27.09.11

Paulo Safady Simão CBIC President

City of Cape Town - South Africa

NATIONAL AND INTERNATIONAL REPRESENTATIVE FOR BUSINESS ENTITIES IN THE CONSTRUCTION INDUSTRY AND REAL ESTATE MARKET

6226

entities

states and FD

Real estate

market

Sanitation

Road

projectsConstructio

n segments

TRADE UNIONS, BUSINESS ASSOCIATIONS, AND CHAMBERS

GENERAL INFORMATION

BRAZIL

COMPOSITION OF GDP GROWTH

Source: Brazilian Institute for Geography and Statistics (IBGE.) Prepared by the Ministry of Finance.

In 2010, the Brazilian economy grew 7.5%, with a significant contribution from Civil Construction, elevating, further, the expansion of fixed investments in relation to GDP.

5

GDP GROWTH RATES

Source: Brazilian Institute of Geography and Statistics (IBGE). Preparation and estimates by the Ministry of Finance.

In the period 2011-2014, the consolidation of investments (driven by construction) and increased domestic demand is expected to spur average annual economic growth of 5.1%.

6

GDP GROWTH – DEMAND

Source: Brazilian Institute of Geography and Statistics (IBGE). Prepared and estimated by the Ministry of Finance.

Domestic demand will continue to be the principal driver of inclusive and sustainable economic expansion.

7

GROWTH WITH POVERTY REDUCTION

Source: Getúlio Vargas Foundation (FGV). Preparation and estimates by the Ministry of Finance.

Sustainable growth associated to inclusive policies produced a 52% reduction in poverty in the period 2003-2010.

POPULATION IN POVERTY (%)

8

MIDDLE CLASS ACCOUNTS FOR MORE THAN HALF OF BRAZILIAN POPULATION

Note: Monthly household per capita income by class at 2009 prices: Class A/B: more than R$ 4,800.00; Class C: R$ 1,115.00 – R$ 4,800.00; Class D: R$ 804.00 – R$ 1,115.00; Class E: up to R$ 804.00.Source: Getúlio Vargas Foundation/National Household Sample Survey (FGV/PNAD). Prepared and estimated by the Ministry of Finance

Enhanced income distribution has added 29 million to middle class (Class C).

DISTRIBUTION OF ECONOMIC CLASSES IN BRAZIL (% POPULATION)

9

RECENT GLOBAL FINANCIAL CRISIS

A development strategy based on investment and mass consumption (domestic market) was adopted; and ...

Monetary policyReserve requirementReduced interest ratesForeign trade (reserves)

Fiscal policyReduced taxes on productionInvestments in construction

BRAZIL

“The stability of the economy and of the country’s democratic institutions as well as frank dialogue between government and civil society were decisive in successfully confrontingthe crisis”

Source: Brazilian Central Bank (BACEN). CBIC Database.

CREDIT TRANSACTIONS BY FINANCIAL SYSTEM IN 2009

(AT THE HEIGHT OF THE CRISIS)

Steering of funds at low cost was decisive for maintaining credit levels at the height of the global crisis.

11

ECONOMIC OUTLOOK

Fontes.: Ministério da Fazendfa, CBIC

Economic stability;

Average growth of approximately 4.0% per year;

Growth driven by internal demand and by investments in infrastructure

and housing;

Investments projected to grow by at least twice the rate of GDP in the

coming 4 years;

Notwithstanding forecasts pointing to a renewed global downturn,

domestic demand remains robust, international reserves and reserve

requirements are higher than in 2008, and the fiscal situation is

stronger.

12

GENERAL INFORMATION

CONSTRUCTION

Represents approximately 19% of national industrial output;

More than 2.5 million formal workers;

More than 100,000 licensed companies;

Accounts for nearly 38% of fixed investments in Brazil.

THE CONSTRUCTION INDUSTRY IN CONTEXT

Product with an extended maturity time;

Requires long-term financing;

Principal current funding sources: FGTS (Government Severance

Fund) and Savings Accounts;

Funding not contingent on market interest rates;

Still marked by a high degree of informality.

CHARACTERISTICS

VARIATION IN GDP OF BRAZIL AND THE CONSTRUCTION INDUSTRY

Source: Brazilian Institute for Geography and Statistics (IBGE) and Brazilian Central Bank (BACEN).16

REAL ESTATE MARKET

PROVISIONS OF LAW NO. 10931/2004

Law No. 10931 represented a milepost for the real estate segment

by establishing a new regulatory framework for real estate brokers

and agents, namely:

A special tax regime aimed at promoting the adoption of detached assets

system;

Regulation of the payment of undisputed amounts;

Consolidation of statutory liens in real estate financing agreements.

18

LAW NO. 10931/2004

Reduced

interest

rates

Lower

costsIncreased

Employment

levels

Increased

demand for

real estate

Increased

funding

for real estate

market

VIRTUOUS CYCLE FOR

REAL ESTATE MARKET

19

Source: Brazilian Central Bank (BACEN), Brazilian Association of Real Estate Credit and Savings (ABECIP), and Federal Savings Bank (CEF) – FGTS Channel. CBIC Database.

GROWTH IN REAL ESTATE CREDIT 2002 – 2010 (financing volume)8

20

Source: Brazilian Central Bank and Brazilian Association of Real Estate Credit and Savings (ABECIP)

Brazilian Savings and Loan System (SBPE) – Agreements with more than 3 outstanding installments signed after 1998

Mortgage Guaranty + Fiduciary Lien

HIGH QUALITY REAL ESTATE CREDIT

Fiduciary Lien

21

Low participation of real estate credit

EXPANSIOM OF CREDIT BY SEGMENT

Source: Brazilian Central Bank (BACEN).

22

Source: Brazilian Central Bank (BACEN) and Brazilian Association of Real Estate Credit and Savings (ABECIP).

REAL ESTATE FINANCING AS A PERCENTAGE OF GDP

23

Source: Brazilian Central Bank (BACEN) and Brazilian Association of Real Estate Credit and Savings (ABECIP)

REAL ESTATE FINANCING AS A PERCENTAGE OF GDP

ABECIP projections indicate that real estate credit could reach 11% by 2014.

Weight of housing credit in Brazilian GDP (%)

24

25

RECENT MEASURES

Finance Bill:

Establishment of Finance Bill (Law No. 12249 of 2010);

Elimination of tax on required reserve (BCB Circular No. 3513 of

2010).

Rules on Resource Steering for Savings (CMN Resolution No. 3932 of

2010):

Permission for temporary and partial entry of portfolios assigned

for securitization – deduction of 1/36 in value of assigned portfolios;

Prohibition as of March 2010 on accounting entries of Real Estate

Receivable Certificates (CRIs) not backed by real estate in financing

agreements executed for the purpose of resource steering.

26

Implementation of Positive Registry (Law No. 12414 of 2011):

Enabled constitution of credit histories for individuals and legal

entities, reducing asymmetries in information between creditors and

debtors.

Financial Transaction Tax (IOF) on private security transactions

conducted in periods of less than 30 days:

Reduced to zero IOF on private security transactions (Decree No.

7412 of 2010);

Restricted zero IOF rate to transactions involving debentures,

finance bills, and CRIs ( Decree No. 7487 of 2011).

RECENT MEASURES

27

“Incentives for Long-Term Financing” (Law No. 12431 of 2011)

Reduce to zero IT on non-resident investments in long-term private

bonds.

RECENT MEASURES

COMPOSITION OF REAL ESTATE CREDIT MARKET – FINANCIAL AGENTS

Source: Bank of Brazil.

28

HOUSING NEEDS(millions of units)

Source: Civil Construction Industry Trade Union of São Paulo (SINDUSCON-SP), São Paulo State Federation of Industry (FIESP), Getúlio Vargas Foundation (FGV). CBIC Database.

ADDITIONAL GROWTH INDICATORS ...

5.81Cumulative shortage - 2009

23.492010 -

2022

29

DEMOGRAPHIC BONUS (increase in economically active population).

Source: Brazilian Institute of Geography and Statistics (IBGE).

ADDITIONAL GROWTH INDICATORS ...

Absolute Age Pyramid

MEN WOMEN

30

MY HOME, MY LIFE PROGRAM

LOW-INCOME HOUSING – RECENT HISTORY

In Brazil, civil society, lawmakers, and government have approached the issue from the standpoint of modern construction concepts;

In a short time, the housing question was introduced on organized civil society’s agenda.

Governments and society do not always attach due importance to the lack of housing, as a result of which a number of countries (developing nations) have yet to adequately addressed the issue.

SOCIAL INTEREST HOUSING

33

My Home, My Life Program (organized civil society and governments).

Dignified Housing Project (CBIC);

IT IS ESSENTIAL TO UNDERSCORE THE IMPORTANCE OF CIVIL SOCIETY PRESSURE IN

PRIORITIZING GOVERNMENT ACTION

34

SOCIAL INTEREST HOUSING

THE PROJECT

GOAL: To implement the National Housing Plan by building 1 million homes for families with a monthly income of up to 10 minimum salaries

Increase home ownership for low-income families Families with monthly incomes of up to 3 minimum salaries – full

subsidy with insurance waiver Families with monthly incomes of 3 to 6 minimum salaries –

increase of partial subsidy for financing through reduced insurance costs and access to Credit Guarantee Fund (Fundo Garantidor)

Families with monthly incomes of 6 to 10 minimum salaries– incentives to buy through reduced insurance costs and access to Credit Guarantee Fund (Fundo Garantidor)

PMCMV – STAGE 1

HOUSING PACKAGE

Source: My Home, My Life Program36

Urban infrastructure;

Technological development of companies.

OTHER FINANCING ARRANGEMENTS ASSOCIATED TO THE PROGRAM

37

CHARACTERISITCS AND DISTINGUISHING FEATURES

PMCMV – CHARACTERISTICS

Source: My Home, My Life Program

Substantial funding for subsidies;

Tax deductions on final product;

Production by private sector;

Direct subsidies for families;

Financing for technological development of companies;

Attuned to housing shortfall;

39

Source: My Home, My Life Program

For households with an income of up to 3 minimum salaries, construction companies serve as developers (not responsible for sales).

In some localities, the maximum values established at the federal level have proved insufficient, with local governments stepping in to provide necessary resources.

The Program has prioritized full formality of the entire processproperly registered properties,licensed construction companies, andregistered workers with employment cards.

40

PMCMV – CHARACTERISTICS

CONSEQUENCES AND OUTCOMES

CONTRACTS UNDER PMCMV 1

The first stage was completed on 12/31/2010 and 1,005,028 housing units were contracted

ALIGNMENT OF PROGRAM WITH GUIDELINES

Source: Federal Savings Bank. Database.42

ALIGNMENT OF PROGRAM WITH REGIONAL DEFICIT

Source: Federal Savings Bank. Database.

CONTRACTS UNDER PMCMV 1

ECONOMIC ASPECTS – PMCMV

GROWTH IN CONSTRUCTION WORKFORCE

Source: Annual Registry of Social Information/General Registry of Employed and Unemployed Persons (RAIS/CAGED), Ministry of Labor and Employment. Database. 44

Citizenship (option for “excluded”)

More effective occupation of urban land (orderly settlement of urban areas);

Healthy living through enhanced hygiene and safety/security (reduced public expenditures on health, security, and education);

Compliance with legal and constitutional commitments in meeting the basic needs of the population.

POLITICAL AND SOCIAL ASPECTS – PMCMV

45

FUTURE OF PROGRAM

GROWTH ACCELERATION PROGRAM 2 – PAC2

Source: PAC 2 Report

Incorporated in PAC

47

Incorporated in National Housing Plan (Plano Nacional de Habitação – PLANHAB) and PAC;

Transition of Urban Development Department (GIDUR/CAIXA) processes through adoption of improved finishing specifications (over 140,000 units encompassed);

Greater protection to women head of households;

Increased focus on sustainability

(solar energy)

PMCMV – STAGE 2

48

Source: Civil House of the Office of the President

PACPROJECTED INVESTMENTS

Source: PAC 2 Report

R$ Millions PAC Projects 2011-2014 Pos 2014 Total PAC Better City 57.1 - 57.1 PAC Citizen Community 23.0 - 23.0 PAC My Home. My Life 278.2 - 278.2 PAC Water and Electricity for All 30.6 - 30.6 PAC Transportation 104.5 4.5 109.0 PAC Energy 461.6 626.9 1.088.5 TOTAL 955.0 631.4 1,586.4

Based on PAC 2 Report of March 2010

49

Increase in number of housing units:

PMCMV – STAGE 2

One million to two million units contracted through 2014.

50

Expanding volume of investments:

Entry of an additional financial agent (Bank of Brazil) for first income bracket served by the PMCMV 2

TOTAL – R$ 125.7 billionSubsidy – R$ 72.6 billion

Financing – R$ 53.1 billion

51

PMCMV – STAGE 2

Fonte: Anúncio do PMVMV 2

Expansion of Income Brackets:

URBAN – MONTHLY INCOME

RURAL – MONTHLY INCOME

INCOME BRACKETS PMCMV 1 PMCMV 21 Up to R$ 1,395.00 Up to R$ 1,600.002 R$ 1,395.00 – R$ 2,790.00 R$ 1,600.00 – R$ 3,100.003 R$ 2,790.00 – R$ 4,650.00 R$ 3,100.00 – R$ 5,000.00

INCOME BRACKETS PMCMV 1 PMCMV 21 Up to R$ 10,000.00 Up to R$ 15,000.002 R$ 10,000.00 – R$ 22,000.00 R$ 15,000.00 – R$ 30,000.003 R$ 22,000.00 – R$ 55,800.00 R$ 30,000.00 – R$ 60,000.00

52

PMCMV – STAGE 2

Source: PMVMV 2

Priority for lower income families:

Household Monthly Income Number of Households %

Up to R$ 1,600.00 1.2 million 60R$ 1,600.00 – R$ 3,100.00 600 30R$ 3,100.00 – R$ 5,000.00 200 10

40% for households with a monthly income of up to R$ 1,395.00 in Stage 1, to60% for households with a monthly income of up to R$ 1,600.00 in Stage 2

53

PMCMV – STAGE 2

Source: PMVMV 2

Improved unit specifications:

ITEMS MCMV 1 MCMV 2

Home: 35 m2 Home: 39.6 m2

Apartment: 42 m2 Apartment: 45.5 m2

Increased area for improved access

Average price of housing units R$ 42,000.00 R$ 55,188.00Ceramic floors in bathroom, kitchen, and pantry areas

Ceramic floors throughout unit

Tile on walls around water points

Tile on all kitchen and bathroom walls

Solar heating in 40,000 units

Solar heating in all homes

Minimum limit for exterior doors (0.8 m)

All doors 0.8 m and larger windows for improved lighting and ventilation

Specifications

Minimum Size

54

PMCMV – STAGE 2

Strengthening rules:

New rules on property transfers;

One-time subsidy to real estate property;

Inclusion of renovation modality for low-income rural housing;

Expanded partnership with local governments in social initiatives.

55

PMCMV – STAGE 2

Increase in maximum value of real estate properties for incomes above R$ 1,600.00 was adjusted:

In the metropolitan areas of São Paulo, Rio de Janeiro, and the Federal District, value raised from R$ 130,000.00 to R$ 170,000.00.

For all other state capitals and municipalities with a population of more than 1 million inhabitants, value boosted from R$ 130,000.00 to R$ 150,000.00.

56

PMCMV – STAGE 2

For municipalities with more than 250,000 inhabitants or residents of metropolitan areas, maximum amount to rise from R$ 100,000.00 to R$ 130,000.00.

For municipalities with populations equal to or more than 50,000 and less than 250,000 inhabitants, from R$ 80,000.00 to R$ 100,000.00.

For all other municipalities, amount to remain R$ 80,000.00.

57

PMCMV – STAGE 2

MOST RECENT PROJECTION ON RESOURCES FOR THE HOUSING SEGMENT

R$ BillionsSOURCES 2011-2014

FGTS 92.0

Brazilian Savings and Loan System - SBPE

240.0

Federal Budget - OGU / Social Development Fund - FDS

78.0

TOTAL 410.0

58

Opening of cost plans underlying government studies;

Expansion of unit value for application of the Special Tax Regime (RET); and

Priority review of the National System of Civil Construction Prices and Indices (SINAPI) and approval of new technologies.

CBIC PROPOSALS

59

PEC 285 – allocation of 2% of federal revenues to investments in Social Interest Housing (long-term maintenance of resources and programs);

Qualified workforce;

Need for new sources of funding;

Urban properties;

Innovation;

Sustainable construction;

Sanitation.

NEXT STEPS

60

www.cbic.org.brPhone: +55(61) 3327-

1013Fax: +55(61) 3327-1393

Brazilian Construction

Industry Chamber