Brazil Builders Plunge as PDG Profit Tumble Deepens Slump

maio 15, 2012 11:05 am Publicado por

By Denyse Godoy and Katerina Petroff

MRV Engenharia (MRVE3) & Participacoes and PDG Realty (PDGR3) SA Empreendimentos & Participacoes led a plunge among Brazilian real-estate companies after reporting first-quarter profit that fell more than forecast.

MRV lost 15 percent to 9.43 reais at the close in Sao Paulo, the biggest decline on the BM&FBovespa Real Estate Index, which retreated 4 percent. PDG, the country’s largest homebuilder by sales, fell 9.8 percent to 3.67 reais, making it the worst performer this year on the benchmark Bovespa index.

PDG and MRV joined Rossi Residencial SA (RSID3), Brookfield Incorporacoes SA (BISA3) and Gafisa SA (GFSA3) in reporting lower profit or net losses last quarter. Homebuilders overextended themselves after 7.5 percent economic growth in 2010 spurred construction, creating a property glut as expansion slowed, said Luiz Roberto Calado, a vice president at the Brazilian Finance Managers Association.

“They basically overestimated demand,” Calado, who published a book in 2010 on Brazilian real estate, said by phone from Sao Paulo. “They started buying land and creating lots of projects, but family income just hasn’t risen as much as housing prices. Even with credit, houses and apartments don’t seem affordable anymore.”

Housing starts in Sao Paulo, Brazil’s’s largest city, rose 10 percent last year from 2009 as sales fell 14 percent, according to Embraesp, a property research group, and Secovi, a real-estate agency association.

Prices advanced 91.4 percent, according to the Fipe/Zap Index, as personal incomes rose 34.6 percent, according to data compiled by the central bank. There is no nationwide data available for Brazilian real estate.


PDG has declined 38 percent this year, helping drag down the Bovespa, which erased 2012 gains today as it dropped 2.3 percent. MRV is down 12 percent this year.

Homebuilders had rallied earlier this year, with the BM&FBovespa Real Estate Index climbing as much as 30 percent from the end of 2011, as the central bank cut benchmark borrowing costs, making mortgages cheaper. Policy makers reduced the target overnight rate to 9 percent on April 18 to revive growth that slowed to 2.7 percent last year. Policy makers have lowered the rate 3.5 percentage points since August.

Banks are tightening credit to homebuilders after surging labor costs shrank margins and triggered costly delays, prompting them to turn to private-equity firms for financing, according to Guilherme Rocha, an analyst with Credit Suisse Group AG.

‘Positive Highlight’

Cyrela Brazil Realty SA Empreendimentos e Participacoes was the only homebuilder among Brazil’s six largest to report higher profit in the first quarter.

Most Brazilian homebuilders “struggled with projects launched in the past and deliveries,” Banco Itau BBA SA analysts wrote in a report today. “Cyrela was the main positive highlight.”

MRV, which caters to clients supported by a government program to boost homeownership, said first-quarter profit fell 24 percent to 116 million reais ($58.1 million), trailing analysts’ estimates. PDG said adjusted profit fell 79 percent to 49.8 million reais, below the average estimate for 135.4 million reais. Rossi’s profit fell 44 percent to 43.9 million reais, also below analysts’ forecasts.

Brookfield’s net income declined 94 percent as the number of potential buyers who pulled out of contracts rose while building and operational costs climbed. Earnings sank to 4 million reais, trailing the average estimate of analysts surveyed by Bloomberg.

Cyrela Surprise

Gafisa has reported losses in two consecutive quarters. It cited contract cancellations and lower margins on sales for its most recent loss of 31.5 million reais, which exceeded the average estimate for an adjusted loss of 18.5 million reais.

Cyrela, Brazil’s second-largest homebuilder by revenue, said profit rose 59 percent to 118 million reais in the first quarter, beating the average estimate for an adjusted profit of 115 million reais among nine analysts surveyed by Bloomberg.

“Cyrela is among the very few sector names that we would expect to positively surprise the market,” analysts at Bradesco BBI wrote in a report.

To contact the reporters on this story: Katerina Petroff in Sao Paulo at; Denyse Godoy in Sao Paulo at

To contact the editor responsible for this story: David Papadopoulos at