Real Estate: Financing has a retraction with high interest rates – 07/20/2023 – Market

The volume of resources used in real estate financing with money from savings accounts fell 28.3% in May this year, compared to the same month last year, and buyers are already reporting difficulties in obtaining financing through the SBPE (Brazilian Savings and Loan System), a line supplied by the savings account.

The numbers are from Abecip (Brazilian Association of Real Estate Credit and Savings Entities) and show the degree of impact suffered by high interest rates and the consequent outflow of savings resources.

In the accumulated of 2023, the decrease in funding is 9% (compared to the same period a year earlier). Considering the twelve months ended in May this year, the drop is 12.5% ​​(against a year earlier).

This year, the savings account recorded five months of record withdrawals.

For Marcelo Augusto Luz, legal director at ANMM (National Association of Borrowers), the “situation is serious” and requires the federal government’s attention to resource management.

Caixa admits that there was, in fact, a problem with the resources for real estate financing, but says that it has already been resolved with reallocations.

“There is an expectation of credit to be made in the year. We are doing 68% of real estate credit as a whole, and funding has a limitation. We made an effort to expand this amount of SBPE. At the end of June, we managed to release a lot”, says Marcos Brasiliano Rosa, Vice President of Finance and Controllership at Caixa.

“We managed to anticipate a budgetary part and relieve this pressure that was having on the agencies”, he adds, without disclosing figures.

The relief, however, is not being felt by buyers. The EAN systems analyst (who asked not to be identified) has been waiting since May for Caixa to release R$460,000 to complete the purchase of an apartment in Rio de Janeiro by SPBE. “Acquirers are having the inspection of the property ok, the proposal approved and, at the time of signing the contract, the process is frozen with no forecast date due to lack of funds at Caixa”, he says.

He says that every week he calls the bank manager. “She says that the funds have not been released. The bureaucratic part of the documentation is approved, I already paid the entrance to the seller, only the Caixa part is missing”, she says.

One of the reasons may be the wait for a possible interest rate cut at the next meeting of the Central Bank’s Copom (Monetary Policy Committee), in August.

The Selic rate at a high level, at 13.75%, raises funding costs, making loans more expensive for banks and, consequently, for borrowers.

In the case of Caixa, funds for the SBPE are obtained through savings deposits remunerated at the TR (Referential Rate) plus a percentage of the Selic rate, in accordance with rules established by the government.

Economists project a 0.25 percentage point cut in the Selic rate at the next Copom meeting, scheduled for August 2nd.

While the monetary agency does not cut, the exclusive reserves for the SBPE line are being evaluated by Caixa before release.

“This high interest policy is particularly harmful to Caixa and public banks. Because we could take advantage of the wave of high interest rates and invest in treasury resources, but on the contrary, we are investing in credit”, says Maria Rita Serrano, president of the state bank.

The federal bank is responsible for 67% of home financing in Brazil. In the first half of this year, Caixa financed 328,800 housing units for more than 1.3 million families. In total, according to the institution’s note, BRL 85.4 billion were contracted, an increase of 15.6% compared to the same period in 2022.

In May, Caixa launched a campaign to encourage investment in savings. The application has one of the lowest yields within fixed income with Selic at 13.75% per year.

“With the very high interest rate, we are having losses in savings. And, by losing resources in savings, we make investment in housing more expensive, since we have to go after other more expensive funding to continue financing housing”, said Serrano, at the time.

The residential real estate market is divided into two income segments. While the lowest income depends mainly on government subsidies and FGTS financing, the highest income has savings and LCIs (Real Estate Letter of Credit) as a source of funds.

With the Selic rate at 13.75%, it becomes more difficult to raise funds for the high-income segment, as savings become even less attractive compared to other income options, including fixed income. With few funding resources, housing policy is more restricted.

Savings accumulates a net outflow of BRL 57 billion this year and the number of operations based on these investments fell 25% between January and May of this year compared to the same period in 2022.

The situation leads to greater use of funds from LCIs, which pay higher interest rates – usually close to the Selic rate. This leads to an increase in financing and, consequently, an increase in default. Banks, in turn, become more selective and grant less real estate financing.

At Caixa, specifically, representatives of the real estate sector report a kind of “turtle” operation in the face of greater resource constraints. The wait ends up making the customer look for other banks as an alternative, which traditionally take longer to close the deal and have less attractive interest rates, around 10%.

An option for Caixa purchasers may be the pro-quota line (Special Housing Credit Program for the FGTS Quota Holder).

The modality is used for the financing of properties above R$ 500,000 by workers holding accounts linked to the FGTS (guarantee fund) and allows financing up to 80% of the appraised value of the property. Its interest rates are just not cheaper than those practiced by the bank in the Minha Casa, Minha Vida program.

For properties up to R$ 350,000, the rate is 7.66% per year; for properties over R$ 350,000, it is 8.16% per year.

Last month, the Lula government announced its intention to allocate at least R$ 2.010 billion to the pro-quota holder. This ceiling was R$ 600 million.

In the pro-quota model, there is no family income limit. The minimum installment is 60 months (5 years), and can reach 240 months (20 years) in the Price table or 360 months (30 years) in the SAC system (Constant Amortization System).

According to the Price table, the installments will always be the same, but they will be composed of more interest. As for the SAC, the installments are more expensive at the beginning and cheaper at the end, because of the progressive decrease in interest.