One of the largest real estate developers in the Brazilian state of Minas Gerais, Habitare has spent the last 30 years making its capital, Belo Horizonte, a more habitable place. In explaining the company’s success, President Sebastião Sidney Soares hammered home to Michael Sommers the importance of offering customers top quality along with affordable prices and flexible payment options.
Capital of the state of Minas Gerais, Belo Horizonte is the third largest city in Brazil, and within Belo Horizonte, Habitare is the largest developer and constructor of residential buildings for an expanding niche: the city’s upper middle class. Interestingly, when the company was founded in 1977, it wasn’t in the business of constructing buildings at all, but administering them. After a few years, Habitare expanded into buying and selling real estate before, quite naturally, taking the next step: branching out into small-scale construction. In 1986, the company initiated work upon its first building. No sooner had it been completed than it embarked upon a second, and then a third.
Habitare maintained this one-at-a-time rhythm for several years before deciding to pick up the pace by diving headfirst into construction. With this aim, it began purchasing plots of land in new and upcoming neighborhoods such as Buritis, an expanding bairro where it first began developing in 1990. “We negotiated to buy several lots, and this allowed us to start building in larger volumes,” recalls Habitare’s president Sebastião Sidney Soares. “As a result, we were able to start planning some major developments. From the outset, our products were very well accepted and we began acquiring a reputation for ourselves.”
PAYMENT AND PROFIT STRATEGIES
Early on, Habitare differentiated itself in the marketplace by selling apartment units during buildings’ planning and construction stages as opposed to after their completion. “This was a major advantage for customers because it gave them a longer deadline, allowing them to stretch out their payments over time into smaller installments,” says Soares. “Meanwhile, the advantage for us was that we had access to a much broader universe of consumers.”
Today the company – which offers its own financing while working as a representative for various banks, including the federal government’s Caixa Econômica that has its own funding programs for prospective homeowners – offers 120-month (10-year) financing upon handing over of the keys. However, homeowners who sign on right from the outset of a project can spread their payments out over an additional 36 months (3 years); a duration that corresponds to the construction period.
Aside from increased payment options, the company also distinguished itself by the way it administered its profits. Instead of doling them out amongst its shareholders, Habitare’s directors made it a policy to funnel the majority of profits back into the company. “As a result, we’ve always had a lot of capital available to invest in new projects,” explains Soares. “We’ve been able to continuously buy new lots and increase our volumes. Unlike many of our competitors, we don’t depend on sales to raise capital. We always have our own reserves at our disposal to purchase land and finance our own construction.”
This strategy proved propitious during the 2008 global financial crisis. Bucking conventional wisdom, Habitare’s board of directors made a decision to neither halt nor significantly reduce its projects. “Due to the economic environment there was a slowdown in sales,” admits Soares. “But since our debt is so small, this wasn’t a problem for us. The following year, when the Brazilian economy bounced back, we experienced a major jump in sales because, unlike our competitors, we had never reduced our activities. In fact, the manner in which we came through the crisis only served to boost both our products and our brand name.”
Indeed, in recent years, Habitare has enjoyed tremendous growth rates that average around 50 percent a year. In 2009, the company took in R$180 million (roughly US$100 million). This year, revenues are expected to exceed R$250 million (US$140 million). Since it first started out over 20 year ago, the company has completed a total of more than 50 buildings. Currently, it has 30 buildings in various stages of construction; proof that business is booming. Aside from its main administrative headquarters in the downtown neighborhood of Barro Preto, Habitare also has four branch offices scattered throughout the city, which were opened in an attempt to facilitate personalized contact with clients, both pre- and post-sales.
CATERING TO ITS NICHE
“We cater largely – around 90 percent – to the Classe B,” explains Soares, referring to the socio-economic term used to categorize Brazil’s upper-middle class. “When we first began constructing buildings, we observed that this was a niche that really wasn’t being exploited, and there was not a lot of competition in the marketplace. Our clients demand high-quality products and we work hard to meet their demands.”
For instance, Habitare hires different architects for each of its projects to ensure that designs – both external and internal – are more customized and individualized. Two key concerns are the use of quality materials and the optimization of space. In terms of the former, the company has its own in-house quality department that ensures the use of top-quality paints, tiles, doors (it has an exclusive supplier), etc. for each project. With respect to space, there is a commitment to avoiding “dead space” such as hallways, and a determination that every square meter should be “truly necessary for our customers’ day-to-day living needs.” In fact, at its showrooms, Habitare representatives display fully-decorated apartments with the goal of providing tips to homeowners for maximizing space.
“We always want each project to be better than the last,” confesses Soares. “So we’re always looking at ways to add new features: whether it’s wider balconies or leisure areas that offer more amenities.” Indeed, common spaces such as “leisure” and “gourmet” areas constitute one of the market’s biggest and fastest-growing trends. Today, almost all of the buildings Habitare designs possess swimming pools, as well as soccer – and even tennis – courts, along with “gourmet areas” containing barbecue stations, cooking areas, bars, tables, and chairs.
“Increasingly, well-off Brazilians don’t want to leave their homes because of security issues,” confesses Soares. “They prefer to do their socializing at home in these common areas that are safe, especially for younger kids and teenagers. As a consequence, we’re starting to build more closed condominium complexes, containing two or three buildings, where residents share common areas as well as security features such as 24-hour gates and doormen. The costs – for cleaning, maintenance, and security – are a lot lower when they’re divided among many.”
Although the emphasis on quality is important, the company also constantly strives to maintain its competitive edge when it comes to price. Aside from selling units prior to completion, and investing in up-and-coming neighborhoods where prices have yet to skyrocket, on any given project, 95 percent of the company’s workforce is in-house as opposed to outsourced (Habitare currently employs 2,700 people). While this practice allows Habitare to maintain absolute control over its construction costs, an added benefit is that employees are very involved in each project and are highly familiar with the company’s requirements and demands. According to Soares, this ongoing partnership with its collaborators makes for better buildings.
“Our driving concern is to construct living spaces that surpass our clients’ expectations,” he says. “What we’re selling to our customers is a dream home. But what we ultimately deliver is something that goes beyond their dreams.”