclusion of these new neighborhoods in the housing market comes with attractive prices. If you can not buy in Vila Mariana, an apartment can be acquired in the Saúde neighborhood for 25% less. If Morumbi is too expensive, there are great, cheaper apartments in Vila Andrade. Also relevant is the low rate of unemployment in Brazil, which remains a strong ally in the housing market and for the level of confidence in the economy, which in 2013 still remained at reasonable levels.

Another factor known as the "Remuneration of shareholders" should also be considered. The real estate market in the state capital is highly concentrated in the hands of about 11 development companies/contractors listed on the stock exchange. In the last two years, there was a decrease of revenue for these companies, pursuant to budget problems and construction costs, and noncompliance with deadlines and deliverables. This situation is now being normalized and the real estate and construction industry are experiencing higher productivity, in order to increase revenues and produce better remuneration for shareholders.

One should note that there has been a proliferation of urban improvements such as new public spaces, bike paths, schools, hospitals, universities, restaurants, theaters and events that make São Paulo better every day – as a city to live, work and invest. This leads to more interest from people moving to the city, producing a real snowball effect. No wonder the Capital grows at the equivalent rate of the population of Sao Caetano do Sul (140 thousand people) every year.

View of Avenida Sao Joao in Sao Paulo, Brazil.

The signals are therefore very clear: the expansion of the city, barring some uncontrolled economic force, will continue at a strong pace. Thus, it is crucial to know if this rate of growth will lead to concerns. During the last ten years about 300,000 housing units have been built in the capital, not counting those that did not sell, which confirms the importance of urban planning and development of the metropolis for the well-being of the housing market.

We live in a period in which both the public and private sector are working to make São Paulo, Brazil a more sustainable city. Since the pollution of our rivers Tietê and Pinheiros, the city has been decentralized with new development centers in the eastern and northern regions, helping to keep people in their neighborhoods and reduce the amount of travel between them. The expansion plans of the subway network and the Master Plan of the city government itself, which is in the earliest stages and should be approved in 2014, present significant advances in the concepts of sustainable urban development and confirm the growth outlook.

However, on one hand, as expectations grow for a better and more livable city and the growth of the real estate industry on the other, these forces do not signal a decrease in property prices. In locations with better quality of life everything is more expensive. Many cities around the world, such as New York, Tokyo, Paris, Rome and Dubai, have experienced the same spike in prices.

We are facing a new housing reality, whose tendencies cling to increasingly smaller and more expensive homes; better use of urban land, with higher density due to the scarcity of land; extensive use of technology combined with home offices; revitalization and increased use of public spaces; and a population that is more aware of their civic responsibilities. There is no stopping the continued growth of São Paulo, but with current regulations and urban concepts that are detached from ideological prejudices, we may be able to create a more modern and suitable place for those who inhabit the city.

How has growth and rising home prices affected your city?

Original article, originally published in Portuguese, can be found here.

Credits: Data and images linked to sources.