FLORIANÓPOLIS: The year was 2020, and a pandemic devastated the world. Not unlike what could be expected, an economic crisis was announced (and fulfilled). The markets panicked and everything that yesterday was worth 100 is today worth 50. Overnight, companies consolidated in history were ruined, laying off thousands directly and millions indirectly.
But a segment, apparently immune to this tension, instead of suffering, was benefited. Social isolation has made those who used to live in a small apartment (as they spent most of the day at the office and on the street), to look more closely at larger properties.
Unsurprisingly, we watched the real estate market thrive, raising prices to levels never seen before. The abrupt drop in the basic interest rate also contributed to prices (albeit at their peak) being supported by buyers' ability to pay. But the bed of roses wouldn't last long.
A few months after such fervor, the market is already showing signs of exhaustion. The interest rate is no longer 2% per annum, but 10%. The properties that before, when financed, had a 1x installment, today have a 4 or 5x installment. The cost of living (how much you spend monthly to live on rent vs. how much you spend monthly to live in your own property, financed or paid off) no longer makes sense.
I'm not a big fan of commenting on specific cases, but it happened to me this weekend (which led me to write this text on Sunday). I was having lunch yesterday, Saturday (5th) when I met, unpretentiously, a colleague, João (that's what I'll call him) who told me excitedly that he had bought an apartment very close to where we had lunch. To our surprise, I am negotiating a property in the same building, but for rent.
Chat goes, chat comes, João confessed to me that he was a little distressed with the price he had paid for the property: BRL3,45 million. He shouldn't have asked the question he asked me, right after, because, as he was already disgusted with the deal, he got even more when he found out how much I'm closing the rent for: BRL8 thousand. See, BRL3,45 million for purchase versus BRL8 thousand for rent, for the same property, same area, everything the same, except for two different units, one on the 7th and the other on the 8th floor.
I left lunch wondering: was João naively optimistic or intentionally blind when he closed the deal? João is not just any person. Ordinary people don't have BRL3,45m to buy a property. In fact, the average price of properties sold in São Paulo (the largest real estate market in Brazil) in the recent years was BRL500 thousand.
João will now need to digest this pineapple. Whether suffering a loss, if he needs to sell the property within a few years, or having to wait a long time, until the property becomes worth as much as he invested, plus the income he could have earned if he had made a financial investment with the amount used to purchase the asset.
"In Paradise, everyone tells the truth. That's what makes it Paradise." I don't expect them to tell me the truth, I just hope they don't lie. The market does not accept lies. At least, not for long.
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