Boston, MA -- (ReleaseWire) -- 03/14/2014 -- We maintain our expectation that growth will pick up in Brazil's construction industry in 2014, with 4.1% growth expected. Off the back of a ramp-up in concessions awarded, which are expected to break ground in 2014, last minute World Cup preparations and pre-election spending, construction activity and by extension industry value creation, should increase over the near term. However, we remain concerned about longer-term prospects for a sustainable sector, given the still glaring fundamental business environment obstacles.
Even with construction costs moving negative, Brazil's construction industry has continues to post weak growth since 2011. Despite the second growth acceleration programme running since 2010, a US$235bn concessions programme and investment into 2014 FIFA World Cup infrastructure, growth has remained persistently low.
The bottleneck appears to be on the public sector side, with institutional inefficiencies preventing projects moving forward, while constant changes to the regulatory environment seems to delay tendering from moving forward. However, despite a shaky start, the country's concessions programme gathered pace in Q413, with a number of highway projects, the second batch of airports and four power auctions securing an estimated BRL80bn (US$33.75bn) in investment. We therefore expect an acceleration in construction activity, as projects break ground in 2014, and this should drive our expected uptick in industry value.
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Residential construction rebound
Despite continued growth in the housing market over 2012, with house prices and mortgage applications reporting strong expansion, the construction of new residential properties stagnated. Housing starts fell by 37% y-o-y in 2012. This trend has reversed in line with expectations during 2013, as homebuilders rebuild their balance sheets, improving cashflow and cost pressures ease, allowing them to focus again on subsidised mortgage housing. This end of the market is crucial for homebuilders, considering interest rates are now being hiked following a steep easing cycle in 2012. In line with our expectations that housing would pick up in construction terms, as of the first 11 months of 2013, housing starts are up 72% y-o-y. Financing for housing increased 32% during 2013, to reach a record of BRL109.2bn (US$46bn). While we expect growth to continue in mortgage lending and housing starts in 2014, the pace could slip. While subsidised mortgages will support the lower end of the market, the current interest rate hiking cycle could dampen the affordability of housing at the higher end of the market, with the Selic lending rate now at 10.5%. The local mortgage lenders association, Abecip, is forecasting 15% growth in mortgages in 2014.
Events align to boost infrastructure growth
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