Brazil - Opportunities in construction sector

05.07.2011 By: Transfer Latin Business Consultancy based on A.T. Kearney report

‘My House My Life’ (Minha Casa, Minha Vida or MCMV), the massive public housing campaign launched in March of 2009 by president Luiz Inacio Lula da Silva to help fund the construction of social housing in the country, received another amount of money on May 10th 2011. Originally showcased with a federal subsidy of R$ 34 billion and a plan of building one million low-cost units throughout the country by 2014, ‘Minha Casa Minha Vida’ now has more than twice the budget, a federal subsidy of R$ 71,7 billion (almost € 32 mld). The additional funds are approved by the Senate. R$ 62,2 billion will come from the Federal Budget and the remaining R$ 9,5 billion will be financed by Brazil's social welfare program, the Guarantee Fund for Length of Service.

‘My house, my life’ is one of the six major initiatives packaged in the Brazilian Government’s PAC, a strategic investment program that combines management initiatives and public works. President Lula mentioned in March 2010 to intend to invest a total amount of R$ 278,2 billion for housing in the period 2011-2014/16. With the slogan “homes for families, wages for workers and development for Brazil” the project has the ambitious aim to reduce Brazil’s property shortage by 14%. The other initiatives contain ‘a better city’, ‘bringing the citizenship to the community’, ‘water and light for all’, ‘transportation’ and ‘energy’.

With the increased funding, the federal government expects to construct two million units over the next three years instead of only one million. In Rio de Janeiro real estate ‘Minha Casa Minha Vida’ has projected the construction of 100.000 units by 2016 in collaboration with the federal government. The project fits well with the city’s construction plans for the 2014 World Cup and 2016 Olympic Games. In order to prepare the city for these global events, displacement of certain slum areas (Favela’s) were inevitable, but the ‘Minha Casa Minha Vida’ project enables millions of Brazilians living with a low income to make a new start. Moving these families from slums into well-planned communities can give them a sense of belonging as well as a sense of dignity, confirms the real estate.

In its first 18 months of operations, MCMV helped 278.892 Brazilian families to become homeowners, according to a report by Brazil’s national audit authority. All the apartments of the project are equipped with two bedrooms, a lounge, a kitchen, a bathroom and a laundry area. The infrastructure consists of main water, electricity, flooring and paving with curbs, a drainage system and a sewerage system with treatment. MCMV will provide homes for families earning between zero and three times the minimum monthly wage (currently R$545), for families with salaries between three and six times the minimum wage and properties are allocated for families whose wages come between six and ten times the minimum wage. Sources mention that 60% of the housing will be reserved for families earning up to R$ 1.395 a month, because of the need in terms of social inclusion.

The impact on the Brazilian construction industry is expected to be huge. Developers and building companies have the incentive of lower taxes on construction materials. The government has reduced taxation on a list of 30 materials used in construction to encourage real estate companies to take on MCMV projects.

Social housing has been largely overlooked by property investment. According to the A.T. Kearney report, Recovering Markets, Revised Ambitions, “low-cost housing is a new frontier for developers in many emerging markets”. The report finds that social housing “represents the vast majority of needs in emerging markets”. The MCMV project provides unique opportunities for developers and builders, they will get huge benefits from this massive Brazil property investment scheme.