The rise of the Florianópolis real estate market is an astonishing success story. A brief history of the real estate market in Florianópolis is sufficient to put this story into a global perspective and show why Florianópolis is fundamentally different from other comparable real estate markets around the world.
For centuries after the Portuguese first arrived in Brazil in 1500 Santa Catarina remained a distant province disconnected from the commercial and political centers of Rio de Janeiro, Bahia, and later, São Paulo. Attempts to integrate the state into the 19th century nation were rebuffed by the citizens of Santa Catarina. Plans to build roads connecting the region to São Paulo were vigorously opposed and finally defeated. The state of Santa Catarina remained largely self-contained through the passage of the years. The economy of the island revolved around fishing and whaling. No one really wanted to hasten the pace of life. Even as late as 1960 there were no major roads directly linking Florianópolis with the interior of the state.
As a result, property prices on the island of Santa Catarina remained remarkably low until very recently. Consider that in the 1940’s beach front property in Campeche was bartered for meat at Carnival time. The land was so cheap that you couldn’t buy parcels of less than 50,000 square meters. Things began to change in the 1970’s when the BR101 was built. The highway made access to Florianópolis much easier and people from São Paulo began to arrive. They found property prices dirt cheap, the cost of living low, the island as beautiful a place as one could ever hope to find, and the surfing top notch. Paulistas began to buy land from the fisherman. Argentines and Uruguayans came, too.
These more sophisticated newcomers bought large parcels of land, legalized them, and then divided them up into individual plots. This is what happened, for example, in Novo Campeche. What had been farm land with a nebulous—even questionable title—became a community of completely legal, subdivided lots. Each plot had an escritura publica, a publically recognized title that allowed buyers to ensure legal ownership.
As soon as property titles became common on the island, prices began to increase 100% per year—year after year. Developers arrived to build luxury houses and modern apartment buildings.
In 2003, as the Brazilian economy faltered and the real plunged to below 4.00 against the dollar, Americans and Europeans began to arrive and snap up cheap deals, furthering the cycle. By 2011 land that had been nearly worthless in the 1970’s is now worth $100 per square meter and above. Larger plots, formerly used for cattle grazing and horse farming, is now worth tens of millions.
In the last twenty years the real estate market in Florianópolis has realized spectacular gains. Many have rightfully asked whether such a trend can continue. Or will Florianópolis succumb to the losses that have devastated property markets in such places as Miami or Marbella?
In Miami losses in the real estate market have been astonishing. In 2008, at the height of the crisis, high rise projects that were started during the boom of 2003-2007 were left unfinished as buyers dumped their deposits and ran for the exits. Property prices in South Florida have seen a staggering drop of 50%–and more in some cases. Prices have now leveled off, but sales are once again beginning to drop, according to the most recent S&P Case-Schiller Index figures. This new decline may herald even lower prices, especially if the world economy stumbles again.
Marbella, whose beautiful beach real estate market crackled during the boom, are now being sold off at steep discounts by the banks. As Europe’s troubles continue, one might expect prices there to continue to plummet.
But what of Florianópolis, where property values enjoyed price rises that were steeper than those in the US or Spain? Did these prices fall as steeply as their counterparts? No, they did not. While sales did slow in 2008, prices have not dropped. In fact, they have only continued to rise and will continue to rise. Why is this?
There are two main reasons, both of which stem back into Florianópolis’s past as a secluded, remote island in a distant part of Brazil.
First of all, Florianópolis is an island and so real estate is a very finite resource. As the old saying goes, you can’t make any more of it. Furthermore, people in Florianópolis have seen the prices of their properties go up dramatically each year and bank on yearly gains of 10-20%. These are modest increases, they maintain, since earlier gains were dramatically higher. If sellers on the island of Florianópolis don’t receive what they want, they just don’t sell. Therefore it is not uncommon for a property which does not sell one year to go up in price the next and the next. Like the fishermen of the sleepy island town of bygone years, the residents of Florianópolis are content to wait until they catch the big fish. If that fish doesn’t bite, they don’t sell. This point of view has kept prices going up and up and up in Florianópolis.
The second reason is that the vast majority of real estate in Florianópolis was bought with cash. Few properties in Florianópolis have been seized by the banks because they weren’t bought with untenable mortgages. They are owned outright. So there are no big-discount sales going on in Florianópolis as are now extremely common in Miami or Marbella and many, many other places around the world today. Consequently, don’t expect to find any cut-rate foreclosed houses in Florianópolis.
One way of looking at this situation is to assume that this is the moment to buy in those badly beaten down markets. After all, now is the moment to buy cheap in Miami or Marbella. This is a perfectly reasonable way to think. But it is not without risk. There is no telling how long it will take real estate markets in those places to recover. For example, though selling has picked up in Miami in the last three months, that selling is at a significant discount as compared to 2010. In other words, prices continue to fall. Moreover, last month selling dropped off again signaling more bad times ahead.
In such an environment, property purchases that will hold their value against a relentless downward trend may offer a real advantage. At the same time, even after dramatic price drops in Miami and Marbella, Florianópolis real estate remains below what you can expect to pay for a luxury property in those places, even when bought from the bank at a steep discount.
Meanwhile, swimming against world currents, Florianópolis property prices just continue to rise. Here, the beaches remain as pristine as in long-ago times and the way of life is deeply tranquil when compared to Miami or Europe. While there is no guarantee that prices on the island will not fall, it’s unlikely. For those who already own a slice of Floripa just won’t sell until they catch their big fish.