Demand for Rentals Expected to Grow Following Selic Rate Hike and Caixa’s Rule Changes for Mortgage Financing

With 780 new units across Brazil in the third quarter of 2024, Multifamily housing shows strong demand amidst the Selic rate hike

Vitor Costa, Country Manager at Greystar

By: SiiLA News

12/13/2024

Since early November 2024, Caixa Econômica Federal’s new rules have taken effect. On this side of the ring, the bank now requires 30% of the property value as a down payment for new loans using funds from the Brazilian Savings and Loan System (SBPE). Additionally, the Price system, which involves fixed installments, now requires a minimum down payment of 50%.

These changes directly impact the credit amortization system and aim to adjust the volume of resources available to the bank. On the other side of the ring is the Selic rate, currently at 12.25%. The rate helps control inflation and regulate economic activities.

The increase in this rate negatively affects investment returns, credit costs, and mortgage conditions in Brazil. At the height of the pandemic, the Selic rate dropped to 2%, largely due to fiscal issues.

Vitor Costa, Country Manager at Greystar, explains that Brazil faces a different reality than other countries like Chile, where the basic interest rate is just over 5%. According to the Multifamily project specialist, Brazil’s gross debt-to-GDP ratio is currently 80%, compared to 40% in Chile, which may explain the pressure for Brazil to maintain high-interest rates.

At the beginning of 2024, investors expected the Selic rate to close the year at 9%, creating expectations and drawing attention to the real estate fund market. Costa notes that Brazil’s economy is growing at around 3% per year, which drives inflationary pressures and explains why the Central Bank continues to maintain higher interest rates over a prolonged period.

See more: Carolina Borges, EQI Research Real Estate Funds Analyst, Expounds on Prospects Amidst Selic Rate Decline

“You can’t lower interest rates with the stroke of a pen. About ten years ago, previous governments tried to lower them, but it didn’t work. It was a very short-lived period because the market essentially asserted its dominance, emphasizing that debts couldn’t be paid at such low-interest rates due to higher perceived risks,” Costa says.

He further states, “The interest rate cuts we expected may happen at the end of 2025, provided inflation declines.”

Residential Rental Segments Gaining Strength

These obstacles frustrate those looking to finance their first home. As a result, Brazilians tend to turn to rentals. One new rental model gaining traction is Multifamily housing. Widely adopted in the United States, this concept is gradually gaining ground in Brazil.

A Multifamily development is a condominium that offers multiple services, such as laundry facilities and coworking spaces, which differentiate it from traditional houses and apartments that typically lack furnishings or such services.

Real Estate Players Eye Residential Income Assets

Targeted by institutional investors and real estate funds, Multifamily projects aim to generate income through residential unit rentals. According to Vitor Costa, this is an opportune moment for this asset class, as these developments provide property owners with a stable revenue stream through rents. At the same time, they present a more attractive option for consumers who face rising home prices and increasingly inaccessible financing.

Read more: Multifamily Asset Market Grows and Surpasses 10 thousand Units in Brazil Monitored by SiiLA Platform

What Is the Market Showing?

Data from the SiiLA analytics platform shows that the current average rent for Multifamily units is R$177.25 per square meter, reflecting a R$13.46 increase in Q3 2024. During the same quarter, the sector added 780 new units across Brazil, and the occupancy rate rose by 2.04%.

In 2023, approximately 3,225 units were delivered, with another 2,276 units expected by 2025.

“Multifamily is here to stay! Although everything is still very new, the growth we’ll see in this asset class over the coming years will be spectacular. The opportunities in Brazil are enormous. This is a well-established trend in the United States and Europe, and it’s here to stay in our country as well,” Costa comments.

SiiLA recently published an article comparing compact apartments, which are often chosen for their cost-effectiveness, to Multifamily assets.

See more: Multifamily vs. Studio: Find Out Which Is the Better Rental Option in São Paulo, According to Analysts

In a statement to REsource, Caixa confirmed that, as of November, for SBPE-funded mortgages, the institution finances property acquisitions or individual constructions with a maximum appraisal or sale value of R$1.5 million. This applies only to clients without other active housing loans with the bank.

The changes to financing quotas and the property value cap of R$1.5 million do not apply to housing units linked to developments financed by Caixa, where current conditions remain unchanged.

“Caixa continuously evaluates measures to expand the housing financing demand, including participating in discussions with the market and the government to explore new solutions for increasing credit availability nationwide—not only through Caixa but also other market players,” the institution stated.

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