Gringos In The Slums: Expats Move In As Rio Favelas Improve

[Eddie_George]

Now that the notorious drug gangs of Rio de Janiero's shanty towns have been driven out, the neighborhoods are attracting new residents from Southern Europe. Fleeing the euro crisis back home, the expats are contributing to a real estate boom in the favelas.

A gentle wind blows across Ipanema, and the air is soft and velvety. Diego Baronio hails from Brescia near Milan, yet here he is, high above the beach at Rio de Janeiro. He has just placed a fruit basket with papaya on the table, the espresso machine is hissing, and his Brazilian companion is serving freshly squeezed pineapple juice. A tourist from Berlin is stretching on a lounger. Baronio has rented his guest room to him. The Italian charges 500 reais (€191/$246) per month for the room, a price that includes breakfast and a spectacular view. At the hotels in Ipanema, that amount of money is only enough for one night's accommodation with a courtyard view at most. But the hotels aren't located in a favela, or shanty town, like the apartment that Baronio has purchased. He lives in the impoverished district of Cantagalo, a rust-red labyrinth of interlaced brick buildings. The homes in these poor neighborhoods cling to the hillsides like honeycomb, far above the gated communities of Ipanema. "The people up here are poorer than those who live farther down below -- the buildings are crammed on top of each other, and trash litters the narrow streets," admits Baronio. But he says that it's not much different in many Italian cities: "I thought the favelas would be much worse." In fact, they were. Three and a half years ago, Cantagalo was controlled by gangsters. There were frequent gunfights and tourists occasionally got caught in the line of fire. Then Brazil was awarded the right to host the 2014 World Cup, which will be followed two years later by the 2016 Summer Olympics in Rio. FIFA, the international governing body of football, along with the International Olympic Committee, have been pressuring the government to crack down on crime.

The governor of the state of Rio de Janeiro has sent in the police to occupy 30 favelas and, by the time the World Cup kicks off, a total of 40 city slums will be patrolled by Police Pacification Units, known as UPPs. The officers are assigned to well-fortified police stations and are at the core of a new security policy. Cantagalo was "pacified" in this manner. The gangsters fled and the city administration built sewage pipes, sent in garbage collectors and promised to legalize the illegally built homes of local residents.

Growing Expat Community Now, the real estate market is booming in these favelas. Middle-class Brazilians have discovered the slums as a cheap housing alternative. They are also accompanied by an influx of foreigners, most of whom come from the crisis-ridden countries of Southern Europe. Many of the newcomers head to Rio to build an entirely new life for themselves. Cantagalo is now home to Spaniards, Italians, Argentineans and an Australian. In the neighboring favela of Pavão-Pavãozinho, a prominent immigrant from Germany has also found a place to live: the former senator of the interior in the city-state of Hamburg, Ronald Schill, who was once called "Judge Merciless" for his harsh rulings. Until recently, he was living in an apartment on the Copacabana. Now, he has purchased a small house in the favela. "Rents and purchasing prices are lower here than down below," says as he points to the asphalt jungle at his feet. It's primarily the favelas in the southern zone of the city that attract the gringos. These areas are usually only minutes from the beach and offer some of the best views of Rio's stunning urban landscape.

Standing on his terrace, Baronio gazes at the Atlantic. It takes him only 15 minutes to get to the beach. "In Europe the rich would live here," he says in amazement. In 2010, he paid 60,000 reais, or approx. €23,000/$29,500, for his apartment, which is located in a three-story building directly adjacent to the police station. Baronio made his first trip to Rio four years ago. At the time, he only wanted to spend his vacation here. Then he met his current boyfriend, Alex, fell in love and settled in Brazil. In Italy he was as a social worker -- in Rio he works for an aid organization. "The mood is miserable in Italy," he says, adding that "here at least people are cheerful." The Rio municipal government is promoting this immigration. Politicians hope that the new residents will help prevent a return of the drug barons. Many immigrants transform their buildings into bed-and-breakfasts, in some cases tripling or quadrupling their value. Anyone who has a roof-top terrace with a view rents it out for parties, concerts and photo shootings.

But there is also a downside to the real estate boom in the slums. Some owners add extra stories to their buildings, although this is prohibited. The favelas are thus growing upwards instead of expanding in surface area. Baronio is also a victim of the construction fever. The owners of both levels above him have transformed the building into a bed-and-breakfast, but apparently the work wasn't up to professional standards. Now, it leaks through the ceiling in Baronio's apartment every time someone turns on a faucet. He has complained to the neighborhood association, which is responsible for all real estate in the favela, but he was rebuffed. It turns out that the president of the organization owns a stake in the upstairs bed-and-breakfast.

[Frizzers]

From Jan 2012

http://www.moneyweek.com/investments/stock-markets/emerging-markets/emerging-markets-investing-in-brazil-20300