July 26, 2016 Building In Balance

Volume 10 | Issue 4

Riding the wave of the high-growth housing market in Brazil is not always about building in quantity. For MRV Engenharia, it’s about balance

Brazil has a housing deficit of nearly 10 million homes and each year the number goes up. The housing market in Brazil generates approximately 200,000 new units each year, representing about 10 percent of the GNP and employing more than three million workers. By comparison, Mexico, which has a smaller population than Brazil, creates nearly 800,000 new homes per year. MRV Engenharia, a leading developer for middle-class urban housing is ready to absorb more of this growth. “We don’t like to talk about future plans, but I can say this: We are a leader in our sector and all of our growth is from this growing segment of the market, people who are now able to get financing and buy their first homes,” says Paes Barreto, Vice President at MRV Engenharia.

Today, more than 100,000 Brazilians live in MRV’s buildings, the equivalent of a small city’s population. Since the company’s expansion from its home base in Belo Horizonte in the interior of Brazil, it has created more than 44,000 homes in 29 cities throughout Brazil and employs 6,000 workers. The company has another 9,500 units in construction. What is its secret for riding this wave of growth with such success? MRV never forgets the three most important things about real estate.

Location Location Location
“Brazil is growing, yes, but there are still people going hungry here,” begins Barreto. “It’s still a poor country and most people have no savings; inflation consumed the earnings of our people.” For MRV, the goal is to offer homebuyers the highest standard of living possible for their purchase price. Understanding the lifestyles of the target market is the first step in accomplishing this. “The average person usually has to travel by bus to work and back. These people want to live closer to the center of town. Location is, therefore, our greatest strategy. Not just barbecue and pool areas, but working close to home is of great value to our customers.” But buying close to the central areas is usually more expensive and many working-class Brazilians end up living on the outskirts. “Our greatest challenge is to keep our production costs down so that our units are affordable.”

To achieve more for less, MRV makes some strategic trade-offs based on its perception of the customer. Many MRV buildings don’t have elevators, for example, and swimming pools are often passed up in favor of more important amenities, like security and comfort. “Clearly, everyone would like to have an elevator and pay only $60 in association fees [called condominium fees in Brazil]. But in reality, the building has to attend to the needs of the people while keeping the association fees low. Having a pool is complicated. It involves security, fencing, maintenance – we don’t always include them in our buildings.”

In Brazil, many condo renters pay as much in association fees as they do in rent, a trend that is adding a great financial burden to many working families. “We are very concerned with the equilibrium in our buildings. Our company values the cost-benefit of our apartments. We might have slightly less luxurious leisure facilities, but it’s something people can afford. We concentrate on finding good neighborhoods that many buyers could not previously afford. Creating this balance is what we do best.”

In the past, MRV had to help its customers finance their homes. Until the late 1990s, most Brazilians did not have much credit or financing power. “In the past, government financing was not an option for most families. We were able to offer financing even when banks would not. We financed about 70 percent of our buyers; we did this so that our business could exist and grow. We were obligated to give credit and we grew as a result.” Today, international bankers are beginning to see that our low-income families are a target market for financing. Now we are less competitive with the banks and that’s good. We are now selling many of our units while they are still in the planning stages. We don’t really want to be in the financing business.”

Another one of MRV’s out-of-the-mainstream moves was to develop a system that guaranteed delivery of homes. Too often, in Brazil, building developments are held up indefinitely, go into bankruptcy due to corruption, or simply never exist. Buyers are usually hit with the biggest losses. MRV developed a system called Casa Guarantida, or Guaranteed Home, which protects buyers from such problems, especially in high-risk areas.

Building Expertise
MRV takes a similar “balanced” approach to its building processes, seeking to understand regional tastes and reach equilibrium between luxury and price. Today, the company has buildings in seven Brazilian states and 29 different cities. “Our product is very standardized – apartments with two, three or four rooms that are well planned so we can get the most out of the scale of production. With these economies of scale, we can offer good prices for more centralized homes,” Barreto says.

MRV focuses on homes that cost around $80,000, which means they are built for the middle class, for families that earn around $30,000 per year. The company’s Park line is even more economical, with two-three bedroom apartments for around $50,000 in buildings with elevators and some common areas. But MRV also provides homes for customers of a slightly higher income. “We did not lose focus on our primary market, but we also became interested in a class that needs more security and better presentation,” says Barreto. “The secret to building for this class is to do everything for them. They want as many benefits and amenities as possible.”

Previously such standards of living were only for the rich in Brazil. Today, more people can access these lifestyles. “A new trend is that the rich are moving into homes and closed communities on the outskirts of cities, so now everyone wants to do this,” Barreto explains. “We were able to make a difference here with homes that cost from $90,000 to $125,000. They are not just for the rich.”

To support the wide variety of regional interests and tastes that come from being in so many cities, MRV studies the competition and copies what works. “Of course, the cost of land differs from city to city, but this does not change our building methods. Our formulas are our secrets and our standards of building make us who we are. Still, we have to adapt to regional differences. In the Southern Region of Brazil, for example, we have to put hot water in all sinks throughout the house. This is a luxury in the rest of Brazil. Also in the South, they like to feel the early morning sun. We learn about these things by being in the market,” Barreto explains.

The company keeps regional offices outside of its headquarters in Belo Horizonte. But most materials come from centralized suppliers to help aggregate purchasing power. The company purchases about 60 percent of its materials this way, with the rest coming from sources closer to the construction sites. “Windows, doors, pipes… these are all purchased from national suppliers,” says Barreto. “We have many big partners, like Gerdau for steel and iron products, Cecrisa for tiles and ceramics and Suvinil for paint.”

Unlike other builders, MRV hires many of its construction workers from local labor pools. Some are sub-contracted services, like electricity and plumbing, but engineering and project management always comes from the home office. “We have our engineers controlling the quality and costs. We watch for every little trick that can be used because these become obvious later.” MRV trains most of its directors and supervisors and makes a practice of hiring the best talent from good schools across the country. “We find it very important to have and create intelligence. We send our engineers from here to all other cities,” Barreto adds.

Most important, MRV keeps its reputation in good condition, knowing that Brazil is becoming more of a global player. As Barreto explains: “We noticed that many Brazilians who live in other countries will invest in our homes because we are trustworthy. They place their hard-earned savings into our buildings.” For MRV this is proof that its special way of balancing location with economies of scale is working for the long term.

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