VZCZCXRO4624
RR RUEHRG
DE RUEHSO #0910 3171058
ZNR UUUUU ZZH
R 131058Z NOV 07
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 7668
INFO RUEHBR/AMEMBASSY BRASILIA 8786
RUEHRI/AMCONSUL RIO DE JANEIRO 8434
RUEHRG/AMCONSUL RECIFE 3875
RUEHAC/AMEMBASSY ASUNCION 3171
RUEHBU/AMEMBASSY BUENOS AIRES 2935
RUEHCV/AMEMBASSY CARACAS 0597
RUEHMN/AMEMBASSY MONTEVIDEO 2494
RUEHLP/AMEMBASSY LA PAZ 3557
RUEHSG/AMEMBASSY SANTIAGO 2198
RUCPDOC/USDOC WASHDC 2946
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/USDOC WASHDC 2947

UNCLAS SAO PAULO 000910 
 
SIPDIS 
 
SIPDIS 
 
STATE FOR WHA/EPSC, WHA/BSC, EEB/OIA 
STATE PASS USTR FOR KATE SUCKWORTH 
TREASURY FOR JHOEK 
USDOC FOR 4332/ITA/MAC/WH/OLAC 
USDOC ALSO FOR 3134/USFCS/OIO 
 
E.O. 12958: N/A 
TAGS: BTIO EINV EFIN ECON BR
SUBJECT: Brazil's Real Estate Market Booming 
 
REF: Sao Paulo 0832 
 
¶1.  (U) In an October 23 meeting with Eli Horn, president and 
founder of Cyrela Brazil Realty, Ambassador Sobel discussed Brazil's 
booming real estate business.  Horn expects company sales in 2007 to 
reach USD 1.2 billion, compared with less than USD 200 million in 
¶2004.  Cyrela's stock is up 50 percent over the past 12 months, the 
strongest period in the company's history.  Horn noted that 60 
percent of Cyrela's shareholders are American.  Hedge funds in 
particular foresaw Brazil's real estate boom. 
 
¶2. (U) Cyrela is Brazil's largest developer of residential 
buildings.  Since taking the company public in 2005, Cyrela has 
expanded out of the cities of Sao Paulo and Rio de Janeiro and into 
twenty smaller cities across the country.  Whereas prior to 2005, 
Horn claims his company "never saw money," today it is paying cash 
for land.  According to Horn, Cyrela's strategy mirrors that of 
other real estate development companies: expand beyond the 
traditional geographic and demographic markets.  While the appetite 
among Sao Paulo and Rio de Janeiro's upper and upper-middle classes 
for luxury residences remains strong, the real boom is among the 
middle class and in smaller cities across the country.  Horn gave a 
recent example of a 400-unit building in the state of Espirito Santo 
that sold 90 percent of its units in less than a week. 
 
¶3. (U) During 2007, there has been one new building project 
announced daily in the city of Sao Paulo, which translates to 2000 
new units per month.  This intensity is double that of 2006, and now 
there are no more cranes available in the city; construction 
companies are rushing to import them from China.  In the first 
semester of 2007, the construction industry hired over 100,000 
workers nationally. 
 
¶4. (U) The real estate boom is directly correlated with the strong 
economy and the expanding credit market.  Real estate mortgages are 
up 74 percent over the past twelve months (reftel).  International 
banks such as HSBC, ABN Amro and Santander are leaders in the 
mortgage industry.  The thirty-year mortgages offered by Brazilian 
and international banks have altered the real estate market, making 
companies like Cyrela less dependent on the stability of the 
state-owned Caixa Economica Federal, the traditional mortgage 
lender.  U.S. investment banks have just begun to enter the mortgage 
market.  Goldman Sachs recently invested in Brazilian bank Daycoval, 
specializing in home mortgages.  Horn predicts that as soon as 
Brazil achieves investment grade - which analysts widely expect will 
occur over the course of 2008 - others will follow suit. (Comment: 
It is unclear as yet how the subprime mortgage crisis will affect 
this growth outlook.) 
 
¶5. (U) Horn was uncertain about how long the boom can go on.  He 
expressed fear that an internal or external crisis could destroy the 
market, but did not offer any specific predictions.  As a way to 
buffer itself from such a shock, Cyrela is keeping large cash 
reserves on hand.  Cyrela's current land holdings are sufficient to 
ensure five years of new projects.  Despite his personal hesitation, 
Horn noted that the general sentiment in the industry is that the 
honeymoon has just begun.  In addition, Horn praised President Lula 
as "the best president in terms of real estate that Brazil has ever 
had." 
 
¶6. (U) COMMENT: Most commentators believe that Brazil's real estate 
boom is just beginning, as are opportunities for international 
investors.  In addition to the mortgage market, recent IPOs for 
companies in construction and real estate development have sold as 
much as 70 percent of shares to international investors.  On the 
brokerage side, Century 21 and Coldwell Banker are in the initial 
steps of identifying local partners.  END COMMENT 
 
¶7. (U) This cable was cleared by Embassy Brasilia and approved by 
Ambassador Sobel.