Following fast on the footsteps of late June's landmark agreement between the U.S. and Brazil on the liberalization of air routes between the two countries. Brazil's tourism minister has announced that Brazil will invest $23.5 billion in transportation and infrastructure projects in the lead up to its hosting of the 2014 World Cup. He named the cities of Sao Paulo, Rio de Janeiro, Niteroi, Belo Horizonte, Porto Alegre, Fortaleza, Recife, Olinda, Natal, Maceio, and Brasilia as beneficiaries.
The build up to 2014 will see dramatic infrastructure upgrades, media attention, and marketing of the destination cities…and that's before you even think about the feel-good factor that will be generated by the buzz leading up to 2014. The tournament itself will see a tourism boom and unprecedented global exposure for Brazil and the host cities.
With air traffic expected to double from 4 to 8 million trips during the month of the tournament, airport infrastructure will get a $2.5 billion upgrade. Rail links will get a major upgrade, including the construction of a bullet train between Sao Paulo and Rio de Janeiro. One billion dollars will be spent on stadium upgrades, with four likely to be built from scratch.
The first major benefit for the real estate investor will be demand for accommodation for corporate lettings linked to 2014 infrastructure projects. This has started, but look for this trend to accelerate early next year.
The second major benefit will be the influx of foreign investors looking to profit from the so-called “World Cup Effect”. Real estate prices in South Africa rose by a whopping 35% in 2005, with its hosting of the 2010 World Cup a major driver. I expect the impact of this World Cup effect to peak in 2010 as attention turns from South Africa to Brazil.
The third benefit will be the marketing exposure in the lead up to the tournament. Look for this to peak from early 2013 to kickoff in the summer of 2014.
The fourth benefit will come from the huge rents owners will be able to charge over the course of the tournament. I expect quality condos will rent for up to $10,000 per week in the major host cities.
The final and most lasting benefit will be the improved tourist infrastructure and positive experiences the event will leave. Put Brazil and soccer together and one word comes to mind: sexy. Not only is Brazil without question the most successful team in the sport's history, it also has that cool factor no other country can match…and then there's the bikini-clad fans…. In fact, Brazil's soccer team is its most powerful branding tool.
Some benefits to the build up to 2014 can already be seen in Fortaleza, including a major upgrade of the boardwalk. A metro is planned to improve public transport in the city and shuffle visitors from the airport to hotels and to the stadium.
FIFA will select the twelve host cities at the FIFA Executive Committee meeting in May. I expect Fortaleza to be on the list. If Fortaleza is on the list, this will be another driver of real estate prices along this stretch of coast.
As I've told you before, the state of Ceara, centered on Fortaleza, is seeing the collision of a momentum event of foreign investors with a rapidly expanding local economy. A rare event, but a proven signal that real estate prices are set to rapidly appreciate. You need to step back, take a deep breath, and pay attention when these factors are at play in the same place at the same time. Don't get distracted. This may not happen again…anywhere…for another decade.