Rio risks empty Olympic legacy as real estate stalls

Reuters , Tuesday 19 Jul 2016

"Pure Island: a neighborhood born ready-made," reads the glitzy brochure for the 31 tower blocks built for $880 million to house athletes for the Olympics in Rio de Janeiro next month.

After the Games, this is meant to become Rio's newest community, a bustling legacy of the 17-day sporting event.

But there's one thing missing - residents.

Developers say they have sold just 240 of the 3,600 apartments that go for between 750,000 and 3 million reais ($230,000 to $925,000).

Buyers are returning apartments, a sales source said, put off by Brazil's economic crisis and the scant appeal of being lonely occupants of a space stretching more than 100 soccer pitches in a still-remote region of Rio.

The largest athlete's village in the history of the Games is a visceral monument to now-faded optimism. Planned when Brazil was booming, its harnessing of private sector wealth was meant to set the gold standard for a sustainable Olympics.

Instead, the worst recession in generations pushed the luxury apartments out of reach.

"Pure Island", or "Ilha Pura" in Portuguese, is one of multiple projects, including the Olympic Park and the 8 billion reais regeneration of Rio's port area, funded in partnership with developers but now stalling.

The development, complete with a landscaped central park, fountains, tennis courts and swimming pools, was spookily deserted on a recent visit and felt more like a film set than a new neighborhood.

The joint venture between developer Carvalho Hosken and construction company Odebrecht says it always planned to sell most of the luxury apartments after the Games. But Mauricio Cruz Lopes, director general for the project, admitted sales are well below the target of 1,000 properties by now.

"When this project was planned there was an optimism and growth across all of Brazil," said Cruz Lopes. "Now the situation is completely different."

Top-week event

Mayor Eduardo Paes likes to highlight that 57 percent of the nearly 40 billion reais being spent on the Olympics is private money. London's Olympics by contrast was over 80 percent publicly funded.

Rio used public-private partnerships (PPPs) to get companies to cover the cost of new venues in return for permission to build real estate. About 5 million square meters of land has been opened to developers, more than three times that of London's Canary Wharf.

But companies that entered into the deals are now struggling and critics say the city missed a chance to build affordable housing like London did.

Instead, developers accentuated a gaping class divide with luxury property on the city's western periphery. Now, with Brazil in its worst recession since the 1930s, demand has crashed and Rio house prices are down 20 percent in real terms over the past year.

The municipal government removed thousands of people from their homes, some to improve access to the Olympic Park, others to clear the way for new transit routes.

Billions of dollars were spent to build bus lines and a subway extension to improve access to Olympic developments while laws were changed to increase permitted building heights.

"The worst is that it's all for an event that lasts two weeks," said Marcia Lemos, 58, whose home by the Olympic Park was destroyed. She is fighting for compensation in the courts, but expects to get nothing.

Despite city assertions Rio is being improved for everyone, critics say developments do little to improve conditions for the 20 percent of the metropolitan area's 12 million people who live in slums or ease snarling traffic for poor residents whose commutes from Rio's outskirts can take two or three hours.

"They overbuilt and they misbuilt," said Andrew Zimbalist, an economist at Smith College in the United States and author of "Circus Maximus," a comparative study of the economics of hosting the Olympics. "They built high luxury condos at a time when the market was about to go bust."

Ultimately, the Brazilian public could be on the hook because projects were financed by state banks or public investment funds.

Ilha Pura, for example, was built with a loan of 2.3 billion reais from state lender Caixa Economica Federal.

Porto Maravilha, the port regeneration, was paid for by FI-FGTS, a public investment vehicle financed by payroll deductions. The fund was meant to turn a profit by selling building rights, but has only sold 9 percent of its stock.

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