Real Estate Growth Drives Civil Construction’s First Rise in Five Years

The sector is a bet for the financial market, but despite advances, its growth is timid and continues to decline

The real estate sector contributed to the first positive result for civil construction in five years, according to data from the National Accounts, released on Wednesday by the Brazilian Institute of Geography and Statistics (IBGE).

In 2019, the construction sector grew by 1.6% compared to 2018.

However, despite this improvement, growth remains modest when measured against the sector’s significant setbacks over previous years. Construction GDP registered sharp declines of -2.1% in 2014, -9% in 2015, -10% in 2016, -9.2% in 2017, and -3.8% in 2018.

In the fourth quarter of 2019, civil construction contracted by 2.5% compared to the third quarter (seasonally adjusted), showing the recovery is still fragile.

Data released by the Brazilian Association of Real Estate Credit and Savings Entities (ABECIP) revealed a 37% increase in real estate financing in 2019 through the Brazilian Savings and Loan System (SBPE), signaling a significant rebound in real estate lending.

Although the FipeZap Index, which tracks real estate prices through online listings—did not show a strong recovery in property prices for commercial and residential units, the availability of real estate credit has been expanding, both for individuals and developers.

A key driver behind this credit growth has been the decline in interest rates, making financing more accessible for both builders and homebuyers. Another indicator of recovery is the Construction Confidence Index, which rose in January 2020 to its highest level since May 2014.

Further supporting the positive trend, a survey by the Brazilian Real Estate Registry—using data from registry offices—reported a 9.7% increase in property purchase registrations in São Paulo and a 9.2% increase in Rio de Janeiro between January and November 2019 compared to the same period in 2018.

The real estate sector is one of the financial market’s bets for 2020. After years of stagnation, it returns to focus, as it is linked to economic growth and domestic demand.
Builders and developers are now turning to the capital markets in search of financing. This year alone, three of them have already made initial public offerings (IPO): Moura Dubeux, Miter and Priner.

Other records requesting an IPO have already been sent to the Securities and Exchange Commission (CVM), a regular body. The expectation is that there will be more premieres soon.
In January 2020, 27,900 properties were financed, an increase of 38.9% in one year, but a drop of 11.9% compared to December. But with increasingly modest projections for this year’s GDP, expectations may not align with reality.

According to the National Confederation of Industry, activity in the sector increased in February, 3.5 points above that recorded in January 2019, but remains below 50 points, which indicates that it continues to decline

Frustration
The 2.5% drop in civil construction in the fourth quarter, compared to the third quarter with adjustment, is the main frustration for the Gross Domestic Product (GDP) of the period, assesses Santander. The below-expected performance of service items more linked to family income also draws attention.

The bank has a downward bias for its 2% growth projection for Brazilian GDP in 2020, and should carry out its periodic review next week, bringing the number to a range between 1.6% and 1.7%, said Lucas Nobrega, economist at the Santander group, during a conference call with journalists this Wednesday. According to him, the coronavirus should generate 0.2 to 0.3 points of GDP loss for the country this year.

According to Nobrega, the 0.5% increase in GDP in the fourth quarter, at the margin, was in line with market expectations and slightly above Santander’s projection (0.4%).

In the quarter, the economist assesses that the drop in construction was the main frustration, after the strong performance recorded by the item in the second and third quarters, with increases of 2.4% and 1.6%, respectively. “There was a major reversal of expectations, after two promising results”, assessed Nobrega, considering that quarterly data should be viewed with caution, due to volatility.

The analyst recalls that the civil construction sector is key to accelerating growth, as it is a large employer, which generates consumption. “This lights up a yellow light in relation to the speed of resumption of civil construction”, he states.

Source Valor Investe 03/04/2020
By Isabel Filgueiras, Alessandra Saraiva, Bruno Villas and Thais Carra, Valor Investe and Valor — São Paulo and Rio