Cablegate: Brazil's Real Estate Market Booming

VZCZCXRO4624
RR RUEHRG
DE RUEHSO #0910 3171058
ZNR UUUUU ZZH
R 131058Z NOV 07
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 7668
INFO RUEHBR/AMEMBASSY BRASILIA 8786
RUEHRI/AMCONSUL RIO DE JANEIRO 8434
RUEHRG/AMCONSUL RECIFE 3875
RUEHAC/AMEMBASSY ASUNCION 3171
RUEHBU/AMEMBASSY BUENOS AIRES 2935
RUEHCV/AMEMBASSY CARACAS 0597
RUEHMN/AMEMBASSY MONTEVIDEO 2494
RUEHLP/AMEMBASSY LA PAZ 3557
RUEHSG/AMEMBASSY SANTIAGO 2198
RUCPDOC/USDOC WASHDC 2946
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/USDOC WASHDC 2947

UNCLAS SAO PAULO 000910

SIPDIS

SIPDIS

STATE FOR WHA/EPSC, WHA/BSC, EEB/OIA
STATE PASS USTR FOR KATE SUCKWORTH
TREASURY FOR JHOEK
USDOC FOR 4332/ITA/MAC/WH/OLAC
USDOC ALSO FOR 3134/USFCS/OIO

E.O. 12958: N/A
TAGS: BTIO EINV EFIN ECON BR
SUBJECT: Brazil's Real Estate Market Booming

REF: Sao Paulo 0832

1. (U) In an October 23 meeting with Eli Horn, president and
founder of Cyrela Brazil Realty, Ambassador Sobel discussed Brazil's
booming real estate business. Horn expects company sales in 2007 to
reach USD 1.2 billion, compared with less than USD 200 million in
2004. Cyrela's stock is up 50 percent over the past 12 months, the
strongest period in the company's history. Horn noted that 60
percent of Cyrela's shareholders are American. Hedge funds in
particular foresaw Brazil's real estate boom.

2. (U) Cyrela is Brazil's largest developer of residential
buildings. Since taking the company public in 2005, Cyrela has
expanded out of the cities of Sao Paulo and Rio de Janeiro and into
twenty smaller cities across the country. Whereas prior to 2005,
Horn claims his company "never saw money," today it is paying cash
for land. According to Horn, Cyrela's strategy mirrors that of
other real estate development companies: expand beyond the
traditional geographic and demographic markets. While the appetite
among Sao Paulo and Rio de Janeiro's upper and upper-middle classes
for luxury residences remains strong, the real boom is among the
middle class and in smaller cities across the country. Horn gave a
recent example of a 400-unit building in the state of Espirito Santo
that sold 90 percent of its units in less than a week.

3. (U) During 2007, there has been one new building project
announced daily in the city of Sao Paulo, which translates to 2000
new units per month. This intensity is double that of 2006, and now
there are no more cranes available in the city; construction
companies are rushing to import them from China. In the first
semester of 2007, the construction industry hired over 100,000
workers nationally.

4. (U) The real estate boom is directly correlated with the strong
economy and the expanding credit market. Real estate mortgages are
up 74 percent over the past twelve months (reftel). International
banks such as HSBC, ABN Amro and Santander are leaders in the
mortgage industry. The thirty-year mortgages offered by Brazilian
and international banks have altered the real estate market, making
companies like Cyrela less dependent on the stability of the
state-owned Caixa Economica Federal, the traditional mortgage
lender. U.S. investment banks have just begun to enter the mortgage
market. Goldman Sachs recently invested in Brazilian bank Daycoval,
specializing in home mortgages. Horn predicts that as soon as
Brazil achieves investment grade - which analysts widely expect will
occur over the course of 2008 - others will follow suit. (Comment:
It is unclear as yet how the subprime mortgage crisis will affect
this growth outlook.)

5. (U) Horn was uncertain about how long the boom can go on. He
expressed fear that an internal or external crisis could destroy the
market, but did not offer any specific predictions. As a way to
buffer itself from such a shock, Cyrela is keeping large cash
reserves on hand. Cyrela's current land holdings are sufficient to
ensure five years of new projects. Despite his personal hesitation,
Horn noted that the general sentiment in the industry is that the
honeymoon has just begun. In addition, Horn praised President Lula
as "the best president in terms of real estate that Brazil has ever
had."

6. (U) COMMENT: Most commentators believe that Brazil's real estate
boom is just beginning, as are opportunities for international
investors. In addition to the mortgage market, recent IPOs for
companies in construction and real estate development have sold as
much as 70 percent of shares to international investors. On the
brokerage side, Century 21 and Coldwell Banker are in the initial
steps of identifying local partners. END COMMENT

7. (U) This cable was cleared by Embassy Brasilia and approved by
Ambassador Sobel.

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