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* Demand for loans in 2012 hit by debt-laden builders
* Group estimates sharp slowdown in 2012 credit growth
SAO PAULO, Dec 14 (Reuters) - Brazilian homebuyers and builders are expected to increase demand for loans next year after dismal economic activity in 2012 led to a steep downward revision in estimates for mortgages, real estate loans and savings association Abecip said on Friday.
New housing credit are expected to end the year at around 85 billion reais ($40.1 billion), down from a previous estimate of 96 billion reais, Abecip President Octavio de Lazari Jr. said in an interview. Homebuilders who cut back on starting projects to protect their balance sheets were the main culprit behind the revision, Lazari said.
Abecip estimates that housing credit increased 6 percent from last year -- a sharp slowdown compared with the nearly 40 percent annual expansion seen in January.
Demand by homebuyers remained strong, which will drive up loan disbursements next year as the economy recovers, he said.
"We expect housing credit to expand between 15 and 20 percent (next year), depending on market conditions, economic growth, employment and income levels," Lazari said.
Abecip's estimates are based on the so-called Brazilian system of savings and loans, known as SBPE for its Portuguese language acronym.
Brazil's economy is expected to grow 3.5 percent in 2013, up from a forecast of 1 percent this year, according to the median forecast in a weekly central bank poll of economists.
Homebuilders such as PDG Realty SA, Rossi Residencial SA and Brookfield Incorporações SA slowed project launches to improve profitability as constructions costs soared. Brazil's low unemployment, while boosting demand for home purchases, also increased labor costs for homebuilders.
President Dilma Rouseff's government earlier this month reduced payroll taxes on the construction sector. The move was part of a broad effort to revive Brazil's economy, including 10 straight interest rate cuts and targeted credit subsidies.
Home prices soared in Brazil in the past few years as millions of people joined the middle class, but moderated recently. Lazari said prices are not going to fall because demand for new homes remains strong.