This article will give you an overview of the Federal Brazilian housing program Minha Casa, Minha Vida. We will explain why the program is needed and how it affects the Brazilian Real-Estate market.
Announced in March, 2009, Minha Casa, Minha Vida is the solution that the Federal Government has found to promote access to housing for millions of Brazilian families who would hardly have access to it otherwise.
In most developing countries like Brazil, adequate housing needs are not completely fulfilled. Many families are living in inadequate housing like shantytowns or cohabiting with others because they are not able to obtain credit from regular banks to enter the Real-Estate market.
It was estimated that 7 million families were living under sub-optimal living conditions in 2010. In order to cover this housing deficit, the Federal Government created Minha Casa, Minha Vida, a housing program that facilitates housing credit for households that otherwise would not be able to have access to regular credit institutions.
The magnitude of Minha Casa, Minha Vida
The goal for the program is to build 1 million new homes within 2016. To support this goal the federal government have budgeted and investment of 34 billion BRL, that is divided into five different sub-programs, depending on income level and other special conditions.
During the project period it will be created more than 1 million new jobs, most of them in the construction industry.
The Federal Government expects that states and municipalities will participate through financial resources, land donation, infrastructure, taxes reduction and the registration of demand. An estimate of 6 billion BRL will be spent in infrastructure and to subsidize home builders through taxes discount.
How does it works?
The program only covers the metropolitan areas of Brazil, including all state capitals and municipalities with a population superior to 50 thousand people. The low-income people are automatically enrolled to their sub-program with 400 000 unites available for distributions.
Households with income above three minimum salaries a month are self responsible for enrolling into the program that they qualify for. The maximum gross income of the households who can participate in the program is BRL 4.900 per month.
The family selection process is made by the governmental bank Caixa Econômica Federal directly controlled by the Ministry of Finance.
Benefits of the program
As the program is mainly directed to the low-income population, the credit is provided with a fixed interest rate as low as 5% p.a. As a reference, the current interest rate for housing financing in the open market goes from 7.98% to 13.11% in major Brazilian banks.
Depending on the sub-program, the household enroll to requirements that are mandatory in the open market are also waived. This include credit insurance and registration fees for public records.
It is possible to buy the property without an initial down payment, but if the family wants to do a down payment, it is entitled to use money from their earnings at FGTS (Government Severance Indemnity Fund for Employees).
In order to participate in the program, the families must meet the following conditions:
- Never have been benefited by a governmental housing program before
- Not be homeowners or participate in any other finance program
- Not exceed the program gross income patterns
The household will also have to commit to spend at least 10% of their gross income for the monthly parcel that can never be bellow BRL 50.
Effects on the Real-Estate Market
According to recent studies, the population with a gross income up to 10 x minimum salaries is the one who will dominate the residential market in the next 5 years. Until 2016, the demand for new objects for this class will be of 10,4 million objects.
With an already large demand for construction work in Brazil with both World Cup and the Olympic Games coming up, it is difficult to locate enough workforce within the national construction industry to fulfill all the projects.
There is a growing concern that the Brazilian government giving away billions of BRL in sub-prime mortgage will cause a similar sub-prime problem as the US housing market was experiencing some years ago.
The program already completed two years without delivering any residential property to the families that earn less than three minimum salaries in São Paulo city. The reason is the high costs of land and infrastructure that make it impossible to build an object that has to be sold by BRL 52.000.
People from smaller municipalities also complain that the program denies them the chance of buying their own house. As a result, these people are encouraged to move to bigger cities, a decision that will significantly increase the population in these areas as well as the unemployment level.
Another aspect that must be pointed out is the fact that the project defines the structure of the residential properties but does not clarify where they must be built. To leave this decision to the home builders may result in the construction of objects in the outskirts of the cities, creating ghettos and moving forward with the social abyss, so typical of Brazil.