Brazilian government approved this Wednesday to change the limits of the second phase of the Minha Casa Minha Vida (My Home My Life) program. The approved maximum values differ depending on location, but the new maximum was set for R$ 170,000, a figure 31% higher than the previous cap of R$ 130,000.
Have you heard something like this coming from US before the subprime crisis: "Home ownership is one of the main items in the American Dream!"?
Does a program that is called My Home My Life from Brazilian federal government sound similar to that? What if I say that what they do is basically provide home ownership for people who can't afford a house in the first place? What if I say that they are increasing the limits now because home and land (for new constructions) prices have gone up so much that builders could not build under the previous limit anymore?
It is unbelievable how politicians pretend they don't see these similarities when they are so clear!
Having said that, I don't believe Brazilian Real Estate is in a bubble just yet. Prices have raised significantly but that was in part to compensate for the long periods of price stagnation in previous decades. Also, it is still required for one to pay at least 20% down for buying a house and "refinancing", which created a money machine for Americans prior to the bust is not popular at all in Brazil. One could say it's practically nonexistent.
So, while these news do get me worrying about the mid-long term for real estate in Brazil, this is not causing a bubble yet and should not cause in the future unless these kind of measures keep happening. Unfortunately, these are very politically convenient actions so it is very possible it will continue happening.