New Tax Relief For Brazil’s Gafisa

On Monday, the Brazilian government announced new tax reliefs for the construction sector. For the next 3 months, 30 items - cement, electric devices, etc. - will have a value added tax relief that can be renewed at the end of the 3-month period, depending on the economic situation.

With the new tax relief, it is expected that retail prices of construction materials could be reduced by as much as 8%. It seems that the Brazilian government is trying as hard as possible to stimulate the construction sector. This is quite understandable. With increasing unemployment in the low income classes, the construction sector, if revived, can absorb easily huge amounts of unemployed workers.

Additionally, the construction of a considerable number of new homes for low-income families could support government approval during difficult times in the following months. In 2010, there will be presidential elections in Brazil and the Labor Party does not have a strong name for the election, thus the support of President Lula remains essential.

The problem is that the rate of approval of the president has been declining as the economy is slowing down. We continue to believe that the Brazilian Government will continue to stimulate the local construction business as hard as possible in the very short-term, thus we reaffirm our Buy recommendation on Gafisa SA (GFA).

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