IVAR: Residential Rent Index rises 0.66% in December 2021, FGV IBRE finds

The Residential Rent Index (IVAR), calculated by Fundação Getulio Vargas’ Brazilian Institute of Economics (FGV IBRE), rose 0.66% in December 2021. This represents a slowdown from November, when the rate was 0.79%. As a result, the index is down 0.61% in the last 12 months. This also represents a decrease compared to the annualized rate in November, which was +0.70%.

IVAR is an index created to measure the monthly evolution of residential rents in the Brazilian property market. It represents an innovation in FGV IBRE’s public statistics, as it uses information obtained directly from contracts signed by landlords and tenants, brokered by real estate management companies.

IVAR’s 12-month variation in December was very different from the results of other indexes that have traditionally measured the evolution of residential rents in Brazil. For example, the Residential Rent subitem in FGV IBGE’s Extended Consumer Price Index – 15 and the same subitem in FGV IBGE’s Weekly Consumer Price Index went up 6.98% and 4.45%, respectively, in the same period. The following graph shows how, over the last two years, the other indexes that measure the evolution of residential rents have fluctuated little in terms of their annualized rates, while IVAR has captured many nuances.

“The real estate sector was deeply affected by the pandemic’s effects on the labor market. During negotiations between tenants and landlords, high unemployment has mostly led to rents being cut or kept the same, contributing to a decline in the index’s annualized rate,” explains Paulo Picchetti, a researcher at FGV IBRE who is responsible for IVAR’s methodology.

Between November and December, IVAR’s monthly variation fell in two major cities, São Paulo (0.78% to 0.48%) and Rio de Janeiro (1.46% to 1.03%). On the other hand, in Belo Horizonte (1.00% to 1.17%) and Porto Alegre (0.27% to 0.43%), the rates of variation increased. 

Looking at the 12-month accumulated trend, all the cities covered by IVAR slowed down in December, but only São Paulo fell more than the index’s average result, dropping 1.83% during the month. In Porto Alegre, the accumulated rate declined 0.35%. The highest annualized increase was in Belo Horizonte (up 1.46%), followed by Rio de Janeiro (up 0.46%) [1].

“Although inflation, as measured by the country’s main price indices, is accelerating, the annualized variation in residential rents continues to decelerate. The rise in inflation has been reducing family income, which continues to be pressured by weak economic activity and high unemployment. Given declining family income, rents have tended to follow this trend, reflecting the progress of negotiations between tenants and owners,” says André Braz, FGV IBRE’s price index coordinator.

As of January 2022, the information on rents used to calculate IVAR will be incorporated into the Residential Rent subitem of different versions of FGV IBGE’s Consumer Price Index. FGV IBRE will soon release a statement about methodological aspects related to this change. IVAR’s next results will be announced on February 10, 2022.

[1] The variations in the three other state capitals used to calculate IVAR (Brasília, Salvador and Recife) are being estimated based on the average change in the four biggest state capitals.