Brazil property prices burst bubble predictions

Photo: Alcindo Correa Filho

The South American country's housing market has seen prices rise consistently amid high demand. Indeed, between 2008 and 2012, prices in Sao Paulo and Rio de Janeiro have soared by 159 per cent and 194 per cent respectively.

The housing boom was fuelled by falling interest rates, but in 2013, the Brazil Central Bank raised interest rates. The economy then began to shrink in the third quarter of 2013, causing many to speculate that the country's boom had ended and that a slump was about to take hold. However, in the final three months of 2013, the economy unexpectedly grew by 0.7 per cent.

"It was a surprise even for the government," Finance Minister Guido Mantega told the BBC.

The housing market has followed a similar pattern, with experts forecasting a burst bubble at the end of 2013, only to be proven wrong with steadily climbing values. 

Brazil’s composite FIPEZAP house price index rose 12.7 per cent in 2013, while in the final quarter prices rose 3.5 per cent compared to the previous three months.

Across the whole of the year, Sao Paulo prices climbed 13.9 per cent, the lowest annual rise since 2008, while Rio de Janeiro prices climbed 15.2 per cent, slightly higher than the 15 per cent year-on-year increase recorded in 2012.

Curitiba recorded the highest annual rise of 37.3 per cent, ahead of Florianópolis (17.9 per cent).

The FIFA World Cup in 2014 and the Summer Olympics in 2016 are expected to offer a further boost to the housing market, as investors increasingly head to South America.