HOUSING FINANCE

MECHANISMS IN

BRAZIL

HOUSING FINANCE MECHANISMS
IN BRAZIL

United Nations Human Settlements Programme Nairobi 2010

Sec1:i

The Human Settlements Finance Systems Series
Housing Finance Mechanisms in Brazil First published in Nairobi in 2010 by UN-HABITAT. Copyright © United Nations Human Settlements Programme 2010 All rights reserved United Nations Human Settlements Programme (UN-HABITAT) P. O. Box 30030, 00100 Nairobi GPO KENYA Tel: 254-020-7623120 (Central Office) www.unhabitat.org

HS/115/10E ISBN: 978-92-1-132225-5 (Volume) ISBN: 987-92-1-132027-5 (Series)

Disclaimer
The designations employed and the presentation of the material in this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area or of its authorities, or concerning the delimitation of its frontiers of boundaries. Views expressed in this publication do not necessarily reflect those of the United Nations Human Settlements Programme, the United Nations, or its Member States. Excerpts may be reproduced without authorization, on condition that the source is indicated. Cover photo: Celso Pupo/Shutterstock

Acknowledgements:
Director: Principal Editor and Manager: Principal Author: Contributor: English Editor: Design and Layout: Oyebanji Oyeyinka Xing Quan Zhang João da Rocha Lima Jr. Claudio Acioly Tom Osanjo Andrew Ondoo

ii

FOREWORD
At the dawn of this At the dawn of this new urban era, U N - H A B I TAT research shows that by 2030, two-thirds of humanity will be living in towns and cities. We thus live at a time of unprecedented, rapid, irreversible urbanisation. The cities growing fastest are those of the developing world. And the fastest growing neighbourhoods are the slums. Indeed, the global number of slum dwellers is now at or close to the 1 billion mark. Excessive levels of urbanization in relation to the economic growth have resulted in high levels of urban poverty and rapid expansion of unplanned urban settlements and slums, which are characterized by a lack of basic infrastructure and services, overcrowding and substandard housing conditions. Yet housing and the services that should be provided with it are one of the most basic human needs. It is enshrined in various international instruments, including the Habitat Agenda. And reducing the number of slum dwellers around the world is a cornerstone of the Millennium Development Goals set to fight poverty around the world. So if we fail to achieve the Goals in towns and cities, we will simply fail to achieve them at all. It was with this crisis in mind that the United Nations General Assembly decided in its resolution of 26 February 2002 to transform United Nations Commission on Human Settlements into a fully pledged programme. The General Assembly in its resolution called on UN-HABITAT to take “urgent steps to ensure a better mobilization of financial resources at all levels, to enhance the implementation of the Habitat Agenda, particularly in developing countries.” It also stressed “the commitments of member states to promote broad access to appropriate housing financing, increasing the supply of affordable housing and creating an enabling environment for sustainable development that will attract investment”. The Habitat Agenda recognizes that housing finance systems do not always respond adequately to the different needs of large segments of the population, particularly the vulnerable and disadvantaged groups living in poverty and low income people. It calls UNHABITAT to assist member states to improve the effectiveness, efficiency and accessibility of the existing housing finance systems and to create and devise innovative housing finance mechanisms and instruments and to promote equal and affordable access to housing finance for all people. In our quest to reach as many people as possible, a cornerstone of our agency’s new Medium-term Strategic and Institutional Plan is partnerships. We have no choice but to catalyze new partnerships between government and the private sector. This is the only way to finance housing and infrastructure at the required scale – the scale needed to stabilize the rate of slum formation, and subsequently reduce and ultimately reverse the number of people living in life-threatening slum conditions. It is clear that in the coming 20 years, conventional sources of funds will simply be unavailable for investment at the scale required to meet the projected demand for housing and urban infrastructure. Many countries around the world continue to face deficits in public budgets and weak financial sectors. Local governments have started to seek finance in national and global markets, but this is only in its initial phase.

New mortgage providers have emerged, including commercial financial institutions and mortgage companies. But only middle and upper income households have access to such finance, while the poor are generally excluded. Although social housing is becoming less important in Europe and in countries with economies in transition, the need to provide shelter that is affordable to low income households still exists, including in developing countries. This is why the exchange of information and knowledge on human settlements finance systems is so important. It is why it receives increased recognition in facilitating the development of human settlements finance systems and in turning knowledge into action for developing practical human settlements finance methods and systems for these pressing problems. Our Human Settlements Finance Systems series documents the state, evolution and trends of human settlements finance in member states, and examines the factors and forces which drive the development of human settlements finance systems and the roles of different institutions and actors in shaping the systems and trends, and reviews human settlements finance systems. It presents an interesting review of policies, instruments,

processes and practices. It examines the strengths and weakness of these systems and practices, their relations to the housing sector and the broad economic and social sectors, and lessons learned from practices. Indeed, the country review studies we present are a valuable resource for member States because it is a body of work that also shows how human settlements finance systems and models can be applied to local use and thus provide a wider range of options for human settlements finance. The series also serves as guidebooks for policy makers, practitioners and researchers who have to grapple daily with human settlements finance systems, policies and strategies.

Anna Tibaijuka,
Under-Secretary-General, United Nations Executive Director, UN-HABITAT

Retirement Institutional Fund Leverage in the Sistema Financeiro da Habitação-SFH Sistema Financeiro Imobiliário-SFI Funding The Currency of the Systems PART II LOW INCOME HOUSING Introduction The Federal Government Support Program III V VI VII 1 1 2 6 6 8 9 15 15 16 PART III HOUSING FINANCE IN BRAZIL Macroeconomic Issues and the Sistema Brasileiro de Poupança e Empréstimo SBPE Main SBPE Players Financing Systems in Numbers 21 21 28 29 v .CONTENTS FOREWORD CONTENTS ABBREVIATIONS AND ACRONYMS LIST OF TABLES AND FIGURE PART I THE CURRENT HOUSING FINANCE SYSTEM: STRUCTURE Introduction Sistema Financeiro da Habitação-SFH Funding Guarantee Fund for Length of Service .

Referential (basic) interest rate utilized on the Brazilian real estate financing system USD -Dólares americanos – U.Retirement Institutional Fund FGV -Fundação Getúlio Vargas .Getúlio Vargas Foundation IBGE -Instituto Brasileiro de Geografia e Estatística .Brazilian Savings and Loans System SFH-Sistema Financeiro da Habitação – Brazilian Housing Finance System SFI-Sistema de Financiamento Imobiliário – Brazilian Real Estate Financing System TR-Taxa Referencial . anchored in real estate mortgages LI-Letras de Crédito Imobiliário – Real Estate Securities .S. which funds are real estate finance dedicated MW -Salário Mínimo – Brazilian Legal Minimum Wage PNH-Plano Nacional de Habitação .Federal programme to promote the production and acquisition of houses RDB -Recibo de Depósito bancário .ABBREVIATIONS AND ACRONYMS BCB -Banco Central do Brasil – Brazilian Central Bank Bacen-Banco Central do Brasil – Brazilian Central Bank BRL-Reais – Brazilian Reais CDB-Certificado de Depósito Bancário .Bank Receipt of Deposit (Bank CD) SBPE -Sistema Brasileiro de Poupança e Empréstimos .General Price Index INCC-Índice Nacional da Construção Civil .Guarantee Fund for Length of Service .National Construction Costs Index IPCA -Índice de Preços ao Consumidor .Bank CDs.Consumer Price Index LH-Letras Hipotecárias – CDs dedicated to real estate.Salary Variations Compensation Fund FGTS Fundo de Garantia por Tempo de Serviço .Brazilian Institute of Geography and Statistics IGP-M-Índice Geral de Preços-Mercado .Certificate of Real Estate Receivables CVM -Comissão de Valores Mobiliários – Brazilian Securities Commission FCVS -Fundo de Compensação de Variações Salariais . Dollars vi .Bank Certificate of Deposit CEF-Caixa Econômica Federal – CEF Public Bank for Savings and Real Estate Finance CP-Caderneta de Poupança –Savings Account CRI-Certificado de Recebíveis Imobiliários .

LIST OF TABLES AND FIGURES Table 1: CP and LI Fund Raising on SFH system Table 2: Taxa Referencial (TR of the SFH) and the CPI (IPCA-IBGE) Table 3: Classes of Income and Subventions of PFH . TR and Exchange Rate USD for 1 BRL Figure 6: The Brazilian GDP Along the Last Years Figure 7: The Brazilian GDP Per Capita Along the Las Years (BRL of 2008) Figure 8: The Brazilian GDP Per Capita Along the Las Years (in USD) Figure 9: The Brazilian Housing Financing System. as s Proportion of the GDP Figure 10: Households in Brazil: Total and Increase Rate Figure 11: Numbers of Units Financed by the SFH (SBPE+FGTS) Figure 12: Amount Financed From SBPE for Construction and Acquisition of Residences Figure 13: Financed Volume SFH (SBPE) and SFI (CRI) Figure 14: Savings (CP) Volume and Annual Net balance of Deposits and Withdraws3 Figure 15: Housing Loans x Savings Volume in CP Figure 16: Brazilian Regions Figure 17: Number of Residential Units Financed (SBPE) According the Region 4 5 7 11 13 23 24 24 26 27 30 32 33 4 35 36 37 3 10 18 19 27 29 31 32 33 vii .II Table 5: Number of Households in Brazil and the Annual Increase Rate Table 6: Housing Financing Level. According to the Funds Provider Source Table 7: Number of Units Financed by SFH (SBPE+FGTS) Table 8: Amount Financed from SBPE for Construction and Acquisition of Residences Table 9: Financed Volume SFH (SBPE) and SFI (CRI) Figures Figure 1: Flow of Funds for Construction Finance on the Real Estate Finance Area of the Brazilian Private Banks Figure 2: Flow of Funds for Mortgage Generation on the Real Estate Finance area of the Brazilian Private Banks Figure 3: Funding System of SFH and FGTS Funds Applications Figure 4: Inflation Indexes and TR Significance Against Inflation Figure 5: Inflation Indexes.I Table 4: Classes of Income and Subventions of PFH .

SOCIAL INVESTMENT FUNDS A TOOL FOR POVERTY REDUCTION AND AFFORDABLE HOUSING .

The SFI has served more like a supplement of the SFH than a system that could replace it in the medium-long term. The transaction of SFI funds occurs fully into the environment of the agents of the private financial system. either by direct and indirect action. this being represented by the systemic function of the Caixa Econômica Federal (CEF). The SFH resources. and the creation of a differentiated structure of fundraising for the funding of the system. constituting mechanisms.SBPE. so that sensitive changes occur in its structure. whether from the State or private agents. when in conjunction with market fundraising systems. which has ancillary functions as the managing agent of certain functions in the SFH. there was no organized system for housing financing in Brazil. and has the authority of issuing and circulation of private securities in the market. Therefore. was established in 1997. controlled by the State. The Central Bank is the manager of Treasury funds. THE CURRENT HOUSING FINANCE SYSTEM: STRUCTURE INTRODUCTION The real estate credit system used in Brazil for residential housing (known as the Housing Finance System-SFH). rather than residential. but the weakness of the secondary market for investment vehicles designed in it makes the system not to achieve proper relevance. which are savings private accounts. Its structure has changed since then (1964-2009). on matters of formal guarantees. Previously. SFH and SFI have different funding structures. is known as the Brazilian Savings and Loans System . and a new parallel system. However. limits and definition of the adjustment of payments. the core of the system has not changed and there is no perception of movement. The SFH funds its operation in private savings resources in Cadernetas de Poupança (CP). via targeted instruments to raise conservative savings funds in the market. the SFI. representing only the normative function undertaken by the Central Bank (BCB) and the Securities Commission (CVM). This condition should be the premise for the SFI to find easier funding. SFI operates within the parameters of the financial and capital markets. which together are called the Real Estate Financing System-SFI. the disciplinary agent and controller of the currency and the manager of all the Brazilian financial system. although private. This system. While the legislation created a "specific currency" to the SFH. The SFH was complemented over time with topical rules. the market focused mainly on the SFH. The SFH is established on a predominant action of the State. including rules that facilitate foreclosure in the event of default. similar to what is practiced in the USA.PART I THE CURRENT HOUSING FINANCE SYSTEM: STRUCTURE PART I. CEF is a commercial bank. was created in 1964. used by medium income families to preserve their savings and are fully Federal Government 1 . The Securities Commission has the control and regulative functions on the Brazilian capital market. and it is acknowledged that the SFI can operate as a fully private system. being used more extensively for commercial real estate. are administered by the State. with different means for adjusting the payments of housing financing in the long term.

which means that CP pays an effective 0. constituting the Fundo de Garantia por Tempo de Serviço (FGTS). the mortgages for medium and high income uses the CP resources.80 USD (U. These are not instruments used in large amounts. being the minimum unit value 300. for construction.5% month. The system. it must obtain specific authorization to operate its portfolio of housing finance banking and authorization that extends from the uptake in CP or LI to financing the production and purchase of residential and commercial properties using 2 Savings Accounts (Cadernetas de poupança . unlimited scope and bearing an important incentive in the market . which are banks with real estate finance and credit portfolio. LIs can be used for fundraising by banks that do not have a widespread network of agencies.their income is exempt from income tax. dollars) . The interest rate paid for CP savers has always been 0. because they collide with the CP market. have a significant portfolio of investments in the market for which investment products are designed. LI is used to raise funds for qualified investors who. because they can pay free interest. especially the middle-income strata. rely on two sources of conservative savings fundsi). called Certificados de Recebíveis Imobiliários (CRI). for which specific licenses are obtained from the Central Bank: commercial banking. The Brazilian banking system favors the concept of multiple banks that operate portfolios. the banks use regular funds to finance and the proceedings of CRIs placement with investors (pension funds in majority) to finance the acquisition of the homes. and the FGTS funds have the destination of low income mortgage funding. by far. Therefore. Real Estate Securities (Letras de Crédito Imobiliário -LI) The LI are debt securities with fixed-term. being savings.S. Letras de Crédito Imobiliário (LI). which has a simpler structure of operation. Generally. mostly private.CP) The savings accounts (CP) are savings instruments with free deposit and withdrawal. Thus. when compared to SFH. investment banking and housing finance banking. which is very inexpressive. the most important instrument for fundraising. monthly income and free depreciation system issued by financial institutions and intended to capture savings as a regular CD. the resources raised.00 BRL (Brazilian Real) – 1. There are also several private banks operating in the SFH.CP). for a bank to integrate the SFH. deposits in savings accounts (Cadernetas de Poupança . and ii). designated to be a retirement fund under government administration. The balances of the CP are guaranteed by the Federal Government. SISTEMA FINANCEIRO DA HABITAÇÃO-SFH FUNDING Fundraising Instruments In order to raise funds in the SFH system. plus an “index” that represents the inflation. there is no competitiveness to be pursued by banks to increase their fundraising level. according to the instructions of the Brazilian capital market. Banco do Brasil e Nossa Caixa. Among the biggest players in Brazil SFH are banks controlled by the Federal Government: Caixa Econômica Federal.667)1 . CP represents the easier access to financial markets and are used by the majority of the population able to make savings. 1 Exchange rate:1. The CP pay interests that are ruled by law. In this system.5% month of interest. without limitation. the construction finance is done by using the CP funds.HOUSING FINANCE MECHANISMS IN BRAZIL guaranteed. its operators.000 BRL (USD 166. The SFI is funded trough investment instruments that securitize mortgages. for low income housing. uses funds deposited monthly in private accounts of all employees by the employers.

423 115. 112. with the mortgages internalized in the portfolio of banks.585 8.911 9.5% 94. however. with greater savings potential.0% 95.3% 91.438 91. Funding for purchase of the residence follows the construction and does not need to be done within the same agent. but only as a mechanism for generating mortgages.967 10.419 80.250 88. TABLE 1: SAVINGS ACCOUNTS (CP) AND LETRAS DE CRÉDITO IMOBILIÁRIO (LI) Year Saving Volume in CP BRL Million 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Sources: SBPF-SFH.6% 91.8% 90.400 LI Issuing BRL Million 6. not the construction.146.1% 91. as is the strategy of market systems to spread throughout more developed economies. Any procedure with the securitization of mortgages would advance this contribution. The return flow of housing finance represents a stable contribution to the funding of the system. but deferred in the end.851 9.853 135.538 90. 3 .PART I THE CURRENT HOUSING FINANCE SYSTEM: STRUCTURE allowing reaching qualified investors.320 10. BACEN 59. Through securitization of mortgages.6% The Application of Sistema Financeiro da Habitação-SFH Resources The housing financing banks in Brazil finance the construction and acquisition of houses using a particular source of funding of the CP associated with the revenue stream of returning acquisition funds that are already in repayment.1% 92. which would use resources from outside the SBPE. Working. However.827 215.8% 90.413 187.131 7. for example.131 9.7% 91.5% 95.126 8.671 12. given the knowledge that the market already have of the CP and that the housing finance business is operated primarily by major Brazilian banks. The rules of the system allow some banks to specialize in financing the construction and others to deal with mortgages only. one can access domestic savings in pension funds. the LIs are used moderately and do not represent a significant vector of funding for the system. which holds a high penetration branch network. gaining volume in the medium term. being noted that private banks do finance production without desire.430 97.412 150. What is perceived as the main intention in this industry is to finance mortgages.1% 92.666 8.005 12.991 CP in Total Fund Raising % 90.7% 91. the housing finance system in Brazil operates with zero leverage.258 126.627 7.

The CP depositary is free to redeem each month and the construction finance. From this part. where the funds are allocated. meaning that. 65 percent has to be directed to housing finance. FIGURE1: FLOW OF FUNDS FOR CONSTRUCTION FINANCE ON THE REAL ESTATE FINANCE OF THE BRAZILIAN PRIVATE BANKS Savings on the CP depositary retention of funds = at least 1 month mandatory to receive interests asymmetric MULTIPLE BANK Real Estate Finance authorized 20% to Bacen same yield as CP savings Source: Author 4 65% +15% on construction finance retention of funds = -12 to 18 month average to build and receive the return via mandatory placement . but targeted at companies in the real estate. Figure1 shows the flow of funds for construction finance on the real estate finance of the Brazilian private banks. for medium or high income. that leaves the remaining 15 percent of funding free to apply the operating banks. given the possibility of issuing LI in conjunction with construction financing. credit derivatives or investment derivatives in the sector.HOUSING FINANCE MECHANISMS IN BRAZIL The regulatory mechanisms of the SFH-system commands to collect. or even in government securities. Central Bank pays to the banks the same interest rate that is paid to the savings accounts. In the case of funding with the issuing of LI. considering that the construction finance is paid with the issuing and placing of mortgages. the application of 52 percent is normalized by SFH for low and middle income housing (interests. loan to value and length) being the remaining 13 percent free (unregulated as interests. has a higher length of liquidity cycle. that part has is a zero profit operation. the asymmetry could be lower. in the remuneration of public bonds (rate). due to high interest rates practiced in Brazil. for the banks. even though this is an insignificant stratum of the market that banks tend to ignore. which can cause asymmetry of yield. loan to value and length) to be used either in production or acquisition. from the values raised: to the Central Bank a compulsory 20 percent. generating operating losses. highlighting the temporal asymmetry between the two flows of resources. It is noteworthy that. As for the imbalance that might occur there is no mechanism to hedge the bank and should be supported with other resources from the bank cash flow. the arbitration between the yields paid to CP against income from bonds would tend to cause a passive implementation of this part of the raised funds. In Figure 1 it is noted the movements in financing the construction.

(2010) 5 . according to the completion of the construction phases. The contracts of construction finance are assigned at interest rates that vary between 11% and 15% year. etc. however. FIGURE 2: FLOW OF FUNDS FOR MORTGAGE GENERATION ON THE REAL ESTATE FINANCE OF THE BRAZILIAN PRIVATE BANKS 20% to Bacen same yield as CP savings Savings on the CP depositary retention of funds = at least 1 month mandatory to receive interests highly asymmetric MULTIPLE BANK Real Estate authorized house acquisition finance retention of funds= monthly payments on 20/30 years cycle construction finance HOUSE BUYERS Real Estate DEVELOPER repayment of construction finance with the mortgages Source: João da Rocha Lima Jr. highlighting the pronounced temporal asymmetry that can be hedged via securitization instruments or mortgages transfers to the system administered by CEF. with the creation of mortgages. plus the inflation adjustment. what is made by the placement of the mortgages generated trough the acquisition finance. in this Figure including real estate. The Central Bank gives particular operations authorization for the different banks operations as commercial banking. investment banking.PART I THE CURRENT HOUSING FINANCE SYSTEM: STRUCTURE A Multiple Bank showed in this Figure 1 regards the banks structure in Brazil. In Figure 2. leasing. should be paid in full (principal and interests) at the end of the construction. that mortgages securitization instruments in Brazil are used scarcely due to almost non-existent secondary market liquidity. It should be noted. The guaranties required for the construction finance are the land and construction as collateral. A multiple bank is a bank that has multiple activities. international trade. it is shown the full construction financing circuit. The funds are liberated monthly. real estate finance.

and compete with the private financing for middle-income classes.HOUSING FINANCE MECHANISMS IN BRAZIL GUARANTEE FUND FOR LENGTH OF SERVICE-FGTS (RETIREMENT INSTITUTIONAL FUND) CEF has. but in its natural speed of cash flow origination (20 to 30 years). LEVERAGE IN THE SISTEMA FINANCEIRO DA HABITAÇÃOSFH As can be seen. The FGTS is administered by CEF and can provide resources. but is stabilized in its potential. the role of housing finance for the classes of lower middle to low income. noting that the system can only maintain a certain degree of balance when one takes into account the reallocation of resources collected by FGTS to tackle falls in savings balances. recycles their finances with the flow of loan payments internalized in mortgages. The employee does not collect any amount from his monthly wage to his FGTS account. as a second-tier bank. This is done with compulsory collection of resources in the voluntary fund and CP. the flow can be directly impacted by defaults. The SFH of course. 6 . whose resources are tied up in buildings or mortgages. in the purchase of mortgages generated by firsttier banks in the financing of housing whose income levels the council fund manager regularly sets. then. to maintain a structure of the organic stream. especially for families with lower incomes. CEF can use the resources managed by itself in connection with the payments to the Guarantee Fund for Length of Service – Fundo de Garantia por Tempo de Serviço (FGTS). Employers in the whole country should collect 8 percent of monthly salary paid to each employee to a private employee’s account with the FGTS. The Federal Government. being the driver of CEF and controller of the board of the fund. which tends to increase following virtuous movements of the economy. involving the urban infrastructure and housing. almost alone in the market. in the sense that the returns of the payment of house financing restore funding to run the system. the SFH funds the production system providing a moderate rate of growth. or early retirement due to health conditions. the SFH system is locked and has no leverage. but linked to the housing finance system. Figure 3 shows the overall funding structure of the SFH in Brazil. at the production and acquisition. for example. anchored by his employer and resources of each individual account are blocked until retirement (30 years) and can be accessed in exceptional circumstances. In housing finance systems found in most advanced economies. for housing acquisition. ends up directing resources to meet their policies for housing. The FGTS was created at the origin of the SFH. In Brazil. which advances receivables to re-fit the system of financing the construction and purchase of houses with the intrinsic benefits and risks of this routine. For the funding for low-income and urban infrastructure. as an instrument of employment policy. or even goes in critical cycles of decline of the economy. a compulsory savings for the employee. mortgages are the subject of securitization. This fund builds.

(2010) 7 . up to 30 years FGTS mortgage acquisition to provide equilibrium for the SFH funding repayment of construction finance with the mortgages PART I THE CURRENT HOUSING FINANCE SYSTEM: STRUCTURE Source: João da Rocha Lima Jr.FIGURE 3: FUNDING SYSTEM OF SFHAND FGTS FUNDS APPLICATIONS 20% to Bacen same yield as CP savings Savings on the CP depositary retention of funds = at least1 month mandatory to receive intersets CAIXA ECONOMICA FEDERAL MULTIPLE BANK Real Estate Finance authorized Operational mangement Construction finance and house acquisition finance house acquisition finance Construction finance FGTS advisory board FGTS withdrawal for retirement or house acquisition strategic decisions house buyers Real Estate DEVELOPER Savings on the employee’s accounts retention of funds = presumably very long.

anchored especially in the SFH. Since they are being used in very specific strata markets (high income.HOUSING FINANCE MECHANISMS IN BRAZIL SISTEMA FINANCEIRO IMOBILIÁRIO-SFI FUNDING In 1997. which will use the funding market. using the instruments utilized in the regular funding of business (e. 8 . there was an attempt to reverse the SFH to a system relying solely on capital market mechanisms. because foreclosures are done within the judiciary. but this represents a small market segment. debentures) and banks (certificates of deposit. Mortgage companies. It should be noted that in SFH. and the financing to build granted at market interest rate. Funding for Production The funding for production is not ruled by means of its own instruments. In another sense. for example). the CRI has a greater chance of use. comprises all the financial agents. 52 percent of applications are mandatory for financing housing for lowincome families. but these instruments are very specific and niche markets.e. this legislation which authorizes a certain amount of CRI that has been issued.g. but with the concept of fiduciary disaffection. Together with the commercial banks in their lending to companies. the investment vehicles that would serve to leverage the CRI did not acquire the necessary strength. in view of the fund raising cost (income of CP). for example). can raise funds from qualified investors through Letras Hipotecárias (LH). having been established in Brazil the SFI (Real Estate Financial System). asset against which these companies may issue Certificates of Real Estate Receivables (CRI). which are mortgage securitization instruments. The SFI is designed to operate as liens on property. such investments must remain within the portfolio of investors by the time of funding (20 to 30 years). making it easier to foreclose on the defaults. so that the large residential market continues to operate without leverage. authorized by the Central Bank to operate only in real estate lending by the SFI. The flow of receivables (installments) derived from this contract is sold to the securitization companies. For enterprises for higher income classes. It is intended that the CRI have a market with institutional investors. whose funding may be made at shorter intervals (5 to 7 years). which restricts its placement. build to suit and shopping centers). i. is bound to flow from rentals (usually 5 to 7 years) in commercial investment in the model build-to-suit. mortgage companies and securitization companies. but. The most important attribute of the system is that the SFI unlocks legal problems of foreclosures in Brazil. There are CRIs issued to securitize future flow of locations in shopping centers. thereby serving to transfer lower risk instruments for securitization of mortgages generated based on the rules of SFI. which in turn work like any instrument of mortgage securitization in the international market (CMO. which is slow and unwieldy. in view of an almost nonexistent secondary market. without mortgage. Housing Acquisition Mechanism Funding for acquisition of housing might be done directly by the entrepreneur.

in which it seemed to crumble completely when an insurance system for inflationary adjustments was created. Banks had an uneven balance between its obligations to the CP and the perceived benefits of the financing contracts. Therefore. caused by this default of the FCVS. Buyers had to contribute to the formation of FCVS. whose stability was only recomposed with the release of claims against accounting FCVS. (FCVS) whose risk was supported by the Federal Government. linked with the interest offered for fixedincome from financial markets. with the banks that held the mortgages with outstanding balances and any benefits already paid. Since its inception until 1991. The conversion rate of the virtual currency and the real is regularly (monthly or even daily in certain critical moments in the past) defined by the Government. It was always understood that the primary sources of funding (CP and FGTS) should first be protected from the losses caused by inflation and then remunerated (3 percent per year in the FGTS and 0. the FCVS.000 million. All the transactions are based in reais. or an inflation based index how it is today. but all the accounting is based on the virtual currency. funding for the acquisition of residences should undergo adjustment of the balance through the same rates applied to sources of funding. based on a certain inflation index. tied with inflation rates but differentiating from there. by adjusting the debit balances of contracts through the same inflation rates that adjusted the sources of funding (CP and FGTS). The high inflation periods suffered by the Brazilian economy. was created. all of them with adjustments arbitrated by the Federal Government. the wages of borrowers of housing loans did not keep with the curves of monthly inflation. but not the installments and the payments of buyers that was adjusted through indexes that reflected the adjustments of salaries. This insurance plan was ill defined and calibrated. with the creation of a short-term indexing currency. but that was in default for a few years and which amount exceeded USD 100. ORTN and BTN). Each payment or investment redeem is converted in reais at the transaction moment. recorded at the end of the payment due to the lack of symmetry of inflation adjustment. The systems structured with virtual currencies along this period (1964-now) converts the real applications (savings) or the real debts (finance) in a certain virtual currency and applies interests in the balances considering the virtual currency. SFH had worked with its own currencies (UPC. resulting in a debt of the Federal Government. It was evident that in times of inflation crisis. monthly. The SFH had even been through a period of inaction. following a set fee applied on the value of the monthly payment. especially in the 19641994 cycle. every six months. which is still mindful of the financial and capital market and led to nominal currency swaps in the past until the sedimentation of the Real in 1994. to impose the required symmetry of the SFH system. Federal government then decided to counter the symmetry. which balances are not adjusted for any inflation-tied index. through the Salary Variations Compensation Fund 9 .5 percent per month on CP). which has been settled gradually. A fund.PART I THE CURRENT HOUSING FINANCE SYSTEM: STRUCTURE THE CURRENCY OF THE SYSTEM Long-term debt in Brazil has been structured with the support of virtual currencies. has not added confidence to investments in long-term financial instruments. The Experience of the Fundo de Compensação de Variações SalariaisFCVS on the Sistema Financeiro da Habitação-SFH SFH had always suffered from the issue of inflation adjustment. which boosted the default. and its resources should cover the debit balances outstanding funding agreements. OTN.

where economic plans succeeded often by looking at the change of currency. it had already withdrawn the correction for inflation of two action lines of the SFH (funding and debt financing).3% 2. As this virtual currency (TR index) is selected in short-term applications. but maintains the same instability previously found with respect to the balance between the setting of wages and the provision of funding for the purchase of houses. which brings closer to the financial market system.7% 8. showing that the TR in the long run. as are the CP for savers and as is the mortgage for banks. because it perpetuates the short term. and no longer in inflation rates.1% 2. if there were any strong pressure of looting in CP. has been losing its reference against inflation since 2001. the most new currency of the SFH was created.7% 3.IBGE 10 .8% 2. which seeks to deduct the inflationary component and the differential taxation of tax income from a financial investment in those instruments and the application in CP. the CP and the FGTS.5% Sources : SBPE.8% 4. the long-term debt and investments of SFH end up functioning as a chain of short-term applications and debt. based on resource revenues in time deposits (bank certificates of deposit CBD and bank receipt of deposit RDB) offered by commercial banks. This concept is sustainable for the uptake in CP. This cycle ended in the transition to the twenty-first century. SFH/BACEN. is valid for a month and is based on the average of a basket of returns offered by CDB and RDB market.0% 7.6% 5. CPI – consumer prices index is the IPCA (consumer prices index) and the CCI – construction costs index is the INCC( national construction costs index).4% 1.5% 9. that should move following higher interest rates than those attributed to longterm and conservative applications.8% 5.7% 2. or the obligations to the FGTS.7% 12. % Per year 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 9.1% 4. with the Introduction of Taxa Referencial-TR In 1991 which was a period of high inflation in Brazil.3% 7.2% 1.6 % Per year 22% 9. in monthly regimen. applied a reducer (deflator).6% 1. It introduced the concept of the TR (a basic rate defined specially for the system – fund-raising and lending are TR referenced).8% 7.0% 1.8% 2.6% 5. The Recasting of the Sistema Financeiro da Habitação-SFH. with the assumption by the Federal Government of a program for settlement of claims against FCVS and enhancing the SFH.6% 9.9% 6. as a marker of savings and conservative cycle of funding for housing. The non-significance of TR with respect to inflation is evident in Figure 4. which in the macroeconomic sense means an asymmetry. Through the TR. The TR is calculated daily by the Brazilian Central Bank. GPI – gross prices index is the IGP M (general prices index).HOUSING FINANCE MECHANISMS IN BRAZIL but that does not reflect cash flow. Table 2: shows the TR variation and the CPI (IPCA) variation in the last years. In this Figure 4.

PART I THE CURRENT HOUSING FINANCE SYSTEM: STRUCTURE Figure 4 shows the discrepancy between the inflation indexes and the “virtual inflation” that supposes to be reflected in the TR definitions made by the Government.MW)2 in the proportions of distribution of national income by families and by region. date of Real insertion) 350 310 300 253 250 250 412 408 400 450 300 200 200 150 150 100 Aug 94 Dec 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 100 Sources: IPCA (IBGE-Brazil).00 BRL (USD 258. (from household monthly income from 1 up to 40 minimum wages . 2010. IPCA = Consumer Price Index (expanded concept) Brazilian Institute of Geography and Statistics-IBGE. The IPCA is used by the Central Bank as controller of the inflation target in the conduct of monetary policy. 11 . The IGP-M is measured monthly and associates movements of wholesale prices (60 percent) variation in the cost of household budgets (30 percent) and construction costs (10 percent). 2009 to May.00) from May. IGP-M and INCC (FGV-Brazil) TR and Exchange Rate (Bacen) Figure 4 shows the evolution of main inflation indices used in Brazil linked with the business of real estate. The IPCA is measured monthly and reflects the movements of the cost items that make up the household budget. FIGURE 4: INFLATION INDEXES AND TR SIGNIFICANCE AGAINST INFLATION 450 Inflation through GPI (IGP-M) 400 Inflation through CPI (IPCA) Inflation through CCI (INCC) 350 Virtual inflation. 2 MW = 465. on Aug-94. through TR (all indexes = 100. It is the index mainly used to reflect the loss of purchasing power of the Real within the environment of the Brazilian economy. in comparison with the variation of the TR: IGP-M = General Price Index FGV Fundação Getúlio Vargas.

Still. but is allowed to use this indexer.0 percent per year + TR + spread (1 percent to 2 percent per year) in FGTS. which is the result of the securitization of the flow of receivables from the financing of residential properties acquisition. which tend to be more speculative. to be made in national currency (Real) with adjustments made with the use of TR or inflation rates. which seeks to reflect the evolution of costs in the construction industry. which are placed at advantageous rates against the uptake in CP and at the cost of funds from FGTS.17 percent per year and deflating the currency. when anchored on the resources of CP and between 6 percent and 12 percent per year + TR when anchored in the FGTS. considering international investment standards. even because of the provision of basic interest rate in very high levels. hasn’t done that. However. there was concern and expectation that conservative foreign funds. national average. The good thing about making this adjustment by the TR is the leverage through debt securitization of mortgages. A funding by the price system. making a hedge of funds obtained from savings with a very comfortable spread. the balances of savings accumulated by the IPCA index still presents an effective rate of 4. . which is not in sight.SFI Currency SFI financing for housing acquisition tends to be indexed by inflation rates with monthly application. The INCC has a good grip on the movement of production costs for households. since 1998 (starting year of full operation of SFI) until the end of 2008. On the conceptualization of the SFI. very impressive. the 15 year horizon depicted in Figure 4. there would be the need to count on a chain of transactions in foreign currency. There is not. entrepreneurs tend to use it in the setting of prices offered and tuning of the payments of financed sales price of houses.00 percent per year. indicating that banks tend to internalize the mortgages.17 percent per year + TR in CP and 3. since the funding for acquisition of housing up to the generation of CRI securitization. Brazilian law only allows the pricing of housing finance and emissions of CRI. 12 The Sistema Financeiro Imobiliário. the market although able to leverage by its own means. like IPCA and IGP-M. Whereas interest payments to CP of 6. as the currency system does not conflict with the interest rates prevailing on the financial market. with expertise in the application in credit derivatives. both IPCA as IGP-M. Figure 5 shows. which facilitates the assignment of the CRI. the obligation of applying the TR. unless exchange hedge derivatives against inflation over the very long term are made possible. migrate to the real estate market. which would increase the potential for funding at a more moderate cost than the investment resources of the local market. with the interest of 12. as in the SFH.HOUSING FINANCE MECHANISMS IN BRAZIL INCC = National Index of Construction Costs FGV is the monthly index. the breakdown movements of the exchange rate of USD against the Brazilian Real (BRL). so that to maintain stable margin result.23 percent per year already counted after income tax for the saver. To verify this hypothesis. + TR have cost 13. a period of higher incidence of interest and more moderate repayment flow. This setting has permanently inhibited and inhibits the entry of conservative investment resources for credit funding. with no risk of open exchange to investors in foreign currency.26 percent per year + IPCA due to the mismatch of TR in 2001. Funding for production is provided at interest rates between 10 percent and 12 percent per year + TR against the funding cost of 6. The acquisition financing is offered at rates between 8 percent and 12 percent per year + TR. which supports the argument that it is not reasonable to expect the inflow of conservative resources in foreign currency into this market.

88 percent per year in USD. on Aug-94. made in national currency. FIGURE 5: INFLATION INDEXES.00 percent per year + IGP-M would have grown 9. 12. stocks and new companies) produced a depreciation of the USD against the BRL in the 2003-2008 cycle.PART I THE CURRENT HOUSING FINANCE SYSTEM: STRUCTURE The foreign exchange market in Brazil is free. without relying on your referral purchase power parity. a foreign investment in the cycle depicted in Figure 5.12 percent per year in USD.68 percent per year in USD. IGP-M and INCC (FGV-Brazil) TR and Exchange Rate (Bacen) Note that the Brazilian trade balance and the high volume of investments made by foreign investors in Brazil (financial instruments in BRL at very high rates. 13 . date of Real insertion) 300 350 250 250 200 200 150 150 100 Jan 98 99 00 01 02 03 04 05 06 07 08 09 100 Sources: IPCA (IBGE-Brazil).00 percent per year + IPCA would have grown 5. so that the foreign currency is quoted as a commodity. TR AND EXCHANGE RATE USD FOR 1 BRL 350 Inflation through GPI (IGP-M) Inflation through CPI (IPCA) Inflation through CCI (INCC) 300 Virtual inflation. 12. 12. not in mutual inflationary movements between the economies issuing the currency. ii. iii. through TR (all indexes = 100. which causes movement of the exchange rate linked with the supply and demand of USD and other speculative variables.00 percent per year + TR would have grown 3. As an example of unbundling of rates. with interest rate: i.

14 .

2. sums up a deficit estimated by the Federal Government of around 7.5 million family in cohabitation. adjusted by means of specific legislation. discounting from the deficit secondary cohabiting families (families housed under one roof ). However. 15 .583]. [iii. computed before on the calculation of the Brazilian housing deficit. up to 3 MW]. Government Programmes (Federal. plus the deficits caused by funding infrastructure granted to state bodies and unpaid. In order to organize the housing programs. in volume that does not meet the vegetative growth demand. causing the cash flow is positive FGTS. in comparison with developing countries. usually near the IPCA inflation in May of each year. This constitutes a passive cycle. The João Pinheiro Foundation holds the most respected studies in Brazil on issues related to the housing deficit. based on census data from Brazil (Brazilian Institute of Geography and Statistics . LOW INCOME HOUSING INTRODUCTION The residential properties that the market denominates “economic” or “popular”.550 to USD 2.5 million poor households. whose housing products are not viable from a business point of view.4 million houses in excessive density (over occupied regarding its size). With the economy growing. requiring subsidized costs. up to 775 USD].4 million units by changing the method of calculation. even at moderate rates. which has been rolled and it only does not cause serious impacts on the economy of the FGTS. State and Municipal) to meet the lower income levels. given that the wages in Brazil is growing. causing growth of the occupations of land for sub-housing in slums. designed for the strata of the lower middle and low-income families in Brazil. because the fund has a curve evolution of organic growing.2 million units. building estimates for 2007.PART II LOW INCOME HOUSING PART II. While revising their studies. federal government stratifies the low-income classes. It should be noted that this estimate is the result of a methodological adjustment to the measurement of the housing deficit. MW stands for minimum wage. The real estate market traditionally offers products only for the higher segment of the public. so the deficit has grown significantly and it focuses wantonly in big metropolitan cities and their surroundings. but end up being known in part. The estimated deficit for 2007 is composed of 1. large numbers of jobs are generated. From May 2009 until April 2010 1 MW equals 465. with monthly household income ranges of [i. [iii 6 MW to 10 MW]. 3 MW to 6 MW]. [ii.0 million houses with excessive rent and 0. 2. which are not officially released. [ii. use resources from FGTS. from 775 to 1.Federal Government) they set the deficit at 6.550 USD]. Rio de Janeiro and Recife are noticeable. Examples of some of the major Brazilian cities like Sao Paulo. no information is available to support the claim that the economic condition of FGTS is healthy and it is necessary to measure the degree of the present default and the corresponding value of the collateral of mortgage. so the intervals are equivalent to: [i. in 1. These funds are applied at the lower interest rates of the system and generate impressive default rates.00 BRL (USD 258.00).

4 million. between what is needed in the three hierarchies of pubic power (Federal. but with commitment of resources advertised as able to meet the production of 1 million houses. which they had never done before. one can conclude that the demand for new housing in Brazil is around 580. but linked to the resources provided by the PFH. In the segment [3 MW to 10 MW] its contribution to reducing the deficit is a little more evident. this is a theme of urban policy..977/09). There is a number of entrepreneurs in Brazil that produce housing for the [iii] segment. having no practical effect in reducing the recorded deficit. taxes. State and Municipal) and what each government included in its action plans.0 million residences in the country. giving coverage to the organic growth of demand. Recently (April-June 2009) the Federal Government enacted a legislation. costs. THE FEDERAL GOVERNMENT SUPPORT PROGRAM The Federal program to promote the production and acquisition of housing for low-income (PFH) includes a goal of building 1. The Brazilian government has been busy building houses for this market segment. which will actually grow in the absence of complementary actions in housing provision. Using the IBGE indicators. only to cover expected population growth. or even stop their growth.000 per year in the range of 3 MW to 10 MW. The actions have been topical and uneven. to a deficit estimated by the Federal Government of 6.000 for the [iii]. interest. with no target date. being 400. Several Brazilian States and some municipalities build housing for low income through Urban Development companies or Residential Construction companies. although the incentive to purchase houses in this range is much more modest in the PFH. with some modest inserts in the [ii] range. The PFH is complementary to this action. In this sense. setting up a housing plan. even considering compressed return margins. in the sense that there is no deadline to achieve it.HOUSING FINANCE MECHANISMS IN BRAZIL Studies developed by the Real Estate Research Group at the Polytechnic School of USP show that it is not possible to validate new developments in the low income range [i] using the current market parameters. It is clear that the housing deficit is concentrated more “bottom up” and in view of the action in business ventures for low-income focus “top down” and do not penetrate the full [i] range. seeking to encourage entrepreneurs to operate in this market segment. The goal is timeless. the PFH is not able to cover the vegetative growth of a single year in the lower income segment.000 for the interval [i]. mainly using funding resources directed from FGTS. housing and income distribution. in view of the bureaucracy that dominates the procedures needed to develop real estate projects through entities operating into the locks of the state.000 for the [ii] and 200. and with no guidelines for medium and long term. Thus. we see no means to meet the deficit. traditionally treated lightly in Brazil. already approved by Congress and signed into law (Law 11. which ends when the allocated resources are exhausted. 400. which has appeared ineffective.000 per year in income range of up to 3 MW and 83. 16 .

are validated for entrepreneurs when presented in large-scale. it is possible that the program will spread out the medium and small cities in Brazil. the supply of land should be a contribution of the State for projects. abandoning the whole idea of treating the acute problem of sub-housing in major metropolitan cities. the option to promote the acquisition through grants to pay the price ensures efficiency in the transfer of state resources to the market that should benefit from this. Brazil. where the low-income housing shortage is most aggressive. The price limits for houses into the PFH and the level of subsidies that the PFH offers are enough evidence that these land attributes cannot be considered as cost of the entrepreneur. not fully reflecting the fall in prices. as well as relieving the costs on some construction materials and other marginal costs to buyers. at adequate cost for low-income housing. representing palliative movements. Belo Horizonte and Recife. Especially at this critical juncture in the global economy of which Brazil is not isolated and suffering significant impacts on employment and income. representing an additional indirect subsidy as important as the financial subsidies provided for in PFH. seen here provided with utilities (electricity. procedures that would never have produced striking effects. able to carry the solutions to the periphery of the large metropolitan centers. The land issue. in order that PFH does not result in the proliferation of small-scale enterprises in small cities in Brazil. communication). In the past. Thus. however. at different times. Development projects. Rio de Janeiro. in the periphery of the large metropolitan areas in Brazil.PART II LOW INCOME HOUSING If the PFH program is shy in its scale. but also the integration of urban developments to be built on the basis of PFH. 17 . the Federal Government has been practicing tax waiver policy on the automotive and appliances. is not directly tackled in the PFH. The development program that is being implemented also cuts taxes for entrepreneurs. What is vague in PFH is the land and infrastructure costs. The perception is that: i. lightly reflecting on marginal issues in the sector. water. like São Paulo. sought to encourage construction of housing for lowincome offering tax benefits on the sale of raw materials for construction. The cost of the adequacy of land to receive new developments (physical infrastructure). The PFH establishes that part of the price is paid directly by the Government (see Table 4). sewer. Therefore. the PFH focuses comprehensively on the issue of production costs for low-income housing and ii. figuring only as incentives to target subsidized resources for municipalities that contribute to the land for the projects directed to the lower income range [up to 3 MW]. realizing that the reduced tax serves to improve the margins of industries. There is no doubt that there are no land. maintaining the actual unsolved situation in the large metropolitan areas. health. the promotion through direct subsidies on the payment of the price of the houses. as the reform of housing and self-construction. which has been used in Brazil as policy development in different segments of economy. made available to purchasers is more effective than the alternative of tax waivers. the existence of adequate transportation to work and the insertion of urban equipments (education. such as insurance and real estate registry. whose unit price is small. services and leisure) are factors that will indicate the feasibility of each development.

977/09 Law 18 . as envisaged. the resources that the Federal Government will make available for achieving the PFH goals will not be sufficient. with the remainder of price being a subsidy given by the PFH. on which we make the following comments: i.00% +TR 5.583 5. which has the largest deficit and which is more complex the validation of private investments. equivalent to 10% of household income buyer. ignoring the call to the problems of metropolitan areas. Clearly. using the construction technologies now applied in Brazil. For the PFH funding.033 of RFM 1. The price of house for families of lower income (up to 3 MW per month) is transformed into 120 monthly payments. with sinking funds of the Federal Government. Subvention on price 1.550 Top = 2.08 MW. a certain amount of resources was allocated. TABLE 3: CLASSES OF INCOME AND SUBVENTIONS OF PFH . This amount. with their costs.0 million houses.00% +TR 8.292 iii. Since the law that supports the implementation of PFH defines volumes of resources of the Federal Government that will go to grants.I Monthy Family Income MW upto 3 USD 775 i. in which each installment may not exceed 10% of the monthly income of each family benefiting from the plan. with a definite end.00% +TR 6. the Federal Government provides a large subsidy for the acquisition. which secretes a substantial portion of low-income population in slums. There is an apparent contradiction between the two factors. The relevant subsidies from PFH are summarized in Tables 1 and 2. Studies from the Real Estate Research Group at the Polytechnic School of USP allows us to conclude that. at the current value of the MW. administered by CEF. Price limit considers monthly installment equal to 20% 1.HOUSING FINANCE MECHANISMS IN BRAZIL Subsidies for Housing Acquisition The PFH divides economic housing market into three segments for Brazil. for which subsidies will be offered in different concepts. Simply put. with a minimum value of R $50 = USD 23.9 775 i. which leads to the perception that the resources will be depleted before they reach the goal. as indicated in tables 1 and 2. but rather functions as a standalone plan. only other law may perpetuate the system to solve the problem for low-income housing. with the provision of subsidies given the goal of building 1. which are those with the most acute impact of the housing deficit. marked by the consumption of resources allocated. the PFH does not anchor a system. unless the construction of housing to be concentrated within the country.16% +TR Major subvention APR 3 4 5 6 6to 10 Sources: CEF and 11. the price of the house is settled in 120 monthly instalments. Mortgage finance in 360 months ii.00% +TR 5. In the income range [i]. accounts for 10% of a monthly income at 1. each payment limited to 50 BRL. at the family income range of 1 MW to 3 MW. residential price= 120 monthy installments each oneequivalent to 10% of RFM ii.

enabling to offer the maximum price to be paid by the CEF (table 2).327 USD 28. and the interest rate of 5 percent per year. the largest deficit in the country.56 billion) around 46% of the BRL 14.726 96.II Monthy Family Income MW upto 3 3 4 5 6 6to 10 USD 775 775 1. the CEF is registering families for the purchase of houses and some constructors are validating their projects.889 5.000 12.636 86.000 16. (USD 3.889).709 71. The evidence is that projects only validate on very low cost land.677 128.000 2.778 8. the accepted price limit for housing is BRL 52. leading to a single-family residence around 35 sqm and apartments around 42 sqm.600 households. as indicated therein. that in those currently practiced by CEF. At this time.545).000 9.555) and this limit. is 52.293 Sources: CEF and 11.033 1. iii.000 1. the margin of income for the entrepreneur at that price will be between 7 and 8 percent of the price. the price is paid in 360 monthly installments equivalent to 20 percent of family income and PFH pays an allowance in price. In the range of monthly income [ii] 3 to 6 MW price is fully financed in interest rates indicated in table 1. of the target of 400.111 Subvention on price BRL USD Market Price Limit BRL 52.781 BRL (USD 21.000 BRL (USD 28.4 billion.000 (USD 28.0 billion (USD 7. with a high default risk.78 billion) allocated for the whole country.000 of PFH for the range [i]. vi.181 96.878 53. such as São Paulo. make a full allowance of around 1 percentage point per year in interest rate.PART II LOW INCOME HOUSING ii. In the range [i]. Also in the income range [i].020 47.889) in the city of São Paulo. no financial cost and with low taxes. ranging from BRL 37. depending on the region in Brazil. and not considering the cost of insurance and other costs added to the monthly payment. the family could obtain financing from 13. With land at no cost. Considering the limit of the monthly payment on 10 percent of income for the highest income band.583 23. given that CEF only funds projects to the price limit indicated. In this range [ii]. 19 . The implicit subsidy would be 38. because the PFH provides that CEF buys and sells houses to families.292 1.000 75. v. The highest price accepted by the CEF for apartments in the metropolitan areas. with the minimum specifications required. the operational procedure sets the entrepreneur free form interest and marketing expenses. thus requiring subsidies from BRL 6.219 BRL (USD 7. TABLE 4: CLASSES OF INCOME AND SUBVENTIONS OF PFH .889 42.550 Top = 2.000 (USD 25.737 53.344).977/09 Law iv. The production quota for the region of 165.

20 .

through the General Prices (IGP M) from FGV Getúlio Vargas Foundation. starting from the late 80’s and going through the 90’s until the first half of 2009. The first. albeit at very high levels. Looking back at the recent economic history of the country. mid1994. In parallel with the macroeconomics. The year 1989 is characterized by stagflation .PART III HOUSING FINANCE IN BRAZIL PART III. The Real Plan was set by Federal Government with the intention of cutting inflation to one-digit values. Since the Real plan installation it is possible to characterize two distinct phases. high interest rates and growth rates of inflation. GDP growth and high interest rates. HOUSING FINANCE STATISTICS IN BRAZIL MACROECONOMIC ISSUES AND THE SBPE In order to better contextualize the housing finance system in Brazil. The second phase of the Real Plan is linked to the increasing need for financing the current account deficit and covers the end of 1997 until the end of 1998. the date of its implementation. reflected in the decline of GDP. with distortions and reflections with their own characteristics in the behavior of economic agents. For the cost of money in the economy. For the evaluation of macroeconomic fluctuations and its comparison with the performance of the housing sector. a period characterized by crises in Southeast Asia and Russia. The analyses are for the period from 1988 to 2008. 21 . to be par to the USD. set SBPE performance for the same period allows us to understand the connections and constraints of the housing finance with the macroeconomic scenario experimented by Brazil in this era. Since 1992 the GDP started to grow at the same the rate with inflation. with inflation indices also in decline. called Interbank Deposit Certificates (CDI). the present Brazilian Real. but reappear after its end. and the Consumer Price Index (CPI) of FIPE-Institute of Economic Research of São Paulo University. The plan incepted a new currency. a first analysis of the data indicates large macroeconomic turbulences in restricted periods. whose main characteristics are low levels of inflation. The result was extremely low growth rates in 1998 and expectations for 1999 of a slight decrease in the GDP. derived from the devaluation promoted in early 1999. in order to support the exchange rate and maintain current levels of inflation. at that moment. we choose the rates on Interbank Deposit Rates. the following indicators were chosen: evolution of the Gross Domestic Product (GDP). price developments in the national economy. The policies implemented during this period showed the line of attack of increase interest rates to attract volatile capital. until the end of 1997. a situation that lasted until the Real Plan.high inflation and falling GDP (Figure 6). from 1990 the economic environment is characterized by a sharp decrease in the level of economic activity. it is adequate to compile some information regarding the Brazilian macroeconomic performance. designed. whose levels show a declining trend since the beginning of this phase.

reaching 19 % pa in August. accompanied by a strong increase in interest rates in the economy.75 percent per year. With the devaluation. From 2004 until early 2008.” and that Brazil was one of the least affected. and announced the plan to encourage production of housing for the low-income strata.2001. On the other hand. though small. the Brazilian GDP equals 167. mainly in the residential real estate. the value of GDP in 1988. The Federal Government. the best historical reference. The higher the average income. currently 8. increasingly surplus in the foreign accounts and balance of payments was realizeed. we recorded the highest inflation rates since the beginning of the Real Plan. was repeated in the first quarter of 2009.9.HOUSING FINANCE MECHANISMS IN BRAZIL The basic interest rate offered by the Brazilian Central Bank (Bacen) in January 1999 stood at a level of 27 % pa in March and reached almost 41 % pa. 20 years later. which originated intense deterioration of expectations regarding the evolution of the Brazilian economy under the aegis of the new government.4.62%. In this period. the higher the average income imply in higher access to real estate credit for a larger number of families. Taking into consideration that the Brazilian system for housing finance is based on savings for raising money. in 2008. It is in the last quarter of 2008 that investments pulled back abruptly and intensely.35%. albeit with the highest interest rates of the emerging economies. a resumption of sustained economic growth was expected but which was quickly aborted in 2000 due to the crisis of energy supply in 2000 .85% and the least of . 22 . In Figure 6. but matched the targets set by the Bacen. resulting in an equivalent to annual growth rate of 2. the mood among the majority of agents and analysts was that “the worst of the crisis has passed. immobilized abundant resources in the formation of land banks. Brazil engaged in a relatively sustained expansion of economic activity. is transformed into the index number 100. despite the effects of international crises that was already being experienced since the mid-2007 in major economies. expressed in the currency of 2008. we saw the financial strangulation of several residential real estate companies that. The inflation level was high. From 2000 to 2003 the Brazilian economy experienced growth rates above GDP at around 2 % pa. with a fall in demand and the temporary restriction of credit. thus nourishing the funding of SBPE. greater tends to be the allocation of resources into long-term savings. according to the state of main macroeconomic indicators. just as important to recognize the pattern of evolution of the Brazilian GDP is to distinguish the historical behavior of GDP per capita over the same period. promoted a series of reductions in the basic interest rate of the economy. In the second quarter of 2009. in order to reverse the expectations of the market. In addition. through the Brazilian Central Bank. It is accepted that this was related to the political transition of 2002. At these interest rates the real estate market was paralyzed. which occurred in the last quarter of 2008. with the highest annual growth rate observed in the period of 5. The fall in GDP. Strong international reserves. From April the Bacen adopted a policy with a downward bias for that rate. The year 2008 is marked on the Brazilian economy as the reversal of the more euphoric expectations found mainly in 2006 and 2007. in the phase of euphoria and availability of funding.

309 (USD 6. The annual growth rate.20 percent. especially after the sub prime mortgage crisis. respectively.186 in 1988 and reaching USD 8.S.0 90 -2% 70 -4.S. This cause.50 percent.18% annually.90%.71% annually. dollars over the period is due to the successive devaluations of the Brazilian Real. currency. 23 . Figure 8 shows the Brazilian GDP per capita in USD from 1988 to 2008. is 6.PART III HOUSING FINANCE IN BRAZIL FIGURE 6: THE BRAZILLIAN GDP ALONG THE LAST YEARS 210 GDP (1988 = 100) 190 Rate. 2004 and 2007 show the highest rates of growth of GDP per capita in the period. as observed from 2003 to 2008.33 percent and 4. was caused by monetary policies that favor the recovery of the Brazilian Real against the US Dollar. the intense fluctuation of Brazilian GDP per capita in U. resulted in a sharp increase of Brazilian GDP per capita expressed in USD of approximately 2.838) to BRL 15.467) in 2008. often from result of direct intervention of the Brazilian Central Bank.298 in 2008. The value of per capita income fell sharply from one year to another. regardless of dollar inflation. reaching 4. such as occurred in the max devaluation in 1999. associated with the global trend of devaluation of U. while the GDP increased during the same period the equivalent to 4.07% in the period.35% 50 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 -4% -6% Source: Brazilian Central Bank (Bacen) As Figure 7 shows.per year (right side) 8% 10% 167.240 (USD 8. 4. The years 1994.9% 170 6% 150 4% 130 2% 110 0% 100. meaning an annual effective growth rate equivalent of 1. which was USD 2. in 20 years the per capita income in Brazil increased from BRL 12. Its rapid growth. Of course.

000 -40% 0 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 -50% Source: Brazilian Central Bank (Bacen) 24 .per year (right side) 8.15% 0 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 -8 -10 Source: Brazilian Central Bank (Bacen) FIGURE 8: THE BRAZILIAN GDP PER CAPITA OVER THE LAST 20 YEARS (IN USD) 10.000 -7.000 12.000 GDP (1988 = 100) 18.per year (right side) 16.20% 14.000 10% 5.000 -4 4.186 2.000 -6 2.HOUSING FINANCE MECHANISMS IN BRAZIL FIGURE 7: THE BRAZILIAN GDP PER CAPITA OVER THE LAST 20YEARS (BRL OF 2008) 20.000 -10% 3.000 Rate.000 -2 6.000 GDP (1988 = 100) 9.000 2.309 12.33% 4 6 8 10 167.000 Rate.000 0 8.9% 10.000 20% 6.000 0% 4.000 2 4.000 30% 40% 50% 7.298 8.000 4.000 -20% -30% 1.

instead use the CP funds to finance real estate. Since 2004. the banks made the Federal titles options for investing. In the late 1980’s the volume of granted credit for housing purchase reached a value equivalent to about 9 % of the monetary value of the Brazilian GDP on that date. exceptionally. the significant reduction in the volume of real estate credit as a proportion of GDP average of 2 % is the result of two movements: i. particularly from 2003.0% 62. In Figure 9 one can visualize the behavior of this relationship over the past 20 years in Brazil.123 thousand in 2008.PART III HOUSING FINANCE IN BRAZIL Another indicator that illustrates the efficiency of the SBPE into funding Brazilian housing is the ratio of housing credit volume in the market turnover with GDP. which is BRL 161.83 %.0% 19.0% 10. ii.1% 16.456 thousands. expressed in USD of 2008 was 116. this particular situation is now replaced by the original obligation of finance (65% of the CP balance has to be used for real estate finance). achieving equivalent annual growth rate of 4. After 2000. 5 %. that can be used against the obligation in a decrease ratio of 5% per year. the reduction on the amount of credit allocated to the housing market. In early years of the decade that followed. a figure that remains relatively stable until the middle of the decade. while the due balance of FCVS in favor of the banks remained unsolved.437 thousands of 2008.71%. equivalent to 1.0% 21.65 percent annually during the decade. but mitigated by the FCVS balance in favor of each bank.0% Germany Malaysia France 51. This reduction in the ratio is due to the virtually stagnating credit while there has been a growth in GDP.0% Chile Thailand Mexico 16. although very secure and paying one of the highest rates in the world. by the end of 1999. the CP funds raised by the banks could be invested in public titles.1% 25 . However. The whole 1990’s decade is marked by a decrease in this parameter. For illustration and comparison. the relation among housing credit and GDP indicators of selected countries (source – world bank 2005): Holland UK USA 88. since in 1990 the ratio of credit volume to GDP is 6. considering the interval from 2000 to 2008.0% 53. while during the 90s the average volume of credit. The allocation of credits for housing finance decreased since 1995 in a proportion of GDP which can be seen a as a paradox. Therefore. the average was USD 48. albeit still small. the intensified expansion of economic activity in Brazil. the Government authorized that. reaching.

one can have a measure of the ability of the formal system to meet one of the components that characterize the demand for production housing and therefore the financing for the acquisition.8 percent annually. there were about 27.135 thousand. In 2007.30% 2% 50 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 0% Source: Brazilian Central Bank (Bacen) In Figure 10. the historical data compiled here show that the system was able to fulfill the order of 53% of the needs of demand. the number of households in Brazil reached 55. according to the IBGE. Roughly speaking. In 1982.08% 10% 130 6.97% 8% 110 6% 90 4% 70 1. Table5 shows the data displayed in Figure 10.HOUSING FINANCE MECHANISMS IN BRAZIL FIGURE 9: THE BRAZILIAN HOUSING FINANCING SYSTEM. when considering the best performance years (600 thousand residential units financed against a demand of 1. which means an expansion rate of 2. 26 .900 thousand households in the country.9 12% 150 9.135 thousand). the average number of households formed each year in Brazil. the evolution of the formation of households in Brazil from 1982 to 2007 with its annualized growth rates is presented. Considering only the SBPE and funds generated under the FGTS as a source of funds for the acquisition of residences by the Brazilian population. within the period under review was approximately 1. AS A PROPORTION OF THE GDP 210 GDP (1988 = 100) Housing Financing as a GDP proportion (%) 190 14% 16% 170 167.87% 1. Thus.544 thousands.

16 30.9% 3.30 31.3% 3.2% 1.90 28.96 38.96 52.14 33.54 2.81 55.6% 0.04 49.54 6% 55 50 48.6% 3.2% 27 .6% 2.0% 2.90% 40 4% 35 30 3% 25 20 2% 15 10 1% 5 0 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 0% Source: Brazilian Institute of Geography and Statistics (IBGE) TABLE 5: NUMBER OF HOUSEHOLDS IN BRAZIL AND THE ANNUAL INCREASE RATE Year 82 83 84 85 86 87 88 89 90 91 92 93 Number of Households Million 27.0% 3.75 40.6% 94 95 96 97 98 99 00 01 02 03 04 05 06 07 37.04 5% 45 27.58 35.per year (right side) 55.6% 2.6% 0.97 39.04 36.9% 2.7% 4.64 41.5% 3.5% 3.30 53.5% 2.4% 4.5% 2.34 35.5% 2.84 42.6% 2.3% 2.17 34.7% 2.90 48.88 46.81 36.19 29.4% 3.PART III HOUSING FINANCE IN BRAZIL FIGURE 10: HOUSEHOLDS IN BRAZIL TOTAL AND INCREASE RATE 60 Number of households (millions) rate.9% 2.96 Increase rate per year 7.71 50.10 32.85 44.2% 3.

(Private) 4. Banco do Estado do Sergipe S. Lemon Bank (Private) In this list. of which 23 were private and 12 public entities. being the total equivalent to 24.A.A. linked to SBPE currently operating in Brazil totals 17 institutions. In Table 5 we see the participation of each type of institution. there are 11 private and 6 public institutions. Banco Nossa Caixa S. POUPEX (Private) 9. the Caixa Economica Federal (CEF). (Private) 11. involving both public institutions and private banks as seen in the data presented below: In 2002 the SBPE was composed of 38 institutions.A.A. Banco Citibank S. is the same proportion and total from year 2005. with 20 private and 12 public.A.HOUSING FINANCE MECHANISMS IN BRAZIL MAIN SISTEMA BRASILEIRO DE POUPANÇA E EMPRÉSTIMOSBPE PLAYERS The funding providers. Since 2002 there is a strong concentration in the sector.A. 24 private and 12 public. The distribution between public and private lenders is not balanced due to the aggressive action of CEF (major public) in providing funds for housing. Banco Mercantil do Brasil S. Banco do Estado do Espírito Santo S. (Private) 3. Banco Itaú S. In 2004 the system had 35 institutions. In 2005. there was a reduction of 3 in total number of agents operating the system in the previous year. Banco Real S. according to the nature of the controlling shareholders.A. (Public) 7.A. In 2008. In 2007 there was a strong reduction in the total number of participants in the system.A. (Private) 8. 28 .A. Banco Safra S. In 2003 there were in SBPE 36 players. Caixa Econômica Federal (Public – Federal) 2. (Private) 14. arranged in descending sequence according to the balance of savings deposits. (Public) 15.A. (Private) 5. 1.A. with 16 private banks and 8 public banks. HSBC Bank Brasil S. (Private) 16. Banco Santander SA. (Public) 13. Banco do Estado do Pará S. (Private) 12. (Public) 6. (Public) 10. Banco do Estado do Rio Grande do Sul S. 25 private and 13 public. the number of institutions in SBPE drops to 22. BicBanco (Private) 17. public and private savings. the system has 14 private and 8 public. one of them being the biggest savings bank. Banco Bradesco S. The number of players and type of control does not change in 2006. on the total lending in the housing SBPE. This year. totaling 32.

Part of the funds are used under the direct purpose of buying a home by the end purchasers.2% 83.136 110.1% 81.752 206.543 106.840 126.1% 23.4% 28.427 181.1% 30.014 97.6% 68.6% 83. Table 7 details the values in Figure 11 and Table 8 the values of Figure 12.8% 72.908 540.4% 31.918 Private all other banks BRL million (%) of total 31.749 286.434 186. part has been used first to produce new units.083 479. 29 .3% 67.8% 66.290 100.8% 32.2% 67.9% 69.2% 82.689 450.2% 127. only with 58 thousand units financed. From the total funds allocated to housing by SFH through SBPE.5% 27. Different factors contributed to the change in volume of loans granted since the time limit on the use of FGTS for amortization of mortgages (from 1983) to disagreements arising from inflationary pressure that brought the system to collapse.764 107.9% 76.9% 18.9% 21.5% 72.564 114.505 195. following the acquisition.078 514.PART III HOUSING FINANCE IN BRAZIL TABLE 6: HOUSING FINANCING LEVEL ACCORDING TO THE FUNDS PROVIDER SOURCE Year Public.714 112.252 108.401 355. the SFH peaked in 1980.8% 62.4% 16.6% 71.253 99.0% 74.028 226.3% 28.8% 32.6% 29.8% Source: Brazilian Central Bank (Bacen) FINANCING SYSTEMS IN NUMBERS Residential Units Financed In Figure 11 there are the number of units whose acquisition was financed through the SBPE system and using the FGTS funds.8% 17.2% 33.432 461.7% 71.0% 25.411 134.222 576. as shown in Figure 12.8% 16. The partition of resources to meet first the production and directed straight to marketing of units has been fair in recent years.2% 37. registering in 1993 the worst point.6% 25.1% 78.2% 27.4% 75. mainly CEF BRL million 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 407.7% 32.2% 67.4% 70. when it surpassed 600 thousand units financed.547 108.493 316.716 (%) of total 68. As shown in Figure 11.

Caixa Econômica Federal (CEF). Brazilian Association of Entities of Real Estate Finance and Savings (ABECIP).HOUSING FINANCE MECHANISMS IN BRAZIL FIGURE 11: NUMBER OF UNITS FINANCED BY SFH (SBPE+FGTS) 700 FGTS 600 SBPE 627 500 thousand units 400 300 200 100 58 0 72 75 78 81 84 87 90 year 93 96 99 02 05 08 * FGTS information non available Sources: Bacen. Brazilian Committee of the Construction Industry (CBIC) 30 .

729 124.657 106.232 280.424 337.358 59.769 108.534 266.827 61.312 132.186 206.PART III HOUSING FINANCE IN BRAZIL TABLE 7: NUMBER OF UNITS FINANCED BY SFH (SBPE+FGTS Year FGTS 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 84.384 46.205 141.055 99.801 42.144 59.617 359.417 164.834 68.964 Total 31 .590 124.514 282.384 32.56 NA 16.550 29.247 86.652 62.649 383.423 135.551 25.662 231.884 258.428 NA NA 63.617 Total 157.708 61.745 44.670 57.083 99.706 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 200 2001 2002 2003 2004 2005 2006 2007 2008 74.993 41.801 96.900 170.937 77.059 47.238 366.251 398.178 35.990 212.227 98.487 39.004 58.795 28.480 53.050 64.268 64.144 68.398 541.804 61.144 211.005 181.719 43.905 36.005 44.350 99.089 Number of units financed SBPE 73.223 627.086 58.049 247.869 53.623 60.821 247.713 337.873 196.129 77.807 34.301 240.985 260.516 274.685 96.368 35.410 58.006 197.594 38.763 267.133 299.286 35.230 117.131 36.204 266.709 279.562 42.685 Year Number of units financed FGTS SBPE units 165.808 198.671 522.342 465.875 160.489 157.610 400.531 76.512 109.465 35.133 108.353 209.216 163.448 408.286 283.684 320.249 31.929 273.785 241.223 113.685 43.

161 758 1.000 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 year Sources: CEF.002 4.048 666 595 965 1. In the SFI system.000 15.221 Aquisition BRL Million 611 1. the funds raised in the environment of the SFI were able to accrue just over 7% of this amount. .032 25.410 30.032 Financing Volumes The SFH achieved in historical values.857 9.935 1.124 826 699 857 1.735 1.852 9. Bacen. including the raising of BRL 5.394 2.608 1.725 2.401 16. CBIC TABLE 8: AMOUNT FINANCED FROM SBPE FOR CONSTRUCTION AND ACQUISITION OF RESIDENCES Year Amount financed (SBPF) Construction BRL Million 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 32 1.000 10.673 1.882 1. which fund raising system is not based on savings. being in its most part resources for the production or acquisition of non-residential units. overall there were 273 new offerings.000 BRL million 20.000 Construction Aquisition 30.855 4.769 2.218 3. the SFI has not been able to finance expressive volumes.216 1.997 4.252 1.463 1.051 764 868 984 916 888 1.811 Total BRL Million 1. Since its inception.523 million.146 1.009 13. within the last 10 years (1999-2008).876 1. the mark of BRL 75 billion in funding the residential construction and acquisition only through funds raised by SBPE.340 18.484 9. Figure 13 illustrates the behavior of the two systems in finance volumes.HOUSING FINANCE MECHANISMS IN BRAZIL Figure 12: AMOUNT FINANCE FROM SBPE FOR CONSTRUCTIOAND ACQUISITION OF RESIDENCES 35. but in placement of securities (the CRIs).000 30.175 1.000 5. In the last 10 years.

673 1.000 15.218 3. derived from attempts at economic plans that sought to contain the inflationary spiral at the expense. Figure13: FINANCED VOLUME SFH (SBPE) AND SFI (CRI) 35. of changes in rules for remuneration of the CP savings accounts.852 9.102 815 868 829 638 The Caderneta de Poupança-CP (savings accounts) Balances Overcoming the turmoil that took place in prior periods in Brazil.410 30. Brazilian Securities Issuing and Exchange Commission (CVM) TABLE 9: FINANCED VOLUME SFH (SBPE) AND SFI (CRI) Year SFH (SBPE) BRL Million 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1. 33 Source: Bacen.CVM .000 30.000 10.935 1. The SFI.002 4. Despite the net inflows that vary in the period.000 SFI (CRi) SFH (SBPE) 25. among others. the amount of funds invested in conservative savings has been growing vigorously. is still an appendix of the Brazilian global system and tends to persist in that situation. in respect to which agents in applications related to housing finance has been propelling the growth of credit.000 BRL million 20.PART III HOUSING FINANCE IN BRAZIL The image shows that the Brazilian housing finance privileged mechanism is the SFH. with its fundamentals in capital market fund raising. the volume of global resources are significant in amounts. since the Real Plan.CBIC.769 2.000 5.032 5. as it was designed in 1964. Table 9 details Figure 13.882 1.340 18.872 Financed Volume SFI (CRI) BRL Million 13 172 223 44 148 309 2.000 0 99 00 01 02 03 04 05 06 07 08 year Source: Bacen. CBIC. running with the CP (savings accounts) funds and the FGTS (compulsory savings accounts).

000 20.000 80.000 40. FIGURE14: SAVINGS (CP) VOLUME AND ANNUAL NET BALANCE OF DEPOSITS AND WITHDRAWS 220. In current values. .000 -10. real estate lenders were allowed to compute receivables against FCVS (insurance fund for compensation of installments adjustments against debt loan balance adjustments) to reach the chargeability of 34 65% required for the allocation of resources raised through the savings accounts (CP). The CP balance shows stability in these years (since Real beginning) which gives to the system the necessary confidence to keep financing for 20/30 years against a month of compulsory retaining of the deposits. although representing a liability of the system is being surpassed for the long funds retaining cycles experimented in those 35 years of SFH.000 30.000 180.000 20.000 200.000 year Annual movement (BRLMillion) Sources: Bacen Residential Loans and Use of the Caderneta de Poupança-CP Funds housing credit has grown permanently since 1994. what triggered the allocation of funds to residential construction and acquisition.000 15.000 0 -5. decreasing since then.000 35.000 40.000 120.000 160.000 60. The asymmetry already described in Figures 1 and 2.000 5.000 Total savings (BRLMillion) 140.HOUSING FINANCE MECHANISMS IN BRAZIL The evolution of CP balance and net fund raising and withdraw balances is illustrated in Figure 14.000 10.000 25. the use of such claims peaked in 2004.000 100.000 0 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 Savings in CP Annual Movements = Deposits x Withdraws 45.

the granting of credits also used the sources from LI and CI. Amapá (AP). LI+CH. the granting of housing loans have been growing significantly in recent years caused by. CBIC Residential Loans Allocation Within the Country Considering the vast territory of Brazil and disparities between regions. we have: North (N): Acre (AC). in average. the distribution of housing loans is disbursed. considering the net amount (corresponding to the total issued. in the last 10 years. FIGURE 15: HOUSING LOANS X SAVINGS VOLUME IN CP 100% 80% Minimum Required = 65% Housing loads/ Savings Volume 60% 40% 20% 0% 95 96 97 98 99 00 01 Year 02 03 04 05 06 07 08 Source: SBPE-SFH. Counting the three different sources of funds. Pará (PA).PART III HOUSING FINANCE IN BRAZIL On the other hand.2%. social programs). as indicated in Figure 16. less the total paid). (CP. and some transfers from funds and social programs. Rondônia (RO). LI and CH together. Amazonas (AM). Bacen. while social programs for 6. Roraima (RR) e Tocantins (TO). whether in terms of population distribution and stage of socio-economic development of families. either the fall in interest rates or expanding the time for payment.6% of the amount financed. characterized by a set of states / territories. Using the identification of macro-regions. accounted for 6. 35 . In the period represented in Figure 15.

Santa Catarina (SC). South-East (SE): Espírito Santo (ES). Sergipe (SE). South (S): Paraná (PR).HOUSING FINANCE MECHANISMS IN BRAZIL Northeast (NE): Alagoas (AL). Piauí (PI). Mato Grosso do Sul (MS). Maranhão (MA). Goiás (GO). Paraíba (PB). Pernambuco (PE). Mato Grosso (MT). Figure 7 presents the distribution of loans all over the country. Bahia (BA). Rio de Janeiro (RJ) e São Paulo (SP). Rio Grande do Norte (RN). Ceará (CE). Figure 16: BRAZILIAN REGIONS RR AP AM N PA MA PI TO CE NE RN PB PE AL SE AC RO MT GO DF BA MG MS SP PR S RS SC SE RJ ES 36 . Minas Gerais (G). Rio Grande do Sul (RS) and Mid-West (MW): Distrito Federal (DF).

131 36.480 0 98 99 00 01 02 03 04 05 06 07 08 Sources: CEF.685 SouthEast NorthEast North 300.465 35.873 100.000 53.827 61. CBIC 37 .223 50.795 28.000 113. Bacen.000 200.905 36.PART III HOUSING FINANCE IN BRAZIL FIGURE 17: NUMBER OF RESIDENTIAL UNITS FINANCED (SBPE) ACCORDING TO REGIONS 350.133 Units 150.368 35.000 250.000 Mid-west South 299.000 196.000 39.

38 .

39 .

40 .

a retirement fund and Caderneta de Poupança –Savings Account (CP).O. acquisition finance 7. GPO Nairobi. The mortgages remain as anchors of the savings (mandatory in FGTS and voluntary in CP). Labor problems caused by stability. created the Brazilian system in 1964. The whole conception of the Brazilian system is based on these two sources of funds: Fundo de garantia por tempo de serviço-FGTS . As the mortgages are not object of securitization.685 residential units were financed from the housing finance system in Brazil.7 USD billions.unhabitat. Kenya Telephone: +254 20 762 3120 Fax: +254 20 762 3477 infohabitat@unhabitat.org www. In 2008.The Human Settlements Finance Systems Series Housing finance mechanisms in Brazil have a very particular structure. HS/115/10E ISBN: 978-92-1-132225-5 (Volume) ISBN: 987-92-1-132027-5 (Series) United Nations Human Settlements Programme P. Box 30030. when compared with the existing system allover the world. the system operate at a very low level of leverage. the intensive creation of unqualified jobs in civil construction and the institutionalization of a housing finance mechanism. construction finance accounted for 9 USD billions.org . for construction and acquisition. 299. aiming to solve different situations at the same time. and its growth is based on the capacity of the economy to create jobs and pay salaries adjusted higher than the accrued inflation rates. 00100. The Federal Government.

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