Importance of Timing
Starting a project at the right time is one of the most important decisions to maximize returns. Residential projects that started in 2009, after the crisis, and finished in 2013 delivered very high financial returns for investors.
Location Choice
The neighborhood is located in the south region of the city of São Paulo. The residents are middle-class families. It is a residential neighborhood and the majority of its residents live in single-family houses and very few residential towers are located in the region. The neighborhood is a typical middle-class neighborhood of São Paulo, with calm streets, small to mid-size houses from the 60s, and local commerce to serve basic necessities.
Despite the location’s distance from the aspirational neighborhoods of São Paulo, the area has easy access to the central districts via important avenues that link the south region to the central area.
Neighborhood Description
The neighborhood has a population of 111,621 people and 35,321 homes – 68.1% of those are houses. Of the total homes, 28.0% are rentals.
The project is well inserted within a region that has a tight supply of apartments and buildings with amenities. The neighborhood and the surrounding neighborhoods, including cities of the metropolitan region of São Paulo that border the project, are highly occupied by single-family houses. There is a significant demand from this large population to move to apartments that offer security, leisure, and newer construction. The quality of the project combined with affordable prices generated a migration of customers from surrounding neighborhoods.
Project Information
– Land acquired August 2009
– Project launched in June 2010
– 310 units with an average size of 69 m2, fully compatible with the target customer
– Average Price: R$364,000. This price generated a monthly installment affordable for the income of the customers in the region.
– Delivery Date: June 2013
– Quality of infrastructure and amenities for the residents comparable to projects launched in more upscale areas
The land was acquired in 2009 right after the international crises. Land in São Paulo at that time had discounted prices due to the effect that the crises caused in the real estate market in Brazil.
Purchaser Target Consumer Profile
– Age: 30+ years old
– Status: married, with one or two children
– Couple monthly income: R$12,000 to R$18,000
Sales Results
– Over 99.7% sold during construction
– Average price per square meter underwritten of R$4,863 vs. price of actual sales R$5,245
– Increase of 8% in real terms of price per square meter since launch
– Customers are final users of the units (no investors)
Conclusion
The entry point and exit of the project were well timed. The developer acquired the land in a moment of low liquidity in the market when prices of land paused and there was hesitation in the market. It was 2009 and the international crises hit the São Paulo real estate market very hard.
The project was launched in the moment that the market began to recover in 2010, which allowed the developer to increase sales price over time.
The delivery of the units occurred in 2013 when the market was strong and the prices were increasing constantly. The probability of cancellations during construction was extremely low.
An accretive land acquisition price, launched in the right moment and selling at the right price with almost zero cancellations, allowed the project to have returns way above expectations. The levered IRR in the project reached 46%.
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