According to one of the top institutional investors in Latin America real estate, residential and multifamily in the region showed "remarkable resilience and growth" in 2023. The 2023 real estate trends report from the Los Angeles-based investor, Paladin Realty, is available in this article for download. The report provides a bullish assessment of the opportunity and covers the key markets of Brazil, Colombia, Mexico, Peru, and Chile. Emerging Real Estate Digest asked Paladin Realty's Latin America CIO questions about some of the conclusions, and those responses are included in the article exclusively for our subscribers.
Paladin Realty recently released a report detailing its views on the residential real estate environment throughout Latin America. The report may be downloaded here:
Paladin is an important voice on this topic as it is a leading real estate investor in Latin America. Founded in 1995, the boutique real estate investment firm is focused on value-added real estate investment in the United States and select markets in Latin America. Over the past three decades, it has invested in more than 420 properties, in 8 countries, comprising $7 billion of total costs across a range of property types, but focused on workforce housing. In Latin America, Paladin has developed nearly 40,000 for-sale residential units totaling approximately $5 billion in total costs.
The report provides a bullish assessment of the opportunity and covers the key markets of Brazil, Colombia, Mexico, Peru, and Chile. Across the region, Paladin predicts improvements in mortgage interest rates and overall economic conditions. The report sheds light on government policies in Brazil and Colombia which are anticipated to bolster the low-income housing sectors.
Question & Answer
Emerging Real Estate Digest spoke with Paladin Realty's Latin American CIO, Randall Loker, regarding this important housing report and this is what we learned:
(1) Sao Pãulo v. Bogota Residential Performance
Q: Can you elaborate on the factors that contributed to the exceptional performance of the residential market in São Paulo compared to the challenges faced in Bogota?
I’d say the biggest factor differentiating the two was mortgage rates. As described in the report, mortgage rates in Brazil don’t move in tandem with the reference rate, while in Colombia they do; so mortgage rates only rose about 300 bps in Brazil during the hiking cycle, while in Colombia they rose by about 700 pbs, to the 18% range. Then on the political front, I think with Lula back in charge in Brazil there is a sense of familiarity, and despite his record of corruption, a sense of stability. The opposite was true in Colombia where ex-guerilla Petro won the presidency with the ambition to make broad changes with the potential to totally derail Colombia’s economy; so consumer confidence was high in Brazil and suffered in Colombia.
(2) Impact of Brazil's Rate Cuts
Q: Brazil was a top cutter of interest rates last year in Latin America. Was that a major factor in its success? Do you believe interest rates in Brazil will continue to fall or do you see cause for concern that they may have to be raised again this year or next?
Indeed, last year Brazil was a first mover in LatAm in terms of rate cuts and that of course is a tailwind for real estate. The housing market was already on pace to set a new annual record when rates began to drop, so more than the fact that mortgage rates began to tick down in 4Q, the psychology of an easing cycle gives a lot of confidence for businesses and consumers. Due to the recent deterioration in the R$ vs. the US$, further cuts this year are likely to be lower than previously thought. The SELIC was to be in the 9% by year-end but estimates are now in the 9.5% to 9.75% range, with perhaps an additional 50 bps in 2024. Inflation remains under control, so we don’t see rates increasing in the near to mid-term.
(3) Importance of Government Policies for Investors
Q: How critical is the role of government policies and subsidies for Paladin when assessing which countries to make investments?
One reason we like housing is that in all markets it is a high priority in terms of government policy; housing is good for equality, stability, and creates a lot of jobs not just in construction, but all the ancillary products/services that accompany it. So it’s nice to be swimming downstream from a macro perspective, and while policies may be more or less accommodative, they are generally supportive. We are cautious of reliance on government subsidies though, and right now the only country where our buyers are receiving subsidies is Colombia. Colombia has had a very successful housing policy, but it went through a huge shakeup with Petro’s re-prioritization of subsides away from the big cities and into more rural areas where there is a greater perceived need. Our low-income Colombian projects are all in Bogota, where buyers have access to different types of subsides (through the Cajas de Compensacion, quasi-social security organizations funded by employers) unrelated to the federal government; thus, our buyers have other options. It was disruptive, as certain buyers had to reconfigure their subsidies, causing delays and in some cases cancellations, but the effect was minimal.
