The beginning of the year brings with it the tendency to think about new things in our lives. Many end the previous year promising to change their lives in several aspects. Some promise to enter the gym, others promise to start a new job and some promise to buy a new car or a new home. But, in 2020, is it worth buying property?
If you fall into the category of those who want to buy property in 2020, we are here to help. The decision to buy a property involves a number of issues and requires prior research. It is necessary, for example, to research about real estate speculation and weigh in the balance what is most worthwhile: buying or renting.
Let’s start by looking at 2019, and then looking at the 2020 real estate market.
Real estate in 2019
After a long period of economic crisis that, among other aspects, affected the real estate sector, it started to show some signs of a possible improvement. The crisis ended up affecting not only Brazil, but also other economies around the world.
However, according to some experts, the current context provides hope. According to the National Real Estate Indicators, carried out by the Brazilian Chamber of the Construction Industry (CBIC), sales in the second quarter of 2019 increased by 16% in relation to the same period in 2018. In relation to the first half, there was an increase of 12.1 %. In addition, the fall in interest rates, such as the Selic rate, which reached 5% in November 2019, also influenced investors to take an interest in the real estate market in 2020.
Thus, the real estate sector in 2019 was reheated thanks to a set of socioeconomic factors. Among them, we highlight two:
Real estate funding
Even though there are no concrete data regarding an improvement in the Brazilian economy, there is an estimate that the Gross Domestic Product (GDP) will increase. As a consequence, there is some optimism between buyers and investors, which directly influences real estate funding.
Since July 2019, six developers and construction companies have raised nearly R $ 3.8 billion in new stock offers, with a view to investing in new residential and commercial projects.
In addition, as stated above, the fall in the Selic rate has further increased interest in the sector.
Growth in property launches across the country
Another aspect that has an influence on this growing optimism is the increase in the number of real estate launches throughout Brazil. Growth represented 11.8% in the second quarter of 2019 compared to the same period in the previous year. The growth helped to increase property sales, which, according to CBIC, rose to 16%.
Until November 2019, companies in the real estate sector put around R $ 4.4 billion in cash through the capitalization that occurred through the offering of shares on the Stock Exchange.
Real estate speculation for 2020
Based on the 2019 data, which represented growing optimism, experts began their speculations and projections for the year 2020. According to them, the scenario for 2019 was the best in relation to the last four years. The percentage of sales closed also increased, reaching 15%. This shows how people are more willing to finalize a negotiation.
Thanks to these aspects, the real estate market in 2020 has proved to be a safe environment when we think in fiscal terms.
Main trends for the real estate market in 2020:
- there should be an appreciation of real estate;
- there will be greater variety in credit offers;
- investment in types of real estate financing is expected to increase;
- there is more optimism between investors and consumers;
- online sales may increase;
- there will be greater concern with sustainability and rational use of resources;
- possible use of technological innovations.
However, experts try to be careful. There is a warming up, but Brazil is still on the way to a real recovery and stabilization of the economy. To know if it is worth investing in real estate, it is necessary to take into account the needs and goals of each person.
Is it worth buying property?
The current moment in the real estate market can be understood as favorable to buy the long-dreamed home. After all, there are good deals, the owners are more willing to negotiate values, interest on financing are lower and there is stable prices. However, this does not necessarily indicate that you should buy property in 2020. To find out if it is really worth buying property, it is necessary to understand that everything depends. It depends on your needs, it depends on what your goals are and it depends on your reality and economic and social projection for the following years.
Despite the improvement in the current economic scenario, we cannot forget the high unemployment rate, a ghost that still haunts the Brazilian economy. Therefore, it is necessary to assess whether you will be able to afford a financial commitment of approximately 30 years.
For those who are in a stable economic situation and are able to plan for the long term, this is a good time. However, the decision to buy a property should not be made only on the basis of an opportunity and apparent improvement. We must remember that the Brazilian economy is still bad. Wages are not high and the unemployment rate is high.
Therefore, do a previous research and take into account the following factors and see which is the best option: buy or rent.
30-year commitment: Generally, buying property implies committing about 20% to 30% of your family income for an extended period, between 25 and 30 years. No wonder, it is necessary to analyze your current situation and make sure that there are guarantees for the following years.
Prices are still stable: For those who want to buy property in 2020, there is an advantage: prices have remained stable for two years even in the face of increased demand.
Used real estate: Owners of used real estate are more willing to offer discounts.
More realistic homeowners: Homeowners are more likely to negotiate values and give discounts. Many have already realized that they must take into account the amount paid for a stopped property [Property and Land Tax (IPTU) and, in certain cases, condominium each month]. In this way, sellers are offering their real estate for values that are more in line with reality.
Lower financing interest: With the fall in the Selic rate, interest rates on mortgage loans are lower, which represents a great advantage for those who want to finance their own home. Thus, the current scenario is favorable both for those who have gathered money to buy property in cash, and for those who want to finance. In general, banks usually finance up to 80% of the property’s value.
- The provision of financing cannot compromise more than 30% of your family’s income;
- Do not forget that the financing term is around 25 to 35 years, depending on the bank and the type of financing that is combined;
- Even if the rates of mortgage loans are lower, the recommendation of experts is, whenever there is the possibility, to pay in cash more than half of the purchase price of the property and to finance the other party.
Buy or rent?
These are rarer cases, as many are unable to raise enough money to buy a property in cash. Before comparing whether it is better to buy or rent, it is necessary to understand what opportunity cost is. The term used in Economics indicates the cost caused by the resignation of the economic entity and the benefits that could be obtained from the waived opportunity. To make it easier, we can summarize the opportunity cost as the value associated with the best alternative that has not been chosen.
Example:You want to buy a property that costs R $ 300 thousand and has that money in hand. If you decide to use that money to buy the property in cash, the opportunity cost will be the profitability of that amount that you could have in a low-risk financial application. In other words, if you decide to use all your money that you had saved to buy a property in cash, you no longer receive the profitability that could be gained with an investment. Therefore, you should ask yourself: Would you be able to rent a property using only the money from the monthly profitability of an investment of R $ 300 thousand? The answer is probably yes. In this case, you could even rent a property valued at more than R $ 300 thousand. So, if we look only at the financial side, it would be more worth renting than buying. However,
This, in general, is the question of many people, since most cannot buy a property in cash.
In this case, most people think that paying rent is throwing money away, as they could be using the rent money to finance a property. This, in part, is real, after all, it is a monthly amount that does not return to you. When you finance a property, even if you pay interest, you invest in something of your own. However, it is not just that. We need to understand how financing interest works.
Known as financing with decreasing installments, the constant amortization system is a system in which you amortize exactly the same amount of the outstanding balance every month. This reduction represents lower interest and installments over the months. As each month the exact amount of the debit balance is amortized, this means that the last installment corresponds exactly to the amortized value every month. In other words, the value of the last installment is the actual amount written off from the outstanding balance and all the rest corresponds to interest. If your installment starts at R $ 3 thousand, for example, the last one would be R $ 800, which means a loss (interest) of R $ 2,200.
We see, then, how much money goes away in a loan on account of interest.
In return, (still in the example of the R $ 3 thousand installment) if you rented a property for R $ 1,800, you could use the other R $ 1,200 to invest. Even if the installments of an investment reduce each month, it is still more worthwhile to rent and use the rest of the money to invest, as the investment grows more than the monthly reduction. And, after a time of investment, you will be able to buy your property in cash. Even if it takes many years, it is important to remember that a financed property is not yours, it belongs to the bank and you are a tenant.
Looking from a purely financial point of view, in general, it will probably be more worth renting than buying. However, once again, we reinforce the maxim: if it is worthwhile to buy property, whether to buy or rent, who is going to say it is you.
With the information above, you have already taken a long step in finding what is best for you and your current and long-term situation.
If you are determined to buy your property, be sure to access our Buyer’s Guide to stay on top of all the tips and requirements of the purchase process.