Household Increases Real Estate Financing

CEIC Brazil Data Talk - August 6, 2014: According to statistics from the Central Bank of Brazil, as of May 2014, total household loans in Brazil amounted to BRL 1.31 trillion, which constitutes 46.74% of the total amount of loans outstanding in the financial system. Household loans have been growing at an increasing rate over the years, with its share of total loans rising from 45.95% in May 2013. The increase in household loans was not evenly distributed across various loan types with an increasing tilt towards real estate financing and a corresponding reduction in motor vehicle financing, credit card and overdraft. One possible reason for the increasing proportion of real estate financing using household loans is that it offers more favourable payment terms and a lower interest rate compared to vehicle financing, credit cards and overdrafts (which has more stringent payment terms and higher interest rates). Accordingly, vehicle financing, credit cards and overdrafts have declined as a proportion of total household loans. Real estate financing grew to BRL 376.53 billion or 28.73% of total outstanding household loans as of May 2014, compared to just BRL 67.92 billion or 12.02% of the total in May 2009. A large majority of the real estate financing received by households (some 89.84% of the total in May 2014) is borrowed at an ‘earmarked rate’ - a special interest rate based on certain lending requirements by the regulatory authorities, for the financing of a specific purpose or activity. The ability to finance real estate activities at an earmarked rate, which is typically lower than the market rate, also partly explains its increasing proportion in the household sector’s debt. Real estate financing issued grew by 58.04% year-on-year (YoY) to 46,308 units (BRL 8.81 billion) in February 2014 after a slump to 29,302 units (BRL 5.81 billion) in February 2013. In annual terms, a total of 529,336 real estate financing loans (worth BRL 109.14 billion) were issued in 2013, up from 447,507 units (BRL 82.56 billion) a year ago. The lion´s share of real estate financing issued in 2013 is for financing residential buildings, taking up 508,967 units (BRL 102,89 billion), as opposed to 20,399 units (BRL 6.25 billion) for commercial buildings. Among the real estate financing issued for residential buildings in 2013, 29.04% was financing granted for construction, while financing granted for real estate purchases took up 70.96% of the total. In addition, Brazilians also typically seek financing for their residential buildings through one of the housing finance systems, Sistema Financeiro de Habitação (SFH), rather than through conventional banks. 459,696 units or 90.32% of financing for residential building in 2013 were obtained at a rate offered by the SFH’s, while 49,271 units (9.68%) were financed at the market rate. According to an index produced by Serasa Experian, consumer default has fallen for eleven consecutive months since June 2013 on a YoY basis; nevertheless it will be difficult to sustain this because of the high interest rates and deceleration of economic activity weakening the labour market. Indeed, consumer default on loans started growing again by 0.29% and 2.98% YoY in May and June 2014, respectively, which may be attributed to the increased cost of credit, weakened consumer confidence and an inflation rate close to the upper limit of the inflation target. Similarly, the default rate for real estate financing has been low with the share of contracts in arrears of more than 90 days falling to 3.04% in February 2014, its lowest rate to date, from 4% a year ago. The proportion of contracts in arrears as of February 2014 was highest for private banks at 4.62%, followed by 2.8% for Public Banks and 1.5% for the Caixas. Caixas are federal government institutions, established as public companies with independent assets and administrative autonomy. The Brazilian central bank is currently employing a restrictive monetary policy, raising the Selic rate to contain inflation. The increased cost of borrowing seems to have influenced the demand for consumer credit, encouraging the household sector to seek out loans, such as real estate financing, on more favourable payment terms and at lower interest rates, thus changing the household debt profile. By Bruna Ferreira - CEIC Analyst Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
6th August 2014 Household Increases Real Estate Financing