As house prices fall by 3.6% in September in the UK, there's a massive property bubble going on in Rio.
Its mainly focused on Rio's wealthy and well-known coastal strip from Copacabana and Ipanema out to Barra, where the olympic village will be located.
The reasons? Ease of credit, the growth of the oil sector in Rio and the economy as a whole in Brazil, along with intense speculation (mainly by foreign investors) since winning the olympic bid. Add to all of this a chronic lack of supply in the constrained coastal strip.
These are the increases by district in the last 9 months since January:
Ipanema: 81%
Gavea: 64%
Barra: 63%
Recreio: 56%
As properties become too expensive on the coastal strip, buyers are having to look in other areas, such as Botafogo and Flamengo, thus creating a ripple effect out from the Ipanema hot-spot.
This is also reflected in rental prices. Often small and badly-kept apartments in Ipanema typically cost R3500 (€1600) per month.
The government is getting increasingly uncomfortable with the situation, and is now tracking house price inflation more closely, wanting to avoid a repetition of the bursting of the bubble in Europe and North America. But, at the moment, its just watching, which probably isn't enough. What is worrying is that those who were never able to obtain credit and are on modest salaries are taking out mortgages, which currently stand at 11% per year. For them it seems a bargain, as these are the lowest rates Brazil has ever had, and mortgages are actually a relatively new phenomenon. But it still means that a huge proportion of their salaries go towards paying only the interest part and puts them on the borderline of getting into trouble if the economy cools or interest rates rise.
Obviously, not all of Rio is experiencing this massive bubble. There's still a huge disparity in prices between the wealthier and poorer parts of Rio, and these price differentials are increasing further in this period of easy credit and intense speculation. Those who live in one of the poorer areas and are on a monthly minimum wage of R581 (€264) either have to stick it out in the centrally-located favelas, or get pushed out further into Rio's northern and western neighbourhoods. They've already been hit by the bubble.
