Those who know how to surf the waves of this yet-unknown tsunami may obtain significant returns on their investments

The recent international financial crisis should have its ramifications in the Brazilian market, for with globalization, no world economy is immune to the hiccups of the world's major economies. Usually, however, moments of crisis are moments of great opportunity. Those who know how to surf the waves of this yet-unknown tsunami may obtain significant returns on their investments and, doubtlessly, the Brazilian real estate market may be one of the fields where such opportunities tend to appear.

The residential segment

The residential real estate segment in Brazil showed a considerable increase in activities in recent years, due to the government's efforts via incentives to increase the availability of real estate funding, and due to the favorable economic scenario. Between 2005 and 2007, 21 companies in the real estate segment went public and began to have their shares traded on the stock market. With the funds raised from these offerings, these companies acquired land to compose their land bank and will now require further resources to develop their projects, notwithstanding the revision of launches that should ensue from the worldwide financial crisis. According to a study by Morgan Stanley, published in "Valor Investe" magazine's July 2008 edition, such companies would need to raise R$ 7.6 billion for investments by next year. Meanwhile, real estate companies who did not go public are seeking alternatives to fund their activities. With the recent closedown of the credit market, funding alternatives for these companies may go through the venture capital segment, which, in turn, can benefit from a range of different structures available in the Brazilian market. Furthermore, the tendency toward consolidation of the 21 public companies in the real estate segment has also been confirmed, with the recent announcement of operations involving the acquisition of Abyara's brokerage businesses by Brasil Brokers; Tenda's by Gafisa; and Company's by Brascan. Other similar operations should also be announced, which may also mean opportunities for private equity funds.

The industrial segment

Traditionally, Brazilian companies own their own production plants and distribution centers. In the past years, we have seen a trend toward divestiture of these types of assets to real estate investors, with some type of guarantee of occupation, whether it's through a lease agreement or via the establishment of surface rights (the right to build and/or occupy buildings constructed on the land). A joint venture was recently announced between Cyrela Commercial Properties and the U.S. real estate investment company AMB Property Corporation for the development of projects of this type.

The real estate segment and the future

According to data by the Brazilian Association of Real Estate Credit and Savings (Abecip), total loans using funds from savings accounts reached R$ 9.74 billion from January to May 2008, 75.9% more than the volume in the same period of 2007. The Central Bank of Brazil has considered this growth to be a tendency, based on the fact that real estate funding currently represents only 1.7% of the Brazilian GDP. If these assumptions are confirmed, in the next five years, the Brazilian real estate market will be at least three times larger than it is today.

Despite the higher instability outside Brazil and the recommendation that investment analyses be performed per stricter criteria, the Brazilian real estate segment offers interesting opportunities at this time, which may be explored by the private equity segment.

This article was first published by Capital Aberto Magazine (www.capitalaberto.com.br/english).
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