Brazil Property Guide: Buying and Financing

The Brazilian market is very fast moving and in some cases it can be just days between signing a private purchase contract and completing on a sale. It is essential that you engage the services of a good English-speaking Brazilian lawyer qualified to advise on the international aspects of the investment. Above all, you should to obtain independent professional legal advice before you sign anything or part with any money to ensure your interests are protected. Your lawyer should be bilingual to ensure that both advice and translations of contracts are accurate.

It is worthwhile obtaining a tax report of the property in order to ascertain the most tax-efficient way to structure the purchase. For example, there are reduced rates of income tax on repatriated rental income in Brazil if you purchase your property through a company rather than as an individual.

Property purchase costs

Exact costs will vary by region and by type of property. However, as a general rule you should allow 3 to 8 percent on top of the purchase price to cover additional buying costs. If it takes a significant amount of work to establish title and ownership, the costs could amount to more. Ocean-front properties or properties which sit on Brazil’s border will also involve high buying costs as they have to be recorded by the Federal Government.

• Transfer tax (ITBI) – When you buy a resale property in Brazil you must pay transfer tax (Imposto sobre Transmissao de Bens Imoveis or ITBI) to the municipal government. Transfer tax varies from city to city but is usually charged at 2 percent of the property’s value. Transfer tax must be paid within 30 working days of the authentication of the deed or the real estate cannot be entered in the ownership registry.
• VAT – When purchasing new-build property in Brazil, you must pay VAT
• Registration tax – Upon registration of the title deed, the notary public will levy a registration tax of up to 2 percent of the value of the property ? Import tax – Brazil levies a 1% “import” tax on transfer of funds from abroad
• Lawyers’ fees – It is important to seek independent legal advice from a lawyer versed in Brazilian property law and preferably bilingual as notaries are neutral and will not protect your interests. Tax advisory fees will depend on the complication of the transaction.
• Surveyor report – A full structural survey is advisable, particularly for older property and that not covered by a builder? guarantee.
• Notary fees – By law, a notary (scribã) must be present to witness the signing of the public deed („escritura?) and authenticate the deed. The notary will also organise for the payment of taxes and for funds to be transferred from purchaser to the vendor.
• Bank charges – Bank charges met by the purchaser will include both the cost of setting up a mortgage (if you go for this option) and the cost of transferring funds across to pay for the purchase. The purchaser will pay the bank charges involved in the transaction up until the monies reach the vendor’s account.
• Currency transfer costs – Factor in the charges involved in transferring funds from your home bank account to Brazil. Consult specialist foreign exchange specialists, who usually offer a better exchange rate or more favourable payment terms than a High Street bank.
• Currency exchange rate fluctuations – Be prepared for variations in the exchange rate between the time when you agree a price and the time you have to make payment. Consider protecting yourself from the uncertainty of future exchange rates by fixing a rate in advance so you know exactly how many pounds (or euros) you’ll need to pay for your property in Brazil.
• Moving costs – Budget for the cost of removals, transportation, expenses relating to changing the names in utility contracts and contents and building insurance.
• Other costs – Real estate agency fees are only paid by buyer in exceptional circumstances, but make sure whether you?e liable or not.

Finding the right property

Other than price, a key topic is the condition of the property. At one extreme, you could take on a renovation project requiring a lot of hard work to bring to a habitable standard, at the other end of the spectrum you could purchase a modern apartment in a serviced complex with all amenities in situ. Establish how much time and money is involved in refurbishment before committing to a project of that sort. Important things to check for when looking round properties include damp, subsidence, access and boundaries.

It’s useful to go in prepared with a checklist, then take notes and photos as you walk around. It’s also preferable to talk to other British owners in the area, if any British have already bought in the area in which you’re planning to buy. Organising legal representation Once you have found a property you’re interested in, the next thing to organise is legal representation to ensure your interests are properly protected. There are two legal professionals you will deal with:

• A public notary (escribão) – Unlike traditional lawyers, Brazilian notaries are neutral government legal representatives who act as witnesses to and registrars of property transactions. Under Brazilian law, only deeds of sale (escrituras) witnessed and authorized by a notary can be registered at the land registry. He or she will prepare all the appropriate paperwork and ensure this has been filled out correctly according to the wishes of both parties. The notary also will conduct title searches and has a responsibility to make sure the appropriate property taxes are paid on time. Your estate agent will be able to put you in contact with the notaries they use regularly.
• A reputable English-speaking Brazilian lawyer – An independent lawyer to represent your interests and offer impartial legal advice is essential. If an estate agent recommends a lawyer, always be aware that this lawyer may be working for the seller and therefore may not have your best interests at heart. You will also need to seek advice on the international dimensions of the transaction and on the critical issue of domestic taxation. If you do not intend to be in Brazil during the purchase process, you will need to grant power of attorney to your lawyer, who will then act as your legal representative. Your solicitor will then be able to obtain a CPF number for you and open a Brazilian bank account on your behalf.

Obtaining a CPF number

Before you can undertake any financial dealings in Brazil such as opening a bank account or buying a property you will first need to obtain an individual taxpayer identification number known as a CPF (Cadastro de Pessoa Fisica) from the Brazilian Internal Revenue Service (Secretaria da Receita Federal). This applies equally to residents and non-residents alike and if you are buying as a married couple, your spouse will also have to apply for an individual CPF number. The CPF is not necessary to reserve a Brazilian property or sign a purchase commitment, but it is mandatory at the time of signing the deed and transferring ownership into your name.

To get a CPF you need a birth certificate translated into Portuguese by a certified translator and legalized by the Brazilian consulate in your home country. This translation will then need to be taken to the Banco do Brasil with your original birth certification and passport, whereupon you will pay a small fee and be issued with a giro. You will then take this giro to the Receita Federal who will issue you instantly with a temporary CPF number. Your permanent CPF number will be issued and a permanent CPF card posted to you within two months, to an address in Brazil.

You can also apply for the CPF online at the website of the Receita Federal or via your local Brazilian embassy. You may find it easier to use a Brazilian lawyer to apply for the CPF on your behalf.

Making an offer

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Many Brazilian vendors will assume foreign buyers are relatively ignorant of local prices, so you must research the local market thoroughly to get an accurate sense of the value of the property. If you identify alternative properties in advance that you would also be happy to buy, it will be easier to walk away from the deal if you don’t secure your minimum requirements, making your negotiating position stronger. With off-plan purchases, however, the price is often fixed and dependent upon the current phase of construction.

Once you are happy with the price, a verbal offer will need to be made through the estate agent. Your lawyer will oversee proceedings, including any deposit or reservation payments and the formal agreement of final purchase price.

The survey

Although it is not a compulsory part of the purchase process in Brazil, a survey is advisable for your own peace of mind as and to give you an idea of what to budget for in terms of renovation and repairs (if applicable). A survey is particularly advisable if you are buying a property without a builder’s warranty. Important things to check include:

• The plan of the land at the land registry and the plan of the building which should be included with the property details
• The land boundaries and whether there is any construction work planned on the land neighbouring the property

Don’t just believe what it says on the plan or in the details. Check for yourself, as any discrepancy could work to your advantage in any negotiations over price. A full structural survey will usually cover all the main issues.

Organising finance

The underdeveloped state of Brazil’s mortgage market means that foreigners cannot yet obtain a mortgage locally. Most foreign investors will purchase in cash, often through remortgaging in their home country. In some instances, if you are buying off-plan or new-build property, the developer may offer finance.

Signing a private contract

Once all the necessary legal checks have been completed satisfactorily, you will be ready to sign a private sales contract. Before this stage you should have had the contract translated into English and ideally have English-speaking assistance on hand during the signing. The contract is prepared by the selling broker and signed at the broker’s office. The private sales contract details the finer points of exactly what you are purchasing, and includes all the fundamental information about the sale such as the purchase price, the list of fixtures and fittings included in the sale, and the completion date when the deeds will be signed and the property transferred into your name.

This agreement commits both buyer and vendor to complete the transaction and at this point the buyer must pay a deposit make sure you do not pay too high a deposit at this stage. If the buyer walks away from the deal subsequently, this deposit will be forfeited; if the vendor walks away, they must repay the buyer twice the value of the deposit in compensation.

Legal investigations

You should now instruct your solicitor (dvogado) to undertake various essential legal investigations on the property to start the conveyancing process. These checks will include:

1. Apply for a certificate issued by the Real Estate Registry Office (Cartorio de Registro de Imoveis called the Certidao de Onus reais—also called Certidao de Inteiro Teor—which will detail the property’s entire ownership history)
2. Through this document your lawyer can ascertain whether the vendor actually owns the property and has legal authority to sell it.
3. Your lawyer will also confirm whether there are any remaining charges or mortgages on the property, or any outstanding taxes or utility bills to be paid.
4. Make certain that the property has a clear title.

Completion

After all the legal paperwork has been completed, you will be ready to sign the deed of sale (escritura). This is when ownership of the property passes from vendor to buyer. A registrar (escribo) from a Notary Public (cartorio de notas a private legal company) must be present at this event to draft the document, then formally witness and register the transfer of ownership on behalf of the Brazilian government.

Both parties will need to provide passports, or some other proof of identity, and unless you speak good Portuguese, the notary will insist that a translator is present to ensure you understand the full implications of the contract you are entering into.

Upon completion, the buyer must pay the balance of the purchase price, all professional fees, transfer taxes and notary fees. Copies of the deeds are then sent to the local land registry and a legal copy of all documentation will be given to each party. Your lawyer will assist you with transferring payment and ensure the property is registered in your name.

Registration of title

Once the escritura has been signed, the property must be registered in your name at the local land registry. Registration is essential to protect the purchaser against third party claims against the vendor. This will be organised by your lawyer via the notary. You are now officially the owner of your Brazilian property!

Before you can register your property you will have to provide proof of payment of the property transfer tax (ITBI) in the case of resale properties, and in case of an apartment, a certificate of no tax arrears on the city property tax (IPTU) by the condominium.

Special situations and exceptions

• Buying off-plan property in Brazil is very common practice given the value for money such deals can offer. However, with off-plan purchases, price is often fixed and dependent upon the current phase of construction with no room to negotiate.
• If you are buying new-build or off-plan, the buying process may vary slightly according to the developer you are purchasing from so you will need to clarify the specific procedures in this instance.
• Some developers of new and off-plan developments allow you to pay in instalments over a 12- to 60-month period. This is normal practice for off-plan purchases, with the balance being paid on completion of construction. You should bear in mind that paying in installments over an extended period of time will pose an exchange rate risk if you don’t fix your exchange rate in advance. In other words, if you don’t fix your exchange rate with your currency broker, you expose yourself to the risk that the Brazilian Real could appreciate against the currency in which you receive your income, making your property purchase more expensive (conversely of course, the Real could also depreciate, making your property cheaper).
• If you are buying a property in an ocean-front location, the sale must be recorded with the appropriate Federal Bureau (which takes about a week) before being registered with the notary.

Mortgage Finance

Brazil’s mortgage market is in its infancy and at present, foreigners cannot yet obtain a mortgage locally. Most foreign investors will purchase in cash, often through remortgaging their property in their home country.

If you are buying off-plan or new-build, the developer may offer their own private finance package. Typical interest rates start at 1 percent per month over and above inflation. Stage payments for property purchases in Brazil are normally index-linked against inflation to ensure developers are protected in a situation of hyper-inflation (however, over the last five years, annual inflation in Brazil has stayed well below 10 percent). During the construction period, the stage payments are index-linked to the construction price index (indice nacional da construcao civilor INCC), which reflects inflation in the construction costs.

After construction, most companies index-link repayments to the Brazilian consumer price index (indice geral de preco medio or IGPM). The repayment term will vary between 40 and 180 months, depending on the developer and the property itself. Most developers will require a minimum down payment of 15 to 20 percent of the total value of the property.You should consult with a financial advisor who can talk you through your options.