SAO PAULO — With interest rates at record lows, Brazilian Bruno Silveira Diniz decided to seek better returns on a slice of his savings by investing in real estate funds.
The 30-year-old engineer was one of hundreds of thousands of Brazilians who rushed into such funds last year, only to see their investments wither as the coronavirus crisis hit.
“I am hoping they all recover after the pandemic. But I know the ones that own only one building may not come back, depending on who the tenant is,” Diniz said.
He put 40% of his savings in five listed property funds, higher than the 5% threshold recommended by banks such as Itau but not a uniquely high proportion.
Reuters spoke to six individuals, one of whom said they had put 90% of their savings into such products, while others said they had invested 30% or 40%.
Brazilian retail investors, who had long kept their money in fixed income investments when interest rates were high, were tempted into real estate funds by a soaring market during 2019, with their numbers tripling to 630,000 in just one year.
“Many investors saw similarities in real estate funds to fixed income products,” Lucas Collazo, an analyst with broker Rico said, adding that a tax exemption was another incentive.
“We had a couple of years of extremely low volatility and prices were only rising,” Collazo added.
However, as Brazil’s benchmark real estate funds index the IFIX, which gained 35% last year, has fallen, so too have many of these funds, which are similar to Real Estate Investment Trusts (REITs).
The IFIX is down by 19% so far this year, while Diniz, who has resisted the temptation to sell, says the value of his portfolio of funds has slumped 16%.
Funds which invested in shopping malls, traditionally a bedrock of Brazil’s retail economy, have been the hardest hit and even some owning offices have seen dramatic declines.
XP Malls is down 36% this year after it, along with other such funds, suspended dividends in March as malls were forced to close due to the coronavirus and their tenants were unable to pay rent as customers and revenue evaporated.
Meanwhile, the Torre Almirante fund, named after the single Rio de Janeiro office building it owns, has a near 70% vacancy rate and is down 39.5% so far this year.
And funds invested in office blocks are also cutting dividends as corporate tenants of all sizes ask for rebates or to suspend rent payments.
However, funds which own warehouses, many of which have seen growing e-commerce demand, have held up relatively well. CSHG Logistica is down 13.5%, data shows.
And few real estate fund offerings have attracted retail investors, who last year made up 72% of traded volumes, since the coronavirus pandemic began, Diego Coelho, a capital markets lawyer, told Reuters.
“Now we’re only seeing institutional investors,” he said.
Brazil’s real estate funds are not alone, with losses in REITS worldwide amplified by leverage.
The FTSE Nareit All REITS Index, the broadest index of U.S. REITs, has fallen 27% so far this year, compared to the 9% drop in the S&P 500.
In Britain, many real estate funds held by retail investors had their trading suspended, in compliance with regulatory rules, after the value of more than 20% of their assets became uncertain, while the REITS index in continental Europe has dropped 23% this year.
In Brazil, the slump has shocked investors like 39-year old shoe salesman Diego Schulz, who says he learned about property funds on personal finance channels and internet forums.
“My goal was to invest to have a stable revenue and pay part of my expenses,” he said, after moving 60% of his net worth out of savings accounts and government bonds and into such funds.
Those holdings are now down 10%, showing a small bounce back, and Schulz is holding on to them for now.
“I know I need to take more risk to earn more, in stocks for example, but I really have to take the time to understand it better.” he added.
(Reporting by Tatiana Bautzer; Editing by Christian Plumb and Alexander Smith)
What Is the Canada Mortgage and Housing Corporation (CMHC)
The Canada Mortgage and Housing Corporation (CMHC) is a Canadian Crown Corporation that serves as the national housing agency of Canada and provides mortgage loans to prospective buyers, particularly those in need.
Understanding the Canada Mortgage and Housing Corporation (CMHC)
The Canada Mortgage and Housing Corporation (CMHC) serves as the national housing agency of Canada. CMHC is a state-owned enterprise, or a Crown corporation, that provides a range of services for home buyers, the government, and the housing industry.
CMHC’s stated mission is to “promote housing affordability and choice; to facilitate access to, and competition and efficiency in the provision of, housing finance; to protect the availability of adequate funding for housing, and generally to contribute to the well-being of the housing sector.”1
A primary focus of CMHC is to provide federal funding for Canadian housing programs, particularly to buyers with demonstrated needs. CMHC, headquartered in Ottawa, provides many additional services to renters and home buyers, including mortgage insurance and financial assistance programs. CMHC acts as an information hub for consumers, providing information on renting, financial planning, home buying, and mortgage management.
CMHC also provides mortgage loan insurance for public and private housing organizations and facilitates affordable, accessible, and adaptable housing in Canada.2 Additionally, CMHC provides financial assistance and housing programs to First Nations and Indigenous communities in Canada.3
Professionals and Consumers
CMHC provides services to both professionals and consumers. For professionals, CMHC aims to work in collaboration with different groups to provide affordable housing. Services include project funding and mortgage financing, providing information to understand Canada’s housing market, innovation and leadership networks to access funding and talent to spur housing innovation and increase supply, and providing speakers and hosting events for the industry.4
For consumers, CMHC seeks to provide all the tools an individual would need to either buy a home or rent a home and a variety of information and assistance for current homeowners, such as managing a mortgage, services for seniors to age in place, and financial hardship assistance.56
For financial hardship and mortgage assistance, CMHC provides tools that include payment deferrals, extending the repayment period, adding missed payments to the mortgage balance, moving from a variable-rate to a fixed-rate mortgage, and other special payment arrangements.7
Canada Mortgage and Housing Corporation (CMHC) and the National Housing Strategy
In November 2017, the Canadian government announced the National Housing Strategy.8 Rooted in the idea that housing is a human right, this 10-year, $70 billion project will largely be administered by CMHC, although some services and deliverables will be provided by third-party contractors and other Canadian federal agencies.9
Strategic initiatives of the National Housing Strategy include:
- Building new affordable housing and renewing existing affordable housing stock
- Providing technical assistance, tools, and resources to build capacity in the community housing sector and funds to support local organizations
- Supporting research, capacity-building, excellence, and innovation in housing research10
History of the Canada Mortgage and Housing Corporation (CMHC)
CMHC was established in 1946 as the Central Mortgage and Housing Corporation by the federal government in Canada with the primary mission of administering the National Housing Act and the Home Improvement Loans Guarantee Act and facilitating discounts to mortgage companies. Initially, CMHC began by providing housing to returning Canadian war veterans, and toward the end of the 1940s, CMHC began to administer a program providing low-income housing across Canada.11
In 1947, CMHC was responsible for opening Regent Park, a large low-income housing project, and Toronto’s first urban renewal project. By the 1960s, CMHC introduced co-op housing and multi-unit apartment buildings throughout Canada.11
In 1979, the Central Mortgage and Housing Corporation changed its name to the Canada Mortgage and Housing Corporation
Canadian home price gains accelerate again in May
Canadian home prices accelerated again in May from the previous month, posting the largest monthly rise in the history of the Teranet-National Bank Composite House Price Index, data showed on Thursday.
The index, which tracks repeat sales of single-family homes in 11 major Canadian markets, rose 2.8% on the month in May, led by strong month-over-month gains in the Ottawa-Gatineau capital region, in Halifax, Nova Scotia, and in Hamilton, Ontario.
“It was a third consecutive month in which all 11 markets of the composite index were up from the month before,” said Daren King, an economist at National Bank of Canada, in a note.
On an annual basis, the Teranet index was up 13.7% from a year earlier, the 10th consecutive acceleration and the strongest 12-month gain since July 2017.
Halifax led the year-over-year gains, up 29.9%, followed by Hamilton at 25.5% and Ottawa-Gatineau at 22.8%.
Housing price gains in smaller cities outside Toronto and its immediate suburbs again outpaced the major urban centers, with Barrie, Ontario leading the pack, up 31.4%.
On a month-over-month basis, prices rose 4.9% in Ottawa-Gatineau, 4.3% in Halifax and 3.7% in Hamilton.
The Teranet index measures price gains based on the change between the two most recent sales of properties that have been sold at least twice.
Canada‘s average home selling price, meanwhile, fell 1.1% in May from April, Canadian Real Estate Association data showed on Tuesday, but jumped 38.4% from May 2020.
(Reporting by Julie Gordon in Ottawa; Editing by Christopher Cushing)
Bank of Canada seeing signs of cooling in hot housing market
The sector surged in late 2020 and early 2021, with home prices escalating sharply amid investor activity and fear of missing out. The national average selling price fell 1.1% in May from April but was still up 38.4% from May 2020.
“You are starting to see some early signs of some slowing in the housing market. We are expecting supply to improve and demand to slow down, so we are expecting the housing market to come into better balance,” Macklem said.
“But we do think it is going to take some time and it is something that we are watching closely,” he told the Canadian Senate’s banking committee.
Macklem reiterated that the central bank saw evidence people were buying houses with a view to selling them for a profit and said recent price jumps were not sustainable.
“Interest rates are unusually low, which means eventually there’s more scope for them to go up,” he said.
Last year, the central bank slashed its key interest rate to a record-low 0.25% and Macklem reiterated it would stay there at least until economic slack had been fully absorbed, which should be some time in the second half of 2022.
“The economic recovery is making good progress … (but) a complete recovery will still take some time. The third wave of the virus has been a setback,” he said.
The bank has seen some choppiness in growth in the second quarter of 2021 following a sharp economic recovery from the COVID-19 pandemic at the start of the year, he added.
(Reporting by David Ljunggren and Julie Gordon; Editing by Peter Cooney and Richard Pullin)