Rossi Rises After Shifting Focus to High Income: Sao Paulo Mover

Rossi Residencial SA rose to a one-week high after saying it is shifting its focus to building more expensive projects and away from subsidized low-income housing.

Shares gained 1.6 percent to 3.10 reais at the close of trading in Sao Paulo after earlier advancing as much as 5.6 percent. It was the best performance on the BM&FBovespa Real Estate index, which fell 2 percent.

Rossi plans to reduce its participation in a government program that provides subsidized loans through state-controlled lender Caixa Economica Federal beginning this year, according to a regulatory filing late yesterday describing its investment plan through 2015. The strategy follows a similar move by Gafisa SA, which has been shifting its focus away from low-income houses as cost overruns and sale cancellations erode profits.

“Rossi is cleaning up the house now, and investors think that the worst may be over,” Eduardo Silveira, an analyst at BES Securities, said in a phone interview from Sao Paulo. “Homebuilders in the country realized that the return in low-income projects is not as attractive as they thought for companies which are not specialized in this segment.”

Gafisa, Brasil’s fourth-biggest homebuilder by revenue, is turning away from government-sponsored projects aimed at low-income families after losing money in six of the past eight quarters as it overestimated demand and built inexpensive homes faster than it could sell them. Rossi posted worse-than-forecast profit in the past four quarters.

Geographic Focus

Rossi plans to concentrate construction in seven metropolitan areas instead of the 120 cities in which it currently builds, according to yesterday’s regulatory filing. Apartments and houses for low-income families were 83 percent of the new units started in 2012, compared with 35 percent in 2011, the company said.

Sao Paulo-based Rossi’s press office declined to comment. The Ministry of Cities, responsible for the subsidized loan program called “My House, My Life,” didn’t respond to a phone call and e-mail seeking comment.

Itau BBA raised its recommendation on Rossi to the equivalent of hold from sell after the announcement.

Rossi declined 32 percent this year, while the benchmark Bovespa index lost 10 percent during that same period. The BM&FBovespa Real Estate index slid 10 percent.

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