Special issue article: Financialisation and the production of urban space

Urban Studies
121
Urban Studies Journal Limited 2015
Financial markets, developers and Reprints and permissions:
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the geographies of housing in Brazil: DOI: 10.1177/0042098015590981
usj.sagepub.com
A supply-side account

Daniel Sanfelici
CAPES Foundation, Brazil

Ludovic Halbert
Universite Paris-Est Latts, France

Abstract
Financialisation and housing are predominantly associated to mortgages for homeownership and
securitisation techniques. This paper looks at how financial markets influence the development
industry, its business strategies, and the nature and location of its products. Adopting a supply-
side account, the paper inquires into the rising role of financial markets as a source of funding for
a consolidating development industry and its influence on the geography of housing in Brazilian
cities. It develops the concept of resonance by combining two yet unrelated strands of literature
on the study of financial markets (cultural economy and conventionalist economics). Narratives
co-authored by the stock market community and development firms management over each indi-
vidual firm, and the discursively linked strategic moves of developers, are shown to resonate, at
the meso-level of the industry, into shared social representations (or conventions) on how to
best assess and interpret the value of development firms. Analysing the wave of Initial Public
Offerings occurring in the mid 2000s, the paper highlights that narratives of quick capital gains
associated with the removal of the land banking bottleneck faced by developers supported a con-
vention giving priority to the growth in total output, and contributed to the observed changes in
the forms, scales and locations of housing projects in Brazilian cities. As discrepancies between
the promises of returns for shareholders and actual financial results emerged, the growth conven-
tion unravelled, making way for other narratives and strategic moves to resonate anew and possi-
bly change again the geographies of housing.

Keywords
Brazil, developers, financialisation, geography of housing, stock market

Received August 2013; accepted May 2015

Introduction Corresponding author:

Daniel Sanfelici, CAPES Foundation, Ministry of Education
The literature dealing with the financialisa- of Brazil, Brasilia DF-70040020, Brazil.
tion of the urban built environment devotes Email: danielsanfelici@gmail.com

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2 Urban Studies
attention to the pervasiveness of financial
markets and how it affects access to home-
ownership, household indebtedness, housing
prices and the geographical patterns of mort-
gage lending. However, this focus on access
to homeownership and its social and spatial
implications overlooks how financial mar-
kets influence the supply side of the housing
sector that is, the development industry, its
business strategies and the nature and loca-
tion of its products. Following this research
agenda, the paper aims to analyse the evol-
ving interrelations between financial markets
and the development industry, and how
these interrelations contribute to redefining
the geographies of housing production in
Brazilian cities.
Contrasting with a mechanic, relational
concept of the economy (Froud et al., 2006:
69), the paper questions a view where develo-
pers strategies and the resulting geographies
of housing would be a straightforward
embodiment of the logics of shareholder
value. Rather, combining two strands of yet
unrelated approaches to financial markets
(cultural economy and conventionalist eco-
nomics), the paper develops the concept of
resonance to grasp the interactions between a
given industry (housing development in this
case) and financial markets. Considering
with Froud et al.s cultural economy per-
spective that the shareholder value theory is
a pliable rhetoric (2006), the paper pays
attention to the narratives on individual
firms that are co-authored by the stock mar-
ket community (investors, analysts, the busi-
ness press, etc.) and firm managers. While
such narratives are performative in the sense
that company managers have to make strate-
gic moves, there is nothing predetermined in
the content of such moves. Thus, developers
managers are given back the agency they lost
in more mechanistic accounts. Yet to under-
stand how the fragmented narratives and
strategic moves relating to each individual
firm may contribute to reshaping the
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geographies of housing, one has to look at
their aggregated outputs. This calls for a
complementary perspective at a meso-level
that stresses how shared social representa-
tions (or conventions) support the coordina-
tion of financial actors. Conventionalist
economics helps to move from the descrip-
tion of the idiosyncratic narratives on indi-
vidual organisations and to analyse how
financial markets adopt dominant valuation
and interpretation conventions that affect a
group of firms considered to share similar
characteristics (such as belonging to the
same industry). There is however a need for
a unifying concept to reconcile both strands
of literature. The paper brings forward the
concept of resonance to explain the interac-
tions whereby (1) fragmented narratives on
individual firms, and their related strategic
moves, eventually vibrate in unison and sta-
bilise into a shared representation on an
industrys fate, and reciprocally, (2) how
conventions evolve as financial results
diverge from dominant narratives and call
for alternative strategic moves by managers.
Resonance does not only ground the analysis
in actual economic practices, in contrast to
macro-political economy accounts, it also
contributes to a literature that attempts to
go beyond restrictive binary distinctions
(between micro- and meso-levels, between
stock market communities and companys
management). It constitutes, therefore, a
heuristic tool to analyse the interactions
between financial markets and developers,
the related changes in Brazils housing indus-
try, and their potential impacts on the urban
built environment and its geography.
Focusing on Brazil provides a unique
vantage point for clarifying such relation. If
the housing sector was mostly made up of
small-scale family-owned firms, a wave of
initial public offerings (IPOs) in the mid
2000s brought a group of developers under
the pressure of the stock market community.
Relying on a qualitative analysis, the paper
Sanfelici and Halbert
explores (1) how a convention centred on
growth (of outputs and revenue) took shape
as these firms went public between 2005 and
2007; (2) how this convention unravelled
between 2010 and 2011 as financial results
diverged from shared expectations, leading
to mounting tensions between the actors
involved; and, finally, (3) what consequences
the emergence and dissolution of this con-
vention centred on growth had on the geo-
graphies of housing provision in Brazil.
Financialisation, housing and
developers: The case for a supply-
side analysis
Centring housing in political economy,
authors such as Aalbers and Christophers
(2014) or Schwartz and Seabrooke (2008),
have stressed how housing finance systems
are key in understanding todays political
economy, if only because homes are a major
financial asset in most economies (Schwartz
and Seabrooke, 2008: 238). With the rising
importance of mortgages, and, in liberal
residential systems, the securitisation of such
mortgages (Rolnik, 2013; Schwartz and
Seabrooke, 2008), housing and financialisa-
tion are said to be intrinsically linked,
households and their homes becoming finan-
cialised subjects (Forrest, 2015; Langley,
2007). The genesis, politics, modus operandi
and resulting spatial, social and racial conse-
quences of subprime lending offers a vivid
illustration of such growing interdependen-
cies between finance and housing (see the
contributions to Aalbers, 2012, as well as
Ashton, 2009; Carruthers and Stinchcombe,
1999; Poon, 2009).
Yet, financial markets also connect to
housing through the development industry,
i.e. not only via homeownership by house-
holds, but also through the production of
housing by development firms. While taking
into account this supply-side perspective is
important in all countries, it is of particular
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3
interest for the Global South where the
influence of mortgages and their securitisa-
tion remain limited. In so-called emerging
countries that adopted neoliberal reforms,
the role of financial markets in the financing
of firms increased, while, at the same time,
global capital availability has escalated,
especially in the 2000s. The development
industry is no exception: cash-consuming
developers are eager to resort to
private equity funds and stock markets to
boost their growth (Rouanet and Halbert,
2015).
For research focusing on the supply-side,
there is a tradition concerned with how debt
lavishly provided by financial institutions to
property developers leads to boom-and-bust
cycles (from Haussmanns Paris through
19801990s Londons Docklands to 2000s
Halifax, Canada: Fainstein, 1994; Harvey,
2003; Rutland, 2010). However, only a hand-
ful of work has touched upon how finance
capital transforms housing provision by
investing equity into development firms. Ball
(1983) observed, for instance, how Initial
Public Offerings (IPOs) could alter develop-
ment companies by providing the means to
increase their total volume of production,
and to rescale country-wide. However, it was
only recently that this initial probing was
revived by works exploring how finance cap-
ital flows are anchored in urban spaces
(David and Halbert, 2014a; Theurillat and
Crevoisier, 2014), making a case for a sys-
tematic analysis of the interrelations between
financial markets and the development
industry.
In this light, some recent contributions
have considered how their ties with financial
markets can transform not only developers
strategies but also the resulting geographies
of the built environment. It is demonstrated
how in India, developers are among the
intermediaries of the transcalar territorial
network that channels foreign and domestic
finance capital into metropolises (Halbert
4 Urban Studies
and Rouanet, 2014). These developers lever-
age such capital flows to increase their mar-
ket share over a wider number of regional
markets. Consequently, they gain political
agency in the making of contemporary
Indian metropolises (Rouanet and Halbert,
2015). In Mexico, David (2013) analysed
how small local developers changed
their organisation, business model and
reporting practices to meet foreign financial
investors expectations. Already dominant
developers, having access to alternative
sources of funding, nonetheless managed to
shut out global financial investors from cen-
tral markets of the Mexico city-region
(David and Halbert, 2014b). This hints at
recognising the agency of developers that
pursue their own agenda and interests
(Searle, 2014).
In spite of this growing number of empiri-
cal accounts on the interactions between two
parallel processes (increasing presence of
finance capital in the development sector, on
the one hand, and changing business strate-
gies of developers that impact the geogra-
phies of the urban built environment, on the
other), more work is needed to formulate a
conceptual framework to explain such
interactions.
Financial markets and corporate
management: Towards a theory of
resonance
Froud et al. (2006) discusses existing concep-
tual frameworks that theorise the relations
between financial markets and the corporate
economy. For them, mainstream financial
economics, in the form of agency theory, as
well as its political economy opponents (such
as the regulation school or the varieties of
capitalism approach) share a unidirectional,
arrow-to-box understanding (Froud et al.,
2006: 130) where financial markets act as the
driving force behind the evolutions in a
given industry. Consequently, it is
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shareholders capital accumulation strategy
that would impose itself onto development
firms and be reflected in the evolving geogra-
phies of housing provision. However, by
claiming the efficiency of financial markets
in the allocation of capital, or by criticising
the hegemony of shareholders, both
accounts dismiss the agency of firms man-
agement. This results in downplaying the
interactions between financial actors and
development firms, two sets of organisations
whose interests, values and views have
empirically been observed to diverge at times
(David and Halbert, 2014b; Searle, 2014).
To move beyond such mechanistic thinking
(Froud et al., 2006: 69), two yet unrelated
fields in the studies of financial markets, i.e.
cultural economy and conventionalist eco-
nomics, can fruitfully be combined.
Considering that economics i.e. dis-
courses and representations on the economy
formats economic objects rather than the
other way round (Pryke and Du Gay, 2007),
Froud et al. (2006) pursue a cultural econ-
omy perspective to reconsider the dominant
representation in financial markets known
as the shareholder value theory (SVT) from
the 1980s onwards. For them, SVT is a
highly pliable rhetoric which can be bor-
rowed, used and influenced (Froud et al.,
2006: 38). If its bottom line focuses on
potential pecuniary returns for shareholders,
it is enacted through the daily interactions
between the stock market community and
company managers. The analysis of these
interactions reveals how a companys strat-
egy is thus the subject of multiple narratives
co-authored by fund managers, analysts, the
business media but also by firms managers,
and borrowing from different discursive lev-
els (company-, industry- and grand macro-
economic narratives). Following the cultural
economy approach, narratives are performa-
tive: they constrain corporate managers
to demonstrate that they act accordingly.
Yet, under a British intellectual tradition
Sanfelici and Halbert
revolving around MacKenzies works, per-
formativity remains for Froud et al. (2006)
essentially open in the forms it effectively
takes. Managers devise the strategic moves
they see fit as long as they remain discur-
sively tied to the shareholder value rhetoric.
Yet, claiming that financial returns are redis-
tributed to consumers rather than to share-
holders because of the intense price
competition in present-days product mar-
kets, Froud et al. observe that numbers, read
financial results, may frequently not corro-
borate the narratives. These discrepancies
lead to a new round of narratives and stra-
tegic moves that might equally prove finan-
cially unfruitful, and so on.
This conceptual framework that holds
together narratives, strategic moves and
numbers, is particularly fit for analysing
individual firms through thick historical case
studies (see examples on GE or Ford, Froud
et al., 2006). However, since the work is
rooted in management studies, and because
of the reticence, in contrast with political
economy works, to engage in any totalising
account, the priority is given to the descrip-
tion of idiosyncratic interactions between the
stock market community and the managers
of a given firm, i.e. at micro-level. It does not
recognise that the myriads of narratives and
strategic moves may converge across firms
of a given sector, as if vibrating in unison. It
consequently weakens any attempt to exam-
ine how idiosyncratic interactions relate to
the meso-level, and how their convergence
can influence, in our case, the evolving geo-
graphies of housing.
While not considering micro-level interac-
tions between financial actors and corporate
management, the conventionalist approach
to finance provides elements to explore such
a meso-level. Extending the interest paid by
conventionalists to the coordination of eco-
nomic agents, this approach insists on the
role of shared social representations (also
known as conventions) in the valuation of
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5
firms and the on interpretation of their out-
look by financial actors. Orleans seminal
work (1999) discusses how shared interpre-
tation conventions (Orlean, 1999: 145) gain
legitimacy among financial actors, possibly
leading to boom-and-bust cycles, as more
investors abide by the dominant convention.
Other authors have complemented this
approach by stressing how valuation con-
vention are key to their coordination
(Lavigne, 2002; Tadjeddine, 2006: 195):
financial actors share similar interpretations
not only of the future values of companies,
but also on the elements that need to be
looked at to value companies (such as pre-
ference for EBITDA multipliers over Price/
Earning Ratios). The attention paid to the
mechanisms by which financial actors coor-
dinate their investment decisions through
shared social representations goes beyond
the fragmented analyses at micro-level. But
only as long as one does not fall into the
trap that, akin to mechanistic accounts,
would consider the predominance of finan-
cial markets as inevitable, or at least, unme-
diated by company managers. Influenced by
a proclaimed Marxist approach (Orlean,
2004: 17), the conventionalist approach of
finance may be inclined to adopt such an
assumption, so that conventions are often
depicted as endogenous to the stock market
community, paying little if any attention to
the agency of management firms. Using a
conventionalist perspective, D Lorrains
analysis of the French electricity sector
demonstrates however that in their interac-
tions with financial intermediaries, manag-
ers find some room for manoeuvre, allowing
them to negotiate with what the [financial]
market says (Lorrain, 2009: 62).
It is pressing to reconcile both perspec-
tives to analyse how firms business strate-
gies respond to the pressure of financial
markets, and, in our case, how the produc-
tion of housing by developers may be
affected. To do this, we consider how the
6 Urban Studies
narratives co-authored by the stock market
community and developers managers over
individual firms resonate into financial
valuation and interpretation conventions on
the wider housing development industry. By
resonance, we point to how the multiple
interactions happening between corporate
managers and shareholders around each
individual organisation mutually influence
those occurring around other firms, and
temporarily stabilise, as if progressively
vibrating in unison, into a dominant conven-
tion applied to a subset of firms considered
by the actors to be part of an industry. In
this light, the circulation of industry-wide
and grand economic narratives is key in put-
ting individual company narratives in reso-
nance (arguably irrespective of the fact that
organisations do effectively share common
elements or not, as evoked by Froud et al.,
2006). Resonance thus provides a dynamic
understanding of how conventions are made
and remade over time as an interactive pro-
cess between the stock market community
and developers management. As discrepan-
cies between narratives and numbers are
repeatedly observed at micro-level, disso-
nances in the dominant convention occur,
leading to another round of narratives and
performative actions which will resonate
anew, at least until another wave of disap-
pointment crashes against the (renewed) pro-
mises of pecuniary returns for shareholders.
Resonance is thus a concept that brings
back the question of power relations into
economic activity and of their effects. On the
one hand, the process of resonance may
encourage convergence in management
initiatives. As such, it constitutes an impor-
tant but still overlooked factor to explain the
transformation in the provision and geogra-
phies of housing by developers. On the other
hand, it may also not go unchallenged: some
actors, such as corporate managers in firms
whose capital is still partially controlled by
founding families and individuals, can raise
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diverging views, and offer resistance to the
adoption of the strategic moves accompa-
nying dominant narratives (David and
Halbert, 2014b for empirical illustrations;
Searle, 2014) as will demonstrate the case-
study of housing production in Brazilian
cities.
To fruitfully analyse this process of reso-
nance, the research protocol seeks to go past
binary distinctions (between micro- and
meso-levels, as well as between the financial
market community and its object, i.e. firms
management). Thus the research collected
evidence that clarifies (1) the business strate-
gies of listed developers and how they affect
the provision of housing in Brazilian cities,
and (2) the narratives shared by the stock
market community, and occasionally con-
tested by other actors, concerning the ade-
quate evaluation of the housing industry.
This material consists of secondary sources
including selected business press material
(media outlets such as Exame, Valor
Economico, Construcxao Mercado, Istoe
Dinheiro, etc.), periodical reports issued by
developers to shareholders containing opera-
tional and financial information, as well as
transcripts of teleconferences between man-
agers and shareholders. This documentary
corpus was triangulated with primary data
from 15 interviews with development firms
managers and business analysts conducted
between August 2011 and May 2012 in the
cities of Sao Paulo and Porto Alegre.
Fifty years of housing finance in
Brazil
To understand the interactions between
financial markets and developers in the
2000s, one first needs to see how growing
demand for housing challenged the existing
housing finance system in Brazil.
Residential development activity took
shape as a distinctive sector in Brazil in the
1960s (Fix, 2011; Ribeiro, 1996). Previously,
Sanfelici and Halbert
lack of a national mortgage finance system
had restricted homeownership to higher-
income households. The Housing Finance
System (HFS), tightly regulated by a
National Housing Bank, was introduced in
1964. The HFS encompassed a market-
oriented development sector, under which
savings deposits made by households pro-
vided mortgages for middle-income buyers
with interest rates defined by the central
government, and a social sector which used
compulsory savings (deposits made by
employers on behalf of employees) to
develop lower-income housing projects, most
of them managed by municipal government-
controlled housing cooperatives (Arretche,
1990; Maricato, 1987; Valenc xa, 1999).
Combined with an accelerating pace of eco-
nomic and demographic growth, as well as
rapid urbanisation, the new availability of
housing finance supported strong demand
for housing in the 1970s (Maricato, 2011;
Royer, 2009). This opened up opportunities
for development firms to grow (Farah, 1985;
Fix, 2011). Yet, the sector remained predo-
minantly composed of small and medium-
sized family-controlled firms operating in
their hometown markets. This was due in
part to the hurdles that managing a nation-
wide business in a large territory with limited
transportation and communication infra-
structure presented. Additionally, and of
central importance to subsequent events, was
that the HFS restricted development finance
solely to the covering of construction costs.
As the capital markets of Brazil were still
weak in the 1960s, finance to scale up activ-
ity through land banking was scarce.
Brazils economic growth stalled in the
1980s as the Latin American foreign debt cri-
sis unfolded. Mortgage lending plummeted
as a result of rising default rates among bor-
rowers, and the National Housing Bank was
dissolved in 1986. During most of the 1990s,
faltering growth, rising unemployment, mon-
etary austerity and poor coordination
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7
among the agencies managing the HFS sys-
tem further sapped mortgage lending and
construction finance (Azevedo, 1996; Royer,
2009; Valenc xa, 1999; Valenc xa and Bonates,
2010). Development firms were forced to
adapt by directly financing homebuyers
through off-plan sales or through housing
co-operative schemes, often on five- or ten-
year loan contracts (Castro, 1999). By immo-
bilising capital in such loans, firms lacked
the resources to expand their businesses.
Developers thus remained small and
medium-sized firms, controlled by their
founding owners, with a strong specialisa-
tion both in terms of geographical reach (tar-
geting a single regional market) and of
segment (catering for middle and upper
income households who could afford short-
term loans).
A new scenario began to emerge at the
beginning of the 2000s. Brazils economic
outlook improved as a result of higher
growth rates, falling unemployment and ris-
ing incomes. Furthermore, a series of regula-
tory changes and new tax incentives
enhanced support for mortgage lending. In
order to introduce mortgage securitisation
in Brazil, deeds of trust were permitted on
mortgage contracts (Law of Sistema de
Financiamento Imobiliario SFI, 1997). It
was argued that these would improve secu-
rity for lenders who had long complained
about the obstructions posed by the judicial
system on foreclosures (Royer, 2009). While
mortgage securitisation did not subsequently
grow as expected,1 deeds of trust neverthe-
less helped to boost conventional mortgage
lending through the HFS, especially when
interest rates started to fall in 2005: the num-
ber of households annually financed
increased from 200,000 before 2005 to more
than 1 million in 2010.
Development firms responded to this sur-
ging demand in different ways. Some opted
for organic growth, eschewing radical
changes in managerial and organisational
8 Urban Studies
structures. Others embraced more radical
expansion plans, but lack of finance for land
banking remained an obstacle. The solution
found was to team up with local and inter-
national financial actors. This was facilitated
by a sudden abundance of liquidity which
resulted from the combination of (1) incen-
tives and regulatory changes from the
government to make investing in Brazils
stock exchange more attractive (Paulani,
2008), and (2) growing numbers of foreign
investors seeking to boost their portfolio
performance via investments in supposedly
higher-yield emerging markets. Between
2003 and 2007, developers were thus able to
tap into the financial markets to acquire
land and expand their businesses.
Financial markets as growth
accelerator
The first movers were developers such as
Gafisa and Even, who partnered with private
equity firms. The former received an initial
investment in 1997 from GP Investimentos,
a Brazilian private equity fund that would
take full control of the firm in 2004. In 2005,
the US-based Equity International made an
additional BRL135 million investment in
exchange for a 32% stake in the same Gafisa
(Mandl, 2006). Similarly, in 2006 Even set
up a partnership with London-based
Spinnaker Capital, a private equity fund that
brought BRL 72 million (Aranha, 2011).
More common, however, was the case of
developers that attracted financial investors
by issuing stocks and bonds between 2005
and 2007 with the aid of underwriters such
as Credit Suisse, UBS Pactual, Merryl
Linch, Banco Votorantim and Deutsche
Bank. With the exception of Rossi, which
moved from a lower listing segment to the
newly created Novo Mercado segment of the
Bovespa Stock Exchange2 in 2006, the other
16 residential developers that issued stocks
in this period were not publicly listed
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previously. It should be noted, however, that
differences in terms of ownership structure
persisted, depending on how influential
founding members remained after dilution.
Partnering with financial actors had
transformative effects on the housing devel-
opment industry. First, while small, family-
based local firms still populated the sector,
access to finance capital supported the con-
centration of development activity, espe-
cially in metropolitan areas. While data on
the extent of concentration are scarce, our
own empirical estimate is that in 2010, four
developers were responsible for one-quarter
of all new housing launchings in the metro-
politan area of Sao Paulo. This is consistent
with Balls observation (1983): when develo-
pers issue stocks, the influx of capital allows
them to grow their market share because of
rising total output.
Alongside concentration through growing
output, what made possible this rapid gain
in market share was a wave of mergers,
acquisitions and partnerships that followed
the IPOs (Cichinelli, 2008a). By means of
this wave of activity, developers, hoping to
capitalise on expertise embedded within the
partnering or acquired firms, began to
develop for new market segments and to
enter unfamiliar regional markets. PDGs
chairman explained the thinking thus:
Where were the good professionals [in this mar-
ket], which were few? The good professionals
were the owners of the firms that had managed
to survive in the 80s, 90s. These guys are not
available [for hiring] in the market. The only
way to get them to work for you is to acquire a
stake in their firms. This strategy has become
widespread in the sector. (Blanco, 2008)
Between 2007 and 2010, acquisitions grew
substantially. They involved large develo-
pers, as in the case of Gafisas acquisition of
the low-income segment specialist Tenda, or
PDGs acquisition of Agre (Canc xado, 2010).
However, joint ventures were more frequent,
Sanfelici and Halbert
associating listed developers with smaller
local developers and builders, especially
when entering a new regional market
(Rufino, 2012). Parallel to tighter horizontal
interactions between development firms,
denser vertical linkages were also established
between large developers and a range of real
estate organisations, such as business con-
sultancies, architects, brokers and banks.
A second transformative effect concerned
the business organisation and governance of
developers. A clearer distinction was drawn
between owners and management teams,
even in cases where members of the owning
family continued to perform managerial
functions. This also involved attracting man-
agers with professional careers in other sec-
tors to positions that were either previously
filled by family members, such as financial
management, or that were created after the
IPOs, such as investor relations (Lindemann,
2008). The effects of these organisational
changes, perceived as beneficial by many,
were not limited to listed companies:
I believe it was good for shaking up the mar-
ket, for improving governance [.].
Development activity had been going on since
1964 [.] but I believe it was upgraded with
[.] new funding, with regulatory improve-
ments, and with the IPOs, [all of which] quali-
fied governance in real estate development.
This is the role they [listed firms] had.
Competition with them was healthy for
smaller and medium-sized firms. (Interview
no. 3, Analyst, Sinduscon, November 2011)
Alongside the organisational dimension, to
attract private equity funds or as a pre-
requisite for taking part in Bovespas Novo
Mercado, developers had to demonstrate a
stronger commitment to transparency and
improved public relations with shareholders.
This involved the release of quarterly reports
with detailed operational and financial
results, holding teleconferences with inves-
tors and analysts, adoption of international
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9
standards-based accounting procedures,
having balance sheets audited by one of the
big four multinationals, and arranging key
information releases in the business press
(Oliveira, 2008a).
Lastly, access to finance capital had a
transformative effect via the industrialisation
of developers business models. Developers
embraced project management technologies
and introduced information technology to
improve information exchange and enhance
cost control in the construction process
(Shimbo, 2012). Projects and product design
became standardised (Fix, 2011; Shimbo,
2012). Economies of scales were sought via
larger projects to reduce the marginal costs
(of land, project approvals, marketing .)
(Sanfelici, 2013; Sigolo, 2014). Lastly, most
firms embraced nationwide (as opposed to
local and regional) strategies of growth, as well
as segment diversification across income strata
(Olivion, 2010; Rufino, 2012; Sanfelici, 2013).
Concomitant to the access to financial
markets, developers grew significantly, as
demonstrated by both output trends
(Figure 1) and the evolution of their land
banks. For instance, Cyrelas land bank
grew from 3 million m2 in 2005 to 13.6 mil-
lion m2 in 2010 and the value of Gafisas
land bank rose from BRL3 billion in 2006 to
BRL18 billion in 2010.
In sum, the housing development industry
evolved rapidly in the course of the 2000s,
with a group of developers asserting domi-
nance in larger geographical markets. Even
though such changes did not affect all mar-
kets equally, the restructuring had a distinc-
tive impact on the urban built environment
in many Brazilian cities, both directly and
indirectly.
Changing the geographies of
housing provision
As developers expanded into new regions
and pushed for scale economies, their
10
Figure 1. Housing starts by the seven largest listed developers (20042011).
Source: Firms quarterly reports.
activity left an imprint on major cities.
While large-scale projects were not a
novelty, they became more widespread as
these firms made headway in the market.
Apart from conventional apartment build-
ings, which continue to dominate densely
built-up areas where land is scarce, three
types of projects prevailed. Products for the
so-called lower-income segments consisted
of highly standardised apartment blocks
(usually five-storey buildings with no eleva-
tor) and a few amenities, such as sports
courts. For middle- and upper-income seg-
ments, two types of projects became more
common: large-scale land developments and
mixed-use projects. The former includes
gated communities where land plots or
houses are sold to homeowners as well as
high-rise condos with in-house amenities
and some common infrastructure (streets,
lighting, parks) provided by the developer in
co-operation with local governments.3
Mixed-use projects usually group office, resi-
dential and retail functions in a single land
plot.
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Urban Studies
The spread of such projects have trans-
formed the geographies of housing, espe-
cially in large cities (see Figure 2). Whereas
new developments had generally been con-
centrated in inner city, higher-income neigh-
bourhoods throughout the 1990s and much
of the 2000s, they now spring up more and
more outside this core area (see Figure 3).
Because they require larger and cheaper land
plots to exploit economies of scale, lower-
income projects have been generally pro-
vided in the outskirts of urban areas, contri-
buting to urban sprawl in cities that lack
efficient transit systems (Ferreira, 2012;
Klink and Denaldi, 2014; Maricato, 2011;
Cichinelli, 2008b). Middle- and upper-
income land developments, although gener-
ally located outside denser, higher-value
neighbourhoods, are either near the city
core or within easy access of it through
major thoroughfares. Developers built
mixed-use projects on higher-value land,
catering to young professionals believed to
prefer areas of the city where cultural activi-
ties and entertainment are within easy reach
Sanfelici and Halbert
Figure 2. Large-scale projects in Porto Alegre: two higher-income land development projects (top) and
two lower middle-income condominiums (bottom).
Source: Photos taken in 2012, D Sanfelici.
(see Figure 3). As already suggested
(Ferreira, 2012; Maricato, 2011; Rufino,
2012; Volochko, 2012), these projects have
generally reinforced fragmented patterns of
land use. Many are inward-oriented as a
result inter alia of their combining different
functions, the availability of amenities that
act as a substitute for public space (parks,
sports courts, pools, etc.) and the security
apparatuses that inhibit or prevent circula-
tion of outsiders.
The expansion of development firm activ-
ities into new regional markets has resulted
in the wider spatial circulation of these prod-
ucts into second-tier cities, a process sup-
ported by the subsidies included in Brazils
lower-income housing programme for
homeownership.4
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11
There is thus strong evidence of systemic
relations between three processes: (1) the
growing role played by the stock market in
the ownership of housing development
firms; (2) changing business strategies of
these firms; and (3) redefinition of the geo-
graphies of housing in Brazil. It remains to
be explained how such interdependences
have occurred, by inquiring into the interac-
tions between the stock market communities
and development firm managers.
The growth narrative
Following the cultural economy assumption
that discourses and representations on the
economy format economic objects, we can
observe how, in the 20052010 period, a
12 Urban Studies

Figure 3. Types of large-scale projects by selected developers in Porto Alegre (20072011) .

Source: D Sanfelici, based on developers quarterly reports.

narrative in favour of growth was co- managers. This narrative emerged with the
authored by four main groups: developers, first IPOs of 2005 and encouraged the view
underwriters, financial analysts and fund that development firms should be valued on

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Sanfelici and Halbert
the basis of their ability to grow quickly.
The faster a firm grows, it was assumed, the
higher its turnover, and the higher capital
gains for shareholders thanks to rising stock
prices.
It was developers who originally devised
this narrative. Because, as noted in section
Fifty years of housing finance in Brazil,
conventional bank lending could only be
used to cover construction costs, developers
turned to financial markets in order to facili-
tate land acquisition. In doing so, developers
argued that, by solving the land bank bottle-
neck, financial actors could legitimately
expect a strong growth in market capitalisa-
tion, reflecting soaring levels of housing pro-
duction (Amato, 2008).
This was the key insight of firms in tapping
into capital markets: the business is too inten-
sive in resource consumption. So firms saw it
in this way: my turnover cannot be acceler-
ated if Ive got no money to invest [in land
acquisition, approval, etc]. How can I speed
up turnover? By getting access to investors.
Thus the motivation behind IPOs was to
obtain land. They [developers] saw an oppor-
tunity [in the improving economic environ-
ment]. But then theyd say: [.] I have all I
need except for money for buying land. This
was their motivation [.]. They called inves-
tors and said: Look, Brazil is doing well, this
is the economic outlook, from now on we have
a strong growth potential, but I need you as
my partner [.]. Most developers pay only
the minimum [required by law] in dividends,
because all investors made a bet on growth.
(Interview no. 5, Analyst, Banco do Brasil,
November 2011).
Underwriters also endorsed this emphasis on
future growth since their fee-based revenue
model encouraged them to boost firms cap-
ital values at the date of IPO launch (Lima,
2007). Analysts corroborated development
firms narrative, first by espousing a broader
macro-economic forecast of strong growth
for the Brazilian economy as a whole,
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13
second by mobilising industry-wide narra-
tives ranging from government incentives
for the sector to promises of efficiency gains
associated to larger firms. Lastly, as excess
liquidity in the mid 2000s drove down inter-
est rates in developed economies, fund man-
agers were eager to reap the benefits of
Brazils growth. The capital that flowed in
from the Global North was looking for
high-risk high-return investments to comple-
ment lower-return assets in their home
economies. In other words, investors were
looking for a scenario of quick capital gains
(through share price increase) rather than
long-term growth (and returns based on
dividends).
These narratives, which were elaborated
investment decision after investment deci-
sion, i.e. at the micro-level of each individual
developer, circulated within and across the
development and stock market communities
that were both mainly concentrated within
the city of Sao Paulo. Developers were form-
ing an increasingly tightly bound commu-
nity, based on similar professional interests
and interpersonal acquaintances. Interviews
reveal how the narrative based on the land
bank bottleneck was circulated among this
community as a way of attracting investors:
The idea of [emphasising] land bank appeared
in [.] 2005 when Cyrela went public and had
to show to investors [that] [.] [it] could grow
in the future. Thats how Cyrela managed [to
go public]. Until then no developer in Brazil
had had this idea of going to the stock
exchange. And this turned into a frenzy.
(Interview no. 3, Analyst, Sinduscon,
November 2011)
According to a manager at Cyrela, the
exchange of information between developers
at the IPO moment was key in shaping their
strategies:
The strategy [on IPOs] was one of growth. If
you look at all [firms] reports, they sort of say
14
the same thing, because firms copy each other.
Theres something called IPO prospectus. I
myself received calls from people of [other
firms] asking, how should I do this or that.
He [.] was preparing a prospectus. So all
firms followed [similar strategies]. (Interview
no. 2, Project manager, Cyrela, March 2012)
This narrative was taken up by the stock
market community, which progressively
expanded the idea of a growth scenario to
the entire development industry, thus seeing
in developers investment thesis (Interview
no. 5, Analyst, Banco do Brasil, November
2011) an opportunity for profit. Through
the interactions within and across these two
communities, these narratives started to
resonate, culminating in the IPOs window,
which was concentrated between 2005 and
2007. All in all, the land bank bottleneck
provided a convenient story with its focus
on fast growth: under conditions of strong
housing demand and government incentives;
if the bottleneck could be removed, the turn-
over would quickly soar, giving a pecuniary
return to shareholders because of the result-
ing market capitalisation increase.
This dominant narrative supported and
was enacted through a valuation conven-
tion that spread across the stock market
community. The focus being on the capital
gains that could be derived from soaring
share prices, developers were valued on the
basis of elements that could signal future
growth in product output. Yet, the stock
market community (investors, analysts, busi-
ness media) was uncertain as to what indica-
tor should be given priority in assessing
prices, bringing evolutions in the valuation
convention.
Part of the impact of the markets on large cit-
ies [came from] this need for generating results.
Investors didnt know where to look. There
was a history of analyzing firms [.] in manu-
facturing, in services, but the construction sec-
tor was [.] new to the stock exchange. What
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Urban Studies
criteria [should investors] use? In this uncer-
tainty, one of the criteria they began using was
land bank. If you had a good land bank, it
meant youd launch more, and at this point
developers rushed to build up their land banks,
causing land prices to rise. (Interview no. 4,
Analyst, Fundac xao Getulio Vargas, October
2011)
This initial emphasis on land banks was also
supported by IPO underwriters. Considering
the stock of land as an indicator of future
margins, they valued land not at current pur-
chase value but at the Potential Sales Value
(PSV i.e. as the value when entirely devel-
oped). Furthermore, they speculatively bet
on stability of construction costs and on
ever-increasing housing demand (Lima,
2007, 2012). However, recognising that
development would take time, and that land
banks could not be directly transformed into
next years turnover, the stock market com-
munity shifted from gross land banks to esti-
mates of launches such as guidance value at
one- or two-year terms. Likewise, mergers
and acquisitions were also a positive indica-
tor later encouraged by stock markets, as
with the praises received by Gafisas man-
agement when they bought Tenda. In other
words, all throughout the 20052010 period
the focus remained on the growth of firms
total profits, as illustrated by the fund man-
agers use of EBITDA multipliers (Gregorio,
2010; Huerta and Motta, 2011; Lima, 2012).
When the promises of capital gains were not
corroborated by end-of-year financial
results, adaptations in the valuation conven-
tion (from land bank to launches and M&A)
were necessary to preserve the dominant
narrative for growth.
This was also accompanied by a shift in
power relations. As concern grew with disap-
pointing financial results, fund managers
and analysts increasingly pressed managers
to take a series of strategic initiatives to
ensure stronger growth. Pressure was exerted
through specialists reports, during quarterly
Sanfelici and Halbert
teleconferences, and through business media
interviews. It was enacted through more ben-
evolent pricing of shares for developers that
most eagerly complied with the proposed
managerial evolutions, whereas the shares of
more conservative firms were underpriced:
at the time of the IPOs, [.] investors wanted
everyone to spread, to diversify [investment]
across the country, to raise launching projec-
tions, and we had a more conservative profile.
We even believe our stocks have a [.] lower
valuation [than our competitors] due to our
managements more conservative strategy.
(Interview no. 1, Investor relations manager,
Even, November 2011)
If initially housing developers and underwri-
ters attempted to lure investors into an inter-
pretation convention revolving around the
land bottleneck problem, the interactions
evolved with the stock market community
progressively exerting a stronger grip on
developers, disciplining them through the
use of a valuation convention focusing on
profits (Oliveira, 2008b).
Promises and numbers
By 20102011, with developer financial per-
formance numbers stubbornly continuing to
diverge from the promises underlying narra-
tives for growth, the optimistic assumptions
on which share prices had been originally
estimated were becoming increasingly discre-
dited. Multiple reasons explain why profit-
ability for shareholders turned out to be
weaker than expected. First, construction
costs that had been accounted at current
value by underwriters rose because of an
increase in labour costs, itself an outcome of
diminishing unemployment rates resulting
from economic growth:
firms [.] launched a lot, and because they
have a turnover of 3 years, in general they
build in the last two [.]. The problem is that,
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15
[.] by the time firms had to build [.] in 2009,
2010, 2011, input prices were much higher,
with a labor shortage. [.] So in the projects
we sold, the margin wed expected to be 36%
or 38%, dropped to 28%. [.] And there are
firms that had worse results [.]. Investors got
angry with firms. (Interview no. 2, Project
manager, Cyrela, March 2012)
Second, confounding business media and
analysts expectations, business strategies did
not yield improved margins as the increased
number of partners pushed coordination
costs up; economies of scale were disappoint-
ing because of the learning curve, especially
in new segments and markets; poor execu-
tion is said to have resulted in multiple delays,
which, in turn, increased financing costs:
[firms] focus in the first years was on scaling
up. Investors began putting a premium on [.]
rising projections of Potential Sales Value
(PSV), which indicate the potential of new
projects in terms of revenue generation. Since
[the stock] market was buying launches, many
partnerships were hastily set up, says
Christian Faricelli, equity manager at
Capitania. According to the expert, [firms]
aim was to diversify regionally, but they lost
control [of the operation]. There was a very
fast and a bit haphazard growth by most
firms, says Faricelli. (Tauhata, 2012)
Disappointing financial figures led to disso-
nant views over responsibilities. Developers
(particularly those reluctant to adopt aggres-
sive growth strategies and those that stayed
away from the stock market) became more
vocal at denouncing the gregarious investors
and analysts that forced them to pursue mis-
guided objectives while also being volatile in
their expectations and eager to follow fads
(Investor Relations manager, Even,
November 2011). In an interview for Exame,
Cyrelas chairman Ellie Horn was asked
how he felt about the stock markets nega-
tive reactions to the firms recent report in
2009:
16
[.] The first time they [analysts] talk about
your firm you follow them. Today I dont pay
much attention, because otherwise Id destroy
the firm. We need to look at the [stock] mar-
kets reactions with sound judgment so that
the company is preserved. (Correa, 2009)
Some analysts, probably reflecting investors
views, blamed instead developers on their
inability to properly execute their projects.
Thus Marcelo Motta, an analyst for JP
Morgan, declared that:
Many firms ended up focusing only on growth
and paid no attention to the matter of profit-
ability. [.] Most of the firms [.] with falling
profits suffered due to a lack of planning.
Cost overruns, penalties incurred on projects,
allowances [for bad debts] in balance sheets
and other factors drove down profits in 2011.
(Corsini, 2012)
Other analysts struck a more balanced tone,
relating developers rash moves to the use of
inadequate criteria for assessing firms by
fund managers. A Banco do Brasil analyst
confided that investors had, until 2011,
failed to understand the cycles of building
and their impact on the funding needs of
firms, while acknowledging that as investors
learned how the sector works, the focus on
growth alone was gradually changing
(Corsini, 2012).
Such dissonances led to general disen-
chantment and to the unravelling of the pre-
vailing convention around which these
actors had initially coalesced. This unravel-
ling made way for new competing narratives
that progressively started to vibrate in uni-
son again and to resonate into an interpreta-
tion convention where quality and
profitability substitutes quantity and turn-
over. Concomitantly, and mutually reinfor-
cing each other, this led to an evolution in
the valuation convention as well, with fund
managers and analysts seeking different
variables to assess the value of firms:
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Urban Studies
Given the difficulties experienced by most
firms, investors and analysts shifted focus of
their demands. It is no longer expected a high
volume of launchings, but instead priority is
given to projects that are more profitable.
Positive cash flow and enhanced profitability
now dominate teleconferences. (Corsini, 2013)
Illustrative of this shift in focus, the business
press has thrown a spotlight on firms whose
strategies have been based on slower-paced
expansion through organic growth, be they
listed on the stock exchange, such as Eztec
(Barra, 2014), or not, such as CFL (Bueno,
2013).
As in the 20052010 period, this evolution
in stock market assessment had performative
effects upon developers. If Brookfield
bought back its shares to remove itself from
the grip of financial markets (Rostas, 2014),
other developers remained in the game by
claiming in their reports and in public
announcements to be taking strong actions
to enhance profitability. These include cut-
ting back on new projects to better control
costs and construction schedules (Quintao,
2012); reducing the number of partnerships;
retreating from some regional markets
(Pereira, 2012); and abandoning segments
where firms had less expertise, such as
lower-income housing (Fernandes, 2012).
[the company has decided to] slow down. We
are not going to grow as much as we did [in
the past]. Our pace of growth was reduced. So
Cyrela informed the [stock] market in March
2011 that growth would not be at 30% a year,
but 1015%. [.]. We [also] reviewed [our
plans for regional expansion]. We always
sought to expand where incomes are, in cities
with at least 500,000 inhabitants, etc. In 2008,
we had 14 partnerships. Today we have [only]
4. In 2010 and 2011 we limited [these partner-
ships]. When construction costs went up, we
thought: where did it happen? [Itd happened]
where we had the least control, [.] [that is]
with partners outside Sao Paulo, Rio, and the
South. [.] So we decided to strengthen our
Sanfelici and Halbert
activity where our execution is better. [.] This
all [aimed at improving] cash flow. (Interview
no. 2, Project manager, Cyrela, March 2012)
With such evolutions, a new round of spatial
consequences is likely to occur in the pro-
duction of housing in Brazilian cities. As
developers seek to improve profitability,
their concentration in selected metropolitan
areas in the Southeast and South will rise,
leaving the other markets again for smaller,
family-owned firms. For the same reason,
their projects are likely to be more focused
on middle- and higher-income groups. There
are also signs that firms will concentrate
their efforts in large and very large projects
as a way of enhancing margins through scale
economies (Gazzoni, 2013) and, maybe, to
increase the profitability of their land bank.
This approach will prove sustainable as long
as the financial outputs corroborate their
strategies, or until other narratives resonate
into another convention on how best to sat-
isfy financial markets pecuniary return
expectations through the production of
homes for Brazilian households.
Conclusion
Amid the multifarious factors at play in
shaping the geographies of housing, the
paper set out to take stock of the recent evo-
lutions affecting the development industry,
especially in emerging countries. With neo-
liberal reforms, alongside, and more often
than not, above the growing importance of
mortgage and of mortgage securitisation, the
provision of housing and their associated
geographies is transformed with the rising
importance of financial investors in the
development sector. This paper claims that,
in order to understand the geographies of
housing production in Brazilian cities, it is
necessary to analyse the interactions between
financial markets and development firms.
This is done by an empirical analysis of
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17
Brazils housing sector between the mid
2000s and 2012.
The paper combines two strands of litera-
ture applied to the study of financial markets
(cultural economy and conventionalist eco-
nomics) by developing the concept of reso-
nance. This concept permits to recognise the
pressure exerted by financial market players,
but also the agency of development firms
management. It also enables us to straddle
the micro- and meso-levels by dynamically
linking the interactions happening around
each individual organisation with the con-
ventions that are made and remade on the
development industry.
This heuristic demonstrates that there is
no straightforward, unidirectional relation
leading from the expectations of financial
markets to the actually existing geographies
of housing. Instead it argues for an in-depth
analysis of the narratives co-authored by
developers and the stock market community
(investors, analysts, business media, etc.) as
well as the related strategic moves that trans-
form the business practices of developers
and, arguably, the geographies of housing
provision. Indeed, when idiosyncratic inter-
actions between shareholders and firm man-
agers start vibrating in unison, interpretation
and valuation conventions contribute to con-
verging business strategies that have conse-
quences on the production of housing. This
is illustrated by the 20052010 period, in
which a dominant narrative around growth
stimulated firms to pursue more aggressive
development plans. Throughout this period,
developers prioritised large-scale projects,
targeted a wider range of income groups,
and replicated such developments across a
larger number of cities. This resulted in a
more fragmented pattern of housing produc-
tion, as many such projects assumed the
form of urban enclaves.
This offers two insights into the relations
between financial markets and developers.
First, financial market conventions are not
18
predetermined but vary over time in
response to observed financial results.
Disappointing numbers are accommodated
through evolutions in the dominant conven-
tion, especially as investors are discovering a
new sector, as was the case with the develop-
ment industry. Yet, these adaptations occur
only up to a point: dissonant narratives may
break up the harmony, with actors blaming
each other. Second, and relatedly, power
relations between actors evolve over time. If
developers initially transformed their land
bank bottleneck into an investment opportu-
nity, the stock market community, and in
particular fund managers, gradually tigh-
tened their grip on developers, attempting to
force them into business strategies and
rewarding or sanctioning them through
share pricing. Interactions are thus often
fraught with frictions, which are particularly
heated when discrepancies between the
expectations that the convention originally
embodied and the actual results arise.
Additionally, as a new convention progres-
sively substitutes the other, the repercussions
on developers business strategies are likely
to once again transform the geographies of
housing.
At a more theoretical level, and without
opposing the financing of homeownership
(namely through mortgages and their securiti-
sation) and the financing of development
activity, we have argued a need to more
directly take into account how financialisation
affects the provision of housing by developers.
This is important both in countries of the
Global South and Global North, since the
development industry entertains multiple ties
with financial markets. As we have seen in
this paper, financial markets directly provide
equity and debt to developers at corporate
level. But they are also increasingly involved
in the direct ownership of properties (see
Fields and Uffer, 2014; Guironnet et al.,
2015; Halbert et al., 2014) and in the
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Urban Studies
financing of development operations (direct
investment at project level). These evolutions
press for further analyses on the relation
between financialisation and the production
of the urban built environment from the per-
spective of the supply-side.
Acknowledgements
Previous versions of this paper have been pre-
sented at the LATTS seminar in Paris and at the
2015 AAG Annual Meeting in Chicago. We
would like to thank all comments made by col-
leagues in these occasions. We wish to thank as
well Antoine Guironnet and Felix Adisson (both
at LATTS) for their helpful comments on the lat-
est version of the paper; three anonymous
reviewers for their constructive criticisms and
suggestions; and the Urban Studies editor for
helpful comments and suggestions.
Funding
This research was supported by grants from
Coordenacxao de Aperfeicxoamento de Pessoal de
Nvel Superior (grant number 99999.001546/
2014-07) and Fundacxao de Amparo a Pesquisa
do Estado de Sao Paulo (grant number 2009/
14613-9).
Notes
1. Policymakers involved in the approval of the
SFI law, and the financial institutions that
lobbied them, took inspiration from other
countries, including the USA. Yet mortgage-
backed securities (MBS), often issued by
developers themselves, were used to support
the buy-and-hold strategies of banks which
are required by the Housing Finance System
(HFS) to channel at least 65% of their bal-
ances to mortgage finance (Royer, 2009). This
consequently reduced both the size and the
liquidity of MBS available for financial inves-
tors, thus strongly limiting the extent of the
financialisation of homeownership in Brazil
through the securitisation of mortgages.
2. Novo Mercado is a listing segment that
requests more corporate governance and
Sanfelici and Halbert 19

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