A report released by BTG Pactual reveals a sharp decline in the performance of real estate investment funds (FIIs) in Brazil. Brick-and-mortar FIIs fell by -12.1%, while the IFIX index dropped by -10.4%. Across segments, industrial properties FIIs declined by -10.4%, shopping malls by -12.9%, and corporate offices by -16.3%.

According to Maria Fernanda Violatti, CNPI analyst and Brazilian real estate fund expert, FIIs have suffered significant losses since September, when the government announced its fiscal spending package. This announcement, she explains, triggered a wave of pessimism.

“The measures exceeded expectations, raising concerns about macroeconomic indicators. For instance, the income tax exemption for individuals earning up to R$5,000 per month led to higher tax burdens in other areas, impacting projections for the Selic rate. The market then began pricing in a higher long-term interest rate curve,” explains Violatti.

The long-term rate hike created a domino effect: higher capital costs, reduced attractiveness of FIIs compared to fixed-income investments, fiscal uncertainty undermining investor confidence, and elevated inflation affecting costs and returns. 

“The main factors are tied to the rise in the benchmark interest rate and economic outlook. Higher interest rates make variable-income investments less appealing, prompting investors to seek safer alternatives like fixed income. This has led to a significant migration of capital from real estate funds to lower-risk assets,” says Violatti.