Brazil Builds

Brazil's real estate sector and the road to net zero.

Heavy rainfall with accompanying floods has been a harsh reality for Brazil. The country has seen numerous fatalities as a result of torrential rain. Last week more than thirty people died after heavy rains and floods in the Brazilian state of Rio Grande do Sul, which was the worst natural disaster to hit in 40 years.* Earlier this year, other states have seen similar or even worse floods with heartbreaking consequences.

In the last 3 years the number of hazard warnings in Brazil have been significantly higher than before. Studies have shown that extreme precipitation episodes have rapidly increased in the last 40 to 50 years, especially in the southeast of South America. Publications suggest that intensity and duration of extreme weather events will increase even in a scenario when global warming stabilizes at 1.5 °C. Each additional half degree could cause a significant increase in extreme weather conditions. It also says that extreme rainfall will intensify by about 7% for each additional degree. **

Climate change is a pressing problem globally.

Emissions reached their highest level ever in 2022. The first half of 2022 emissions were 1.2% higher than in 2019. The amount of climate related disasters has increased almost 35% since the 1990s. A global temperature rise of 3.2°C by 2050 will affect 18% the global GDP with -18%.

As we all know by now, the real estate sector is a significant contributor to climate change. Real estate drives approximately 39 percent of total global emissions.***

Although climate change is obviously a global issue, this week we focus on Brazil. How is the real estate landscape in Brazil, what is the role of PropTech and where are opportunities in market?

Real Estate Responsibilities

The global population is growing fast and is expected to reach 9.7 billion by 2050, and most population growth is happening in cities that are high carbon intensive. With these numbers, 2 billion homes will be needed in 2050, and energy demand will go up by >50%!

The international construction market is forecasted to increase by 60% over the next 15 years, with an estimate growth of $5.6T between 2022 and 2037. Adapting our ways in construction plays a very important part in our path to net-zero.

Right now, only 1% of the buildings are classed as "net zero", so there is a long way to go.  By 2040, 2/3 of building stock will consist out of buildings that already exist today. Hence, adapting our current buildings is probably equally as important. Installing millions of heat pumps, upgrading millions of load panels to support electrification, improving building insulation, upgrading heating and cooking appliances, etc.

Globally, the regulatory pressure is increasing.

In the USA for example, the Inflation Reduction Act (IRA), fosters Climate Tech innovation. It accelerates progress that’s been made and expands the current system of clean energy tax credits. This way it provides better long-term certainty for businesses on their returns on investments.

The EU passed a law in 2021, that requires its members to cut emissions by 55% before 2030 and reach net zero by 2050. The EU also agreed that new buildings should be zero-emission by 2030, and that existing buildings should be transformed into zero-emission buildings by 2050.

In England and Wales, a ban on letting building with poor energy ratings forces commercial landlords to adapt to Minimum Energy Efficiency Standards.

China and Saudi Arabia have committed to achieving carbon neutrality or net-zero emissions by 2060 and India wants to achieve the same by 2070.

Our country of focus, Brazil has committed to be carbon neutral by 2050. By 2025 it wants to reduce emissions by 37% and by 2030, emissions have to be down 43%.

Brazil Focus

In Brazil the real estate sector is forecasted to grow to USD 49.5 Billion (CAGR 3%).

With a population of nearly 250 million people and a huge housing deficit (8+ million, expected to grow to 12+ million by 2030), the country is a prime market for transformation opportunities.

Even with a national interest rate index of 13.75% per year, transactions involving new real estate are increasing. In 2021 transactions increased by 12.8% and in the first half of 2022 this increased by 18%. 140K new properties, that are worth >72 billion Brazilian Real, have been sold in a year’s time. It’s forecasted sales will go up to 4 trillion Brazilian Real before 2035

With such a booming real estate sector, there is a lot of opportunity for PropTech. In the last decade the number of PropTech startups in Brazil has been increasing, from only 49 companies in 2010, to 343 companies in March 2020. At that point in time 60% of PropTech startups were in the Southeast region. ****

The Market

The Brazilian government made the net-zero goals a priority in its policy.

In October the First Conference on Climate and Real Estate, will be held in Brazil. Ivo van Breukelen, a Managing Partner at The Proptech Connection will be speaking at this event, sharing his views on the PropTech market and the biggest opportunities.

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