September 30, 2013 / 9:30 PM / in 4 years

Brazil raises spending limit on home purchases from pension fund

BRASILIA, Sept 30 (Reuters) - Brazilians will be allowed to apply money held in their government-run pension funds towards the purchase of more expensive homes, Brazil’s top economic policy-making body announced on Monday, which could boost demand in the country’s recovering housing sector.

Brazil’s National Monetary Council said on Monday that formally registered workers in the states of Rio de Janeiro, Sao Paulo, Minas Gerais and the Federal District could use money they have accumulated in their so-called FGTS funds towards the purchase of homes valued at up to 750,000 reais ($337,838), up from a previous limit of 500,000 reais.

Those residing in other states would see the limit raised to 650,000 reais, the council said.

Under the program, employers deposit money into the fund each month, which can only be withdrawn early for certain purposes, one being the purchase of a new home.

Previously, the limit of 500,000 reais meant that many upper middle-class Brazilians, many of who tend to purchase homes costing above that limit, were unable to apply the funds towards the purchase.

The change, which Brazil’s homebuilding industry has called for repeatedly in recent years, would allow more Brazilians to take advantage of their FGTS funds, which offer very low interest rates.

“It’s positive for the sector as a whole and it was expected,” said Eduardo Silveira, an analyst with Espirito Santo Investment Bank in Sao Paulo. “It will help companies with demand for real estate because within the FGTS range, the cost of funding is a bit lower.”

Homebuilders in Brazil have struggled to remain profitable in recent years after poorly managed expansion plans led to project delays, higher sales cancellations and hefty cost overruns.

An index of homebuilder shares traded on Brazil’s benchmark Bovespa index fell 1.02 percent on Monday. The announcement was made after the market close.

Julio Carneiro, the deputy chief of the central bank’s financial norms division, said authorities do not expect the measures to spark a boom in the real estate sector. However, he said the measures will likely help construction companies that have been demanding an increase in the ceiling for the last two years.

He added that authorities decided to lift the limits because of a steep increase in Brazilian property values in recent years.

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