Brazil's once red-hot housing market has turned cold quickly, forcing many developers to slam the brakes on new construction, though one corner of the industry is so far riding out the nation's worsening economic slump. The Brazilian real estate market is witnessing a drastic reversal from four years ago, when an economic boom lifted millions into an expanded middle class and fuelled a home-buying frenzy that pushed prices up by as much as 30 per cent on an annual basis. At the time, developers like Cyrela Brazil Realty and Rossi Residencial, flush with cash from recent initial public offerings, launched into a building binge of middle- and high-income housing to meet what they expected would be continuously growing demand. "Now things are moving in the exact opposite direction," said Sao Paulo-based economist Eduardo Zylberstajn, who helps oversee the widely used FipeZap real estate price index. Economic decline, stubborn inflation, rising mortgage rates and mounting unemployment have dragged consumer confidence to the lowest level on record, scaring many Brazilians out of plans to invest in real estate and sinking prices along the way. "It's a perfect storm," said Itau BBA analyst Enrico Trotta, who also pointed out scarcer mortgage funding and the high number of apartments collecting dust following the industry's overly optimistic expansion. But not every homebuilder is suffering. Those with a focus on the low-income segment, such as MRV Engenharia and Gafisa's Tenda division, have been reporting strong sales. "There is still gigantic pent-up demand in the low-income market," Trotta said, citing Brazil's housing deficit, broadly estimated at upwards of four million homes, and the financial support of a government housing subsidy programme known as My House, My Life.Brazilian President Dilma Rousseff has pledged the programme, budgeted at 13 billion reais (HK$28 billion) for this year alone, will be shielded from further rounds of government budget cuts, citing its broader economic benefits. MRV shares are flat this year, compared with Brazil's benchmark stock index, which has lost 2 per cent, while Gafisa is up 14 per cent. That contrasts with a 20 per cent decline in Cyrela stock and a 76 per cent fall in Rossi shares. Tenda plans to launch new projects valued at up to 2 billion reais by the end of next year, executives told reporters on a conference call on Monday. Trotta warned, however, that stronger demand in the lower end of the market might dwindle should the government follow through with a proposed change to financing rules. Currently, the real estate industry benefits from a government-mandated, employer-financed workers' severance fund that can be used to finance home purchases, an especially tempting option because the fund's returns lag inflation. But under the proposed change, the government would raise the returns it pays on each worker's account, erasing the incentive to buy a home. The bill is expected to be voted on in coming weeks. As for the broader property market, most analysts do not see prices recovering over the short term, in part because of the rising opportunity cost of holding real estate as an investment. Brazil's central bank pushed interest rates to a nine-year high last month, making the average rental yield of about 4.7 per cent far less lucrative than the 9.2 per cent return on a simple savings account. The savings account also comes without the risk of a drawn-out and costly eviction procedure should a tenant fail to pay rent. Buyers have sensed their strengthened bargaining power, which they are using to demand discounts of up to 30 per cent on some apartments "We have to explain the reality of the market to sellers nowadays," said independent Sao Paulo-based broker Milena Moreira. "Some just don't believe it."