São Paulo is Brazil’s economic capital, and the country’s largest city, with a population of 11.4 million. It is host to the city’s stock exchange, the BOVESPA; and Latin America's major port, Santos.

The city benefits from a metro, which is clean and efficient, though it is limited in range so São Paulo suffers from traffic congestion. In recent years, São Paulo, or ‘Sampa’ as it is affectionately known by its residents, has lost some of its appeal to higher profile Rio, and has seen slower residential price growth.

Like Rio, the rate of annual house price growth in São Paulo slowed in the last 18 months, having peaked at 25% in July, according to the FIPE ZAP index. In April 2013, annual growth stood at 16% in São Paulo, the lowest rates since 2009.

Unlike Rio, São Paulo’s capital value growth has been much more in line with underlying occupier demand, shown by rates of rental value growth.

This could reveal something of the extent to which Rio has witnessed excess demand for real estate purchase in the run up to World Cup and Olympics, but also the extent to which São Paulo, as the major financial city, was already a more sophisticated corporate-rental and investment market.

Given the problems of infrastructure and traffic, central locations are highly prized and achieve the highest prices. São Paulo is an extensive, sprawling city, so those locations close to the CBD are most desirable. Locations achieving the highest prices on a R$psm basis are Ibirapuera, Jardim Paulistano, and Itaim Bibi.

New developments have tended to be further afield in areas such as Morumbi, to the west, which are a longer car journey away.

Prior to 2007, São Paulo saw major speculative development, but this has now cooled and some schemes may no longer be viable. This is especially the case with those built further from the city centre, some of which are now considered too remote.

As land values have increased in the central areas, blocks built in the 1960s and 70s have given way to taller, modern developments.

Unlike Rio, the favelas in São Paulo are some distance from the city centre, and therefore have a less direct impact on more established residential neighbourhoods.

Minha Casa, Minha Vida: My House, My Life

The Government is making it a priority to re-house the favela population, and in 2009 initiated the ‘Minha Casa, Minha Vida’, a 20 year programme to deliver 27 million homes to low income families. Households meeting the income criteria can apply for mortgages from the government bank to buy homes from agreed providers. Unemployment benefit and health insurance are pre-packaged with these mortgages. Such is the level of underlying demand, each new development is hugely oversubscribed.

While successful, the scheme is making limited impact on the country’s housing deficit, estimated at between 6-8 million homes. Given Brazil’s young population and high rate of household formation, this deficit is growing rapidly.

Affordable housing is a new sector for Brazil, but offers significant investment opportunity, and several private equity funds are already operating in this sector of the market. Spiralling land and build costs will need to be offset by innovative technologies and pre-fabrication.

Taken from
Spotlight: Brazil Residential Property Market