Rio's housing prices spell trouble in paradise

May 31, 2012 - 12:00 PM
Brazil Red Hot Rio

In this May 23, 2012 photo, people exercising are reflected on the entrance of a beachfront apartment in the Leblon neighborhood of Rio de Janeiro, Brazil. Brazil’s burgeoning middle class is moving up in the world, into fancier high-rises. The discovery of vast oil deposits off the coast has flooded the city with renters carrying fistfuls of petrodollars. And property owners already are hiking rents in anticipation of Rio's upcoming mega-events, the 2014 soccer World Cup and 2016 Olympics. (AP Photo/Felipe Dana)

RIO DE JANEIRO (AP) — Moving to Rio, I had visions of paradise, of a sprawling apartment with panoramic views over a palm-lined beach.

Instead, I found myself plunged into the inferno of one of the hottest real estate markets in the world.

Brazil's burgeoning middle class is moving up in the world, into fancier high-rises. The discovery of vast oil deposits off the coast has flooded the city with renters carrying fistfuls of petrodollars. And property owners already are hiking rents in anticipation of Rio's upcoming mega-events, the 2014 soccer World Cup and 2016 Olympics.

Property prices in some neighborhoods have risen sixfold in the past decade and now rival those in cities such as New York or Paris. I was moving from Paris and had previously lived in New York, so I thought I knew a little something about finding a place in notoriously difficult rental markets.

Hubris. It'll get you every time.

Armed with the Sunday classifieds, I launched what was to become my epic quest for an apartment back in January. I went first to Rio's showcase neighborhoods: tony, seaside Copacabana, Ipanema and Leblon, the ones everyone imagines when they think of fabulous Rio. Perusing the ads, however, it seemed as if an extra zero had been tacked onto the price of every apartment. A studio with a shared toilet on the landing for $1,000 a month? Or $2,750 for a 400-square-foot (37-square-meter), one-bedroom on the first floor, apparently with no natural light? Could I be reading this right?

Unfortunately, I was. For the rent I used to pay on my Paris penthouse looking out onto the Eiffel Tower, I found I could get a postage stamp-sized place on the third floor of a down-at-the-heels Ipanema building with a spectacular view — into the neighbor's bathroom.

These neighborhoods had become the favorite haunt of the expat crowd — deep-pocketed executives from foreign oil companies, banks, car manufacturers, cosmetics giants and other multinationals eager to get in on the booming Brazilian market. With the number of foreign workers in Brazil up some 60 percent over the past four years, demand for seaside digs had exploded.

Priced off the beach, I focused my search instead on the stately neighborhoods of Flamengo and Botafogo on picturesque Guanabara Bay. Their beaches are too polluted for swimming, but at least I'd have a view of the sea, I thought.

Again, I made the rounds with classifieds in hand. About two-thirds of the time, real estate agents didn't even bother to turn up for our scheduled appointments. When they did show, a quick peek through the open door frequently sufficed: A two-bedroom in which neither bedroom was large enough to fit a bed. ("Sleep on a mat," the agent helpfully suggested.) A "loft" overlooking an eight-lane highway that was so loud it felt like it sat in the median.

My search stretched from weeks into months. I couch-surfed for weeks, shedding more of my belongings with each subsequent move — including my cat, whose jittery nerves required pet anti-depressants.

Rio's property boom is a reversal of fortune for a city that had been in steep decline since 1960, when Brazil moved its capital from the Marvelous City to the red-dirt plateau of Brasilia, and businesses fled to industrial Sao Paulo.

Now, the question on everyone's lips is whether the city's spiraling real estate prices are a bubble, like the one that burst in the U.S. in 2008, or a response to increased demand in a city surrounded by mountains and the sea with no room to grow. But even if the bubble were to burst, surely it would be after the 2016 Olympics, and I needed a place to live immediately.

As my desperation spiraled, the advice came pouring in from other expats who'd also been through the Rio housing crunch. "Find a street you like and go ask the doormen if there's a vacancy coming up," well-meaning friends counseled. Several sweat-drenched days going door-to-door under the scorching summer sun yielded nothing but shaking heads.

"This is Rio. You've got to lower your standards. And raise your budget," was another frequent piece of advice.

But even with my newly minted standards, I found precious few places within my price range that were safe, sanitary and could fit a bed in the bedroom. Of the 70 places I looked at, I ended up applying for just four. Three of my applications were rejected out of hand because I didn't have a guarantor who lived up to the owners' now-stringent standards in a competitive market. Whereas in years past they would have almost certainly been willing to accept a multinational company, many owners now demand the guarantor be the owner of not one but two properties in the city of Rio de Janeiro.

For a foreigner parachuting into the country, it was an impossible demand.

"Don't worry," the real estate agents cooed, as the tears welled in my eyes. "We'll find a solution."

In the end, that meant paying an insurance company the equivalent of nearly two months' rent to act as a cosigner, or roughly an extra $4,000 annually.

And it meant paying a hefty "finder's fee" to help convince the landlady to choose me out of the long list of potential renters for the fourth and final apartment I bid on.

The apartment is old, with rusty pipes and possibly faulty electric wiring, and rent is a third more than I'd wanted to pay. But outside my bedroom window, palm trees shake in the breeze and the squawks from a flock of wild parrots echo through my apartment. Each time I leave my building, I'm greeted by the picture postcard sight of Sugarloaf Mountain and the Guanabara Bay, the expanse of its azure waters glinting warmly.

Finally, I'm home.