Inflation in Brazil leaves even millionaire ‘less rich’

​A 65-year-old woman from Várzea Paulista, a city 58 kilometers from São Paulo, was awarded R$ 1 million at the end of June. From humble beginnings, she could hardly believe that she had become a millionaire right in the month of her birthday, with the chance to buy two new houses: one for her and her son and the other for her daughter.

The name of the resident is kept in secrecy by the São Paulo State Finance Department, responsible for raffling, every month, R$ 1 million to taxpayers registered in the Nota Fiscal Paulista program.

Another program, from the São Paulo City Hall, Nota do Milhão, also gives away, every month, R$ 1 million to taxpayers who request invoices for services in the city. On the 5th, the recipient was a resident of Campo Belo, south of the capital.

The Várzea Paulista resident and the Campo Belo resident are certainly pleased to become millionaires in the midst of one of the country’s worst economic and social crises. But double-digit inflation won’t give either of them the taste of being a millionaire as it did ten or even five years ago. In Brazil in 2022, R$ 1 million buys less in equity.

“Money changes its value over time. Purchasing power varies sharply every five years, especially at this time of high inflation”, says finance professor at FGV (Fundação Getulio Vargas), Myrian Lund.

The increase in prices erodes the income of even those who are millionaires: ten years ago, with R$ 1 million, it was possible to buy, for example, a 148 m² penthouse with three bedrooms in Saúde, a neighborhood in the south of São Paulo, and still leave a BMW 118i 2.0 automatic in the garage. Today, with the same money, you can buy a 65 m² apartment with two bedrooms in Vila Mariana, also in the south of the capital, with space for a Chevrolet Onix 1.0 manual transmission.

‘Owner of R$ 1 million cannot stop working’

According to Myrian Lund, gathering money has not been a trivial task. “It was in the past and many people still have this memory, of what their parents or grandparents did to build or increase the patrimony”, he says.

“In the 1990s, for example, people earned 20% more than real inflation. That’s why everyone left their money in savings accounts”, he says. “At that time, anyone who sold a property worth R$ 1 million would be able to withdraw, every year, R$ 200 thousand, without touching the assets”. That is, it was possible to live on income, earning about R$ 16 thousand a month.

“Today, anyone who has R$ 1 million cannot stop working”, says Myrian, a master in business management with a specialization in finance and a financial planner certified by Planor (Brazilian Association of Financial Planning).

She points out that the best investment is the one that pays inflation plus interest, such as the IMA-B (made up of public bonds indexed to inflation measured by the IPCA), which in the last ten years has shown a return of 172%. “Today, if you invest R$ 1 million in a public bond, which yields inflation plus 6% per year, you will receive R$ 60 thousand in the year. You will live on R$ 5,000 per month, well below the standard of living expected for a millionaire”, he says.

The specialist points out that, for those who are not used to dealing with money and do not have a property, the purchase of their own home is still a guarantee. “If you have R$ 1 million in hand and you don’t have a property, buy one”, says Myrian. “In the future, you can sell and live in a city in the interior, in the case of those who live in capital cities, where the cost of living is much higher.”

The price of owning a home has grown, as construction costs have contributed to the increase in the final value of real estate. From 2017 to the first half of this year, the INCC (National Construction Cost Index) accumulates a high of 49%.

According to Cyro Naufel, institutional director at brokerage Lopes, companies have not yet passed on all this high, because Brazilian income has not grown at the same rate. “There is still room for further increases because the price is dammed up, not because the region will appreciate in value”, he says.

This is one of the main precautions that a new property buyer should take at this time of high inflation, says Alison Oliveira, coordinator of the FipeZap index, an indicator that tracks residential and commercial property prices in 50 major cities in the country.

“If the property is above the market price, it will devalue over time”, says the Executive. In the last ten years, the ranking of the most expensive square meter in the country has remained the same, with the Rio de Janeiro neighborhoods Leblon, Ipanema and Lagoa leading, followed by the São Paulo-born Itaim Bibi.

According to Oliveira, the neighborhoods of Rio, all in the south of the city, are traditionally the most valued for being between the sea and the lagoon. “This limitation of physical space, in addition to the topography, with many hills and mountains, ends up making the square meter more expensive”, he says. Still, the carioca real estate market felt the thud of the crisis at Petrobras and the square meter of Lagoa and Ipanema is worth less today than in 2017, he says.

In São Paulo, Itaim Bibi stands out for being the financial center of the capital, with many banks and companies based in the region. The properties follow the rhythm: a compact apartment of 34 m² is on sale for R$ 1 million in Itaim, informs Lopes.

Anyone who spends BRL 6,000 a month can see equity run out before they die

In the opinion of Renato Breia, a partner at investment analysis firm Nord Research, “carrying” an asset that does not value above inflation, such as real estate, is not a good option. According to the FipeZap index, the appreciation of real estate in June is 0.47%, while the IPCA rose 0.67%.

The economist, who manages Nord Wealth, Nord Research’s wealth management arm, says it all depends on the investor’s goals. “If at age 60, he wanted to invest R$ 1 million to preserve his patrimony and still have an income to live until he is 95 years old, he could have withdrawals of R$ 3,994 a month”, he says. “But if this withdrawal rose to R$6,000, his assets would end at 83 years of age.”

Engineer Leonardo Azevedo, president of Apê11 – a platform for buying and selling real estate, which belongs to Banco Santander –, argues that the property can serve as a retirement and to protect the owner from inflation.

At the request of the report, Azevedo pointed out examples of properties launched in 2012 and 2017 in the range of R$ 1 million and that today, according to him, have appreciated: the penthouse of 148 m² and 3 bedrooms in the neighborhood of Saúde, in São Paulo, for For example, it was sold for R$1.091 million and is currently worth between R$1.7 million and R$1.8 million.

The 71 m², 2-bedroom apartment in Moema had a launch price of R$940,000 and is currently estimated at between R$1.25 million and R$1.3 million.

“When a property goes to the secondary market, it is no longer new, there is always something subjective in the price, which ends up being regulated by other properties for sale in the same enterprise”, says Azevedo. “But two-bedroom, one-car apartments are like hotcakes: there will always be demand.”

The executive agrees, however, that, in absolute terms, the debt incurred to buy a property is greater today than it was ten years ago, since income has not risen in the same proportion. “But real estate is not like a car, which only depreciates.”

No money for the hybrid car in the garage

Myrian Lund, a professor at FGV, says that if someone earned R$1 million today, she would recommend that they set aside 10%, or R$100,000, for “a little madness”, like buying an expensive car.

But with this capital, the new millionaire would not be able to put an electric car in the garage, since the prices of this category of car in Brazil are around R$ 140 thousand.

According to data from Table Fipe, in 2012, it was possible to place a zero kilometer automatic BMW 118i 2.0 in the garage for R$100,000. But today, with this capital, what you can buy is a manual Chevrolet Onix 1.0.

Not by chance, the equivalent of a popular car today sells for R$70,000 in Brazil. According to the Bright consultancy, the current average ticket for new vehicles sold in the country was R$ 110 thousand in December 2021, an increase of 30% in 12 months.

Global scarcity of parts and components, vehicle adaptations to meet new environmental requirements to reduce pollutant and noise emissions, as well as to increase safety, in addition to the devaluation of the real, explain the soaring prices.

Myrian Lund believes that, with soaring inflation, parents need to abandon the idea of ​​accumulating wealth to leave something for their children. “But I say that their biggest concern today should be not giving their children work, and maintaining financial independence until the end of their lives.”