Emerging South

Last Friday I had dinner with a gifted Belgian entrepreneur and good friend.
Entrepreneurship is (and always has been) on a low level in Belgium. We were discussing on the reasons for this old pain. A bottle of wine further in the conversation, we were discussing on the raging inflation in Belgium. My good friend pointed to his high rental costs and why he thought it would have been better to buy the house he lives in. I asked him the rental cost he currently pays and we made an estimate of the realistic low price he could be buying the house for. It took us 30 seconds to calculate that at the current interest rates, which can only further rise in 2008, my friend is actually doing a very good deal on renting his house versus buying it. Only of course of he would calculate in a 15% yearly added value on his property; which is very implausible course insane in the current market context.
Which brings me to the real reason why Belgians don’t make good entrepreneurs: they believe that putting their money in bricks yields higher added values than putting their money in their business.   I'm not referring to my friend, he actually sold his apartment to put his money in his business. But deep down his instinct tells him he is losing tons of money by renting a house instead of buying. Just look at the graphs: in Holland and Belgium the financing of real estate amounts more than 109% of the GDP of each country. In Brazil this figure is today 2%.

No wonder, with real interest rates (interbanking SELIC interest rates – inflation) being higher than 10% in 2005. Looking at the forecasts of the Brazilian central bank and the evolution of Brazilian real estate financing in 2006 and 2007 one can realize what the untapped potential in real estate is for the coming 5 years.



Meanwhile in Europe, as in the US, we will sing a different Christmas Carol, one in which unhappy borrowers will wish they still rented.

I avail myself of the opportunity to wish you all Happy Holidays !