Brazil Housing Sales Depend on Rates Below 14%, Gafisa Says

Gafisa SA CEO Alceu Duilio Calciolari
Gafisa SA Chief Executive Officer Alceu Duilio Calciolari. Photographer: Scott Eells/Bloomberg

Brazilian home sales are unlikely to be affected by rising borrowing costs so long as the central bank keeps the benchmark interest rate below 14 percent, said Duilio Calciolari, the new chief executive officer of Gafisa SA.

“Interest rates and inflation are a concern,” Calciolari said in an interview at Bloomberg headquarters in New York yesterday. “But we don’t see an impact if they go to 14 percent to try to contain inflation.”

Gafisa, the third-largest homebuilder by revenue, and competitor Cyrela Brazil Realty SA Empreendimentos & Participacoes fell the most in the Bovespa index this year through yesterday amid concern accelerating inflation will lead to higher borrowing costs, dimming the outlook for companies that depend on credit growth. The central bank raised the benchmark interest rate by a quarter-point to 12 percent in April, after increasing it half a percentage point in each of its previous two meetings.

The combination of strong employment, banks’ willingness to finance mortgages and better income distribution is “extremely favorable” for Gafisa, said Calciolari, named interim CEO of the Sao Paulo-based company this month. About 9.1 million Brazilians plan to buy real estate this year, he said.

“The intention of buying is built through six to 12 months, and also dismantled through a similar period,” Calciolari said. As long as there is employment “and inflation is under control, you don’t lose this buying intention. So we are confident,” he said.

Improving Employment

Brazil’s unemployment rate reached a record low of 5.7 percent in December before rising to 6.5 percent in March, the lowest ever for that month. The economy is near full employment, President Dilma Rousseff said last month.

Inflation is accelerating after Latin America’s biggest economy expanded at the fastest pace in two decades in 2010. Annual inflation soared to 6.51 percent in April, the highest rate since 2005 and above the government’s target range. In addition to raising rates, the central bank has increased banks’ reserve requirements to cool lending growth and curb rising costs.

The benchmark rate is unlikely to reach 14 percent, said Calciolari. It will probably end the year at 12.5 percent, according to a central bank survey of 100 economists on May 13.

Gafisa this month said first-quarter net income fell 79 percent from a year earlier to 13.7 million reais ($8.5 million). The average estimate of four analysts surveyed by Bloomberg was for a profit of 64.9 million reais.

First-Quarter Decline

The first quarter was hurt by a late Carnival holiday at the end of March, and a natural slowdown after a “very strong” fourth quarter, Calciolari said. The company expects to finish the year with 5 billion reais to 5.6 billion reais in new projects. It had about 500 million reais in new projects in the first quarter.

While Gafisa’s sales fell 4 percent in the first quarter from a year earlier, other builders showed gains. Rossi Residencial SA’s sales increased 20 percent, PDG Realty SA Empreendimentos & Participacoes’s rose 26 percent and EZ Tec Empreendimentos & Participacoes SA’s more than doubled.

Homebuying in Brazil is climbing as economic growth fuels an expansion in the middle class and boosts income. Mortgage lending jumped 51 percent last year, compared with a 12 percent increase in Mexico and a 2.6 percent decline in the U.S.

Price Gains

Home prices have surged 91 percent in Sao Paulo and 113 percent in Rio de Janeiro since the beginning of 2008, according to the FipeZap index, published monthly by FIPE, as the Foundation Economics Research Institute in Sao Paulo is known, and ZAP, a real estate website.

Real estate prices are “far away from a bubble,” according to Calciolari. The gains are a “structural correction” that follows the country’s shift toward mortgages and away from all-cash transactions, he said.

Gafisa rose 0.4 percent to 8.25 reais in Sao Paulo trading. The stock is down 32 percent this year, compared with a 9.7 percent decline for the Bovespa index. Cyrela, based in Sao Paulo, has dropped 29 percent.

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