Rio Mayor Says Olympic Condos a Hard Sell in Weak Housing Marketby and
Cos. plan to turn Olympic Village into thousands of apartments
Rio's real-estate prices are poised to fall `a bit further'
Some of the luxury apartments built in anticipation of the 2016 summer Olympic Games are at risk of being left unsold as the housing market deteriorates in Rio de Janeiro, Mayor Eduardo Paes said in an interview.
Developers will have a hard time selling units at the 31-building Olympic Village, known as Ilha Pura, where 3,604 apartments will be ready for the games in August, he said. Less than 300 of them have been sold so far. A four-tower development alongside the Olympic golf course is also exposed to the housing slump, according to Paes. Ilha Pura is a joint venture of Odebrecht and Carvalho Hosken, while Riserva Golf is an undertaking by Cyrela Brazil Realty.
“The real-estate market has really cooled down,” Paes said from his office in City Hall. “Ilha Pura is the bigger risk. The guys did 31 buildings all at once, and they’re going to have difficulty.”
In the nine years since Brazil bid for the games, the nation and the city of Rio have gone from economic boom to bust, reversing the seemingly unstoppable rise of the real-estate market. With mortgage financing getting more expensive and harder to come by, many developers are finding themselves saddled with excess inventory. Demand is also hampered by a prolonged recession and rising joblessness.
Of the first 600 units put on sale at Ilha Pura, 40 percent have sold, according to Carvalho Hosken. “We are optimistic that the visibility of the Olympic Games will certainly help drive sales,” the company said in an e-mailed statement. Cyrella did not respond to an e-mail seeking comment.
Both the Ilha Pura and Riserva Golf developments are located in the Barra da Tijuca neighborhood that will feature most of the events. Asking prices for apartments in Barra and Rio as a whole have been edging downward since mid-2015, according to an index compiled by economic-research firm Fipe and real estate website Zap. Sale prices have dropped even more, according to Eduardo Schaeffer, Zap’s chief executive officer.
Prices in Rio are poised to fall a "a little bit further,” Paes said. “It was too high, it was crazy."
Brazil’s economic downturn has shrunk federal tax receipts. With the government struggling to implement a fiscal adjustment to shore up its finances, Standard & Poor’s downgraded the sovereign debt rating one notch on Wednesday to two levels below investment grade. That left Rio, which had retained one level above the sovereign, next on the chopping block, according to Paes.
“It makes me mad,” Paes said, referring to an anticipated one-notch downgrade. “I worked to get investment grade.”
But S&P went even further, downgrading Rio to the same level as the sovereign just hours after Paes spoke. The ratings firm said Rio no longer passes the stress test in order to have a higher rating. The city’s liquidity, though currently strong, wouldn’t be sufficient to cover its debt service in that scenario, according to S&P.
Rio attained investment grade from Standard & Poor’s in May 2012, after more than a decade without a credit rating.
While investment grade has been a seal of approval to signal solid management, Paes said companies are still willing to set up shop in the Olympic city. Foreign companies including Tishman Speyer are already taking advantage of lower real-estate pricing and the worst decline of all major currencies over the past year to snap up bargains.