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Brazil's real estate boom

RIO DE JANEIRO, Brazil — After weathering a stark downturn at home, London real estate investor Ruban Selvanayagam packed up two years ago and headed to Brazil.

The stunning tropical beaches and wild samba scene weren’t the only attractions on his mind.

“The housing market is booming here,” said Selvanayagam, 31, who now operates a property investment business in both Rio de Janeiro and London. “Prices have just gone through the roof.”

The economy here is growing briskly. A burgeoning middle class is scrambling for homes, and banks are handing out mortgages at an unprecedented rate. While property markets in the United States and Europe may be suffering one of the worst slumps in history, some experts say there’s a real estate bonanza afoot in emerging markets such as Brazil.

One advantage countries like Brazil enjoy: they’ve largely sidestepped the surge of bad loans that left America awash in foreclosures and toxic debt.

“They have their fiscal houses in order better than a lot of Western countries,” said David Lynn, a New York City real estate investor and author of the forthcoming book "Emerging Market Real Estate Investment." “They took their medicine and I think it’s been paying dividends.”

Lynn said the most obvious places to buy property are in the emerging giants that are already magnets for foreign cash: China, Brazil and India. By the World Bank’s respective count, these countries boast the planet’s third-, eighth- and eleventh-biggest economies. Buying property there tends to be a good bet, Lynn said, because these three giants are growing more steadily than the United States and they’re not going to stop anytime soon.

“Real estate is a very simple business,” he said. “If the economy is growing, the real estate market is going to benefit.”

But there’s also a constellation of less obvious countries Lynn said smart property buyers ought to mull over: Turkey, Indonesia, Thailand, Vietnam and even — despite the rising tide of drug violence there — Mexico.

“There’s a whole range of countries in that second tier that I’d either consider or make selective investments in,” Lynn said. “ They have a lot of good things going for them. It’s never going to be everything going for them, like Mexico — the murders, the drug problems — but it’s risk-adjusted. You get a lot higher return for that risk and it could be a really good thing. Particularly when other investors seem to be scared.”

There are limits, however. Russia is conspicuously missing from Lynn’s list. “I don’t want that risk, the political risk, the personal safety risk,” he said. “And also it’s not growing.”

Brazil’s real estate market, on the other hand, is growing fast. In the past 8 years, more than 20 million Brazilians have been lifted out of poverty and they’ve arrived in a market that, by Lynn’s estimate, currently has about 6 million fewer housing units than it needs.

The Brazilian banking institution Caixa Economica Federal said this year it expects mortgage lending to jump to $42 billion in 2010, up from $28 billion last year.

That surge may be just the beginning. At the end of 2008, mortgage lending represented just 3 percent of Brazil’s GDP, Lynn writes, compared with more than 84 percent in Britain and the United States.

The effect of the rising demand can be seen all over Rio de Janeiro, said Fabricio Negri, an independent real estate broker here.

“Some neighborhoods in Rio have doubled in price,” he said. “Things are really crazy now.”

Negri says change in the last five years ago is palpable. Where only a handful of people used to turn up for an open house, now 20 are coming and more than half of them put in their paperwork to vie for the place.

“It’s an extreme shift,” Negri said, adding that the rental market is seeing a similar boom. “You have some parts of the city where you don’t even have to put out an advertisement for a property because after just one or two calls, you get a person to rent it.”

All of which makes Selvanayagam believe his decision to leave London for Rio was a wise one. “People are saying Brazil is like the United States in the 1950s,” he said. “There’s a huge amount of growth space over the next few years because the property market has so much untapped potential.”

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