Brazil's currency the Real appears to be significantly overvalued which could be a concern for some people seeking to buy a property in Brazil.
Former Brazilian central bank President Arminio Fraga recently admitted that the Real, which hit a nine-month high last week, is “overvalued”.
Since the start of 2009, Brazil's currency has strengthened by a staggering 36 percent against the US dollar. Brazil's currency has also appreciated significantly against the UK Pound.
The Brazil property market has been attracting investment from around the world, as the economic fundamentals look strong, thanks to a general shortage of quality homes, a rapidly growing economy, an emerging mortgage market, while the country has been selected to host the 2014 football World Cup and 2016 Olympic Games. This is leading to the construction of new and improved infrastructures and homes across Brazil.
However, in order to maintain foreign interest in the Brazil property market, Fraga is calling on the government to reduce interest rates, which are currently over 10 per cent, in order to stem the Brazilian currency's rally against most major foreign currencies. This is mainly because a high Real adds to the cost of buying property in Brazil, as far as overseas nationals are concerned.
“If the next government hits the ground running and addresses some of these longer-term issues, both macro and micro, we're going to get more money flowing into Brazil,” said Fraga. “The best we can do is create the conditions for interest rates to come way down.”