Rental prices in Rio de Janeiro fell last month for the first time in more than three years as Brazil’s economy struggles to gain steam and state-run oil company Petroleo Brasileiro SA cuts costs.
Prices in the beachside city, host of the 2016 Summer Olympics, fell 0.1 percent last month, according to a housing index by economics research institute FIPE. It was the first contraction since June 2010, said the Sao Paulo-based FIPE, which bases its index on apartments listed by real-estate website ZAP Imoveis.
While prices to buy and rent in Rio’s most sought-after neighborhoods have jumped six-fold in the past decade, rising to levels that rival New York and Paris, demand this year has been cooling amid a plunge in the real, above-target inflation and weak growth. Also weighing on confidence is cost-cutting at Rio-based Petrobras, Brazil’s second-biggest company by market value. The cutbacks have had a cascading effect on suppliers.
“When Petrobras takes its foot off the gas, everything slows down,” said Ron Radnik, owner of Focal Point Relocation Services, which caters to foreigners moving to Rio to work in the oil industry. “This is good news because when people get here and they see how expensive it is they say, ‘Holy Cow.’”
Employers in the country’s second-largest metropolitan area generated 31,000 jobs so far this year, less than half the seven-month average of the previous three years, according to Labor Ministry data. Nationally, job growth in July was the worst for that month in a decade.
Housing costs in Rio are still the steepest among major Brazilian cities, with an average sale price per square meter of 9,534 reais ($4,040), a 15 percent increase from a year ago, according to FIPE. Average rental prices range from 20 reais per square meter in working-class neighborhoods like Meier to nearly 70 reais in Leblon, one of the city’s ritziest neighborhoods.
“We’re seeing the oil and gas bubble deflate a little,” said Carlos Thadeu de Freitas Gomes, a former central bank director who’s now chief economist at the Rio-based National Commerce Confederation. “A strong dollar is making families pull back on spending.”
Petrobras plans to cut its 2014 budget by 800 million reais from this year’s 97.8-billion-real spending plan, Planning Minister Miriam Belchior told reporters in Brasilia Aug. 29. It would be the first annual spending cut by the world’s biggest producer in deep waters since at least 2006.
Brazil’s real has declined 16.4 percent in the past six months, more than any major emerging market currency except India’s rupee. The economy, Latin America’s largest, is forecast by analysts to grow around 2.3 percent this year and next, after expanding 0.9 percent in 2012.