Faced with a market environment witnessing a notable slowdown of real estate project launches, a recent article published on the Valor Econômico has pointed to Brazil´s leading lending institutions having to compete amongst themselves to work with developers, in turn, leading to a drop in interest pay rate levels.
The average rate for construction finance has dropped to 10% plus the referential tax (taxa referencial, TR) per annum. In March 2011 – arguably the peak of the current cycle – this figure was at 12% + TR (note that these figures do not incorporate the financing offered through the Minha Casa, Minha Vida program, a lower rate in line with the core objective of reducing the country´s low income housing deficit).
The lower demand for credit is also due to the difficulties that developers have been facing to meet previously stated completion deadlines. Lower demand (arguably due to questions of affordability) and the growing amount of complaints that have resulted from aggressive expansion have led to constructors needing to revise pre-established plans and “put houses in order” (a common quote from many of the sector´s management teams). In the first quarter of 2013, for example, real estate developers with shares on the Brazilian stock market launched a total of R$ 3.98 billion in new stock – an 18.2% drop in comparison to the same period of 2012.
Competition has been perceived as intensifying as a result of the entry of the Banco do Brasil into the market in 2010 – who adopted a largely aggressive approach in order to be able to gain a greater share. “As launch levels fell, it was natural that the banks would have to react to gain business,” commented Alda Rosseli, executive superintendent of property transactions at the Santander bank. In terms of the current ranking order of total construction levels, Bradesco occupies the first place followed by the Caixa Econômica Federal, Santander, Banco do Brasil and Itaú.
The Brazilian banks in recent years have become increasingly interested in financing the construction sector – not only due to the very incipient nature of the market but also taking into account the loyalty factor (clients can remain with the bank for over a decade, consuming associated products and services). Furthermore, the Brazilian Central Bank stipulates that 65% of captured financial resources by banks via the national wholesale savings must be directed specifically to housing finance.
Accompanying this lower pace of construction activity, the level of housing finance being contracted is also waning: falling by 28% in the first quarter of 2013 (28,603 units) and, in terms of values, a decrease of 9.5% was seen (to R$ 5.4 billion) – using data from the Brazilian Association of Housing Credit and Savings (Associação Brasileira das Entidades de Crédito Imobiliário e Poupança, ABECIP), referring to loans undertaken under the Brazilian System of Savings and Loans (Sistema Brasileiro de Poupança e Empréstimos, SBPE).
Housing diretor at the Caixa Econômica Federal, Teotônio Rezende, stated that construction companies have not been prepared to handle the growth of the property market. According to him, the number of launches grew too fast and developers were not able meet the deadlines, requiring them to subsequently reformulate launch plans – “this served to intensify the competition between the banks in housing finance via the national savings, which already was high,” he affirmed. He also stated that the demand for housing was extremely high and so a deceleration is “natural”.
Some construction specific lending figures and commentary:
- In the first quarter of this year, Bradesco authorised a total of R$ 2.165 billion in loans to construction companies, a 20% drop compared to the same period of 2012. Director of housing credit, Claúdio Borges, admits that the market for housing construction credit remains difficult and the bank has been betting on regional diversification in order to confront the scenario. “As we work in many capitals, when there is a reduction in the rhythm of launches in one area, there is compensation in another,” he commented – going on to affirm that the bank´s internal administrative processes when working with construction companies are efficient;
- The aggregated value of contractions undertaken by Itaú between January and March was R$ 527 million – a drop of 66% compared to the same period of 2012 and a 48% drop in the year;
- General manager of housing credit at the Banco do Brasil (BB), Hamilton Rodrigues da Silva, admitted that bank´s losses have been a result of competition and the fact of having entered the market later on. “We came in after the property boom and are catching up for lost time. But, we are expecting to grow rapidly and gain increasing market share,” he commented. It was also reported that the bank has to undergo a learning process to overcome the often cumbersome processes that govern its own analysis of projects and related documentation. Whilst the stock of credit that the BB has available for companies is also notably less in relation to the competition, there are signs of growth: the balance was at R$ 2.9 billion at the end of March and the original volume at the start of the first quarter of 2013 was at R$ 1.7 billion. The bank – in conjunction with the Caixa Econômica Federal – is looking to expand its involvement in the Minha Casa, Minha Vida (“My House, My Life”) program. Construction sector executives spoken to by the Valor Econômico, who did not want to cite their names, have reported that the BB has been offering attractive rates – lower than those being offered by the competition.