Brazil Property Investment: More Than Just the Amazon

Brazil, the largest and most populous country in South America, draws many with its sun, sea and sand. In fact, Brazil’s government is actively encouraging foreign investors to …

Brazil, the largest and most populous country in South America, draws many with its sun, sea and sand. In fact, Brazil’s government is actively encouraging foreign investors to throw their hats into the country’s ring. And with a housing surplus, a flourishing economy and a strong potential for future growth, a property investment in Brazil may prove to be an attractive option. In fact, Brazil received a second-place ranking on NuWire’s list of the Top 5 Latin American Real Estate Markets last year.

Approximately 190 million people call Brazil home, according to the CIA World Factbook, and the country is the fifth largest in the world. It is a net exporter—meaning the value of its exported goods is higher than the value of its imported goods—and has the eighth largest economy in the world, according to Russell Messenger, director of Beach Property Investment Ltda., which handles transactions in Brazil. It is predicted to be one of the world’s leading economies within the next 10 to 15 years, according to Messenger.

The Brazilian currency is the real—pronounced “rey-ahl”—which is worth approximately 0.57 U.S. dollars. The country’s official language is Portuguese.

Why Brazil?

“Brazil appeals to me as I love the culture which combines both excitement—nightlife, carnivals and amazing cities [such as] Rio—and relaxing tranquil beaches and dreamy settings,” Luke Fitzsimmons, internet marketing manager for London-based Experience International, a company which helps foreigners purchase investment property in Brazil, said.

But it isn’t only the country’s pleasing atmosphere that may entice investors. Brazil’s property market is in good shape for investors. The country is in a buyer’s market, with prices low because there are more homes for sale than there are buyers, according to Jose C. Santiago, licensed and certified attorney of law in Brazil and owner of LawOfficeInBrazil.com. The demand for property in Brazil is expected to increase by approximately 900,000 units each year, according to Santiago.

“Much of [the market] is untapped, and it’s starting to explode. Within the next five to seven years the prices will be through the roof, like they are in Salvador da Bahia,” Ralph J. Mullins, managing partner of MJR Developments Brazil, said. “When I moved here you could buy a nice piece of beachfront property for about 15 to 20 percent of what you can buy it for today.”

Brazil also has a strong economy that is in a good position to grow further in the future. Commodities are the primary industry in the country, with oil, airplanes and automobiles among the primary exports. “Brazil is also a superpower in terms of agriculture, leading the world exports of soybean, orange juice, coffee, beef, chicken meat and ethanol,” Rodrigo de Azeredo Santos, head of the Trade Promotion Programs Division of the Ministry of External Relations, said in an e-mail interview.

Because of its growing economy and population, Brazil is included in the BRIC Thesis, a theory proposed by Jim O’Neill of Goldman Sachs. The thesis states that Brazil, Russia, India and China are destined to become the world’s most dominant economies in the future, eventually containing more than 39 percent of the world’s total population. “According to Goldman Sachs’ paper about the BRICs, Brazil will be the fifth economy of the world in 2050,” Santos said.

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“In 2007, Brazil has grown at a rate of 5.3 percent with inflation of 4.6 percent. All forecasts suggest maintenance of these rates for the next years, which makes the Brazilian market one of the most promising in the world,” Santos said.

Also, in light of the possible future energy crisis, Brazil may be a smart place to invest. It is a self-sufficient country on the energy front, a position that has been further strengthened by the recent discovery of a new oil field that was announced Nov. 8. The Tupi oil field is 155 miles off the coast of southern Brazil and is the biggest oil find since 2000, according to Business Week.

“With the full production of this field, [Brazil] will become one of the main oil exporters, surpassing traditional exporters such as Nigeria,” Santos said. “Hence Brazilian oil reserves plus biofuels and hydroelectric power generation availability are additional guarantees that investing in Brazil is safe due to the confidence that energy will be available to sustain the economic growth.”

And in an age when the planet faces a global water crisis—the earth’s population consumes more than half of its accessible freshwater supplies and is projected to use almost three-quarters by 2025—Brazil also has the world’s richest supply of freshwater resources, according to the World Wildlife Fund’s website.

The market

Twenty years ago, interest rates were so high that there was not nearly the demand for housing that there is today. However, with rates falling from the 35 to 40 percent range to the 10 to 11 percent range, more Brazilians have access to funds, Santiago said. He said that the lowering of interest rates has increased the demand in the housing market as more Brazilians are able to afford homes, which has caused the country to see housing appreciation over the past six or seven years.

In addition to greater demand within the country itself, there has also been an increase in the number of foreigners looking to buy vacation and investment property in Brazil. In the past few years, although some Europeans chose to purchase property in Brazil, the majority of interest came from North Americans or from wealthy Brazilians. But “the recent investment and new developments popping up in the northeast and the marketing into the U.K. and Europe via developers and agents [has] created…more awareness of the opportunities Brazil has to offer. This trend should continue to have a positive effect on the market and will lead to more Europeans getting involved,” Fitzsimmons said.

The state of Rio Grande do Norte is considered a promising location for investment, according to Messenger. “Prices are still very reasonable, but growing due to the great interest here from overseas investors,” he said. A new airport and trade free zone are planned for Natal, the state capital, which Messenger believes will further enhance the region. Messenger also recommended that investors consider looking into the states of Ceara, Paraiba and Bahia.

Santiago said he suggested investing in key cities such as Sao Paulo and Rio de Janeiro—the two largest cities in Brazil—because appreciation is higher and renting is easier in these regions.

Aracaju, the capital of the state of Sergpipe, is also a good area for long-term appreciation, according to Mullins. He also said he suggested Salvador, as it is a large city with excellent tourism accoutrements and a 5-star resort 30 minutes outside the city. However, investors should be cautious when considering various cities.

“I feel that my partners and myself got lucky. Some of the towns are quite dangerous; you have to have someone there who speaks the language and that knows how to buy and invest in Brazil,” Mullins said.

Purchasing property

Investors are strongly advised to find themselves a local lawyer to help with the purchase process in order to ensure that the transaction occurs as smoothly as possible.

“In Brazil specifically, due to the innumerable searches and certificates…along with the legal analysis of all these documents, it is literally impossible for a do-it-yourselfer to fulfill all of these obligations and procedures properly in order to have his or her rights safeguarded,” Santiago said.

First, investors wishing to purchase property in Brazil need to apply for a Cadastro de Pessoa Fisica (CPF) number, which is roughly the Brazilian equivalent of a U.S. Social Security Number. Individuals must have this number before they will be able to purchase Brazilian property or open a bank account. This number can either be assigned by a Brazilian attorney or by appearing in person at a Brazilian embassy. It is typically faster and more efficient to receive the CPF number through a Brazilian attorney than through an embassy, according to “Acquiring Real Estate in Brazil,” a publication of Santiago’s.

“Also, special attention should be given to the purchase and sale contract,” according to that publication. “Some crooked sellers may sell the property many times if the contract is not registered in the proper ‘cartório,’ leaving the buyer(s) with a complex lawsuit on their hands. Also, there must be a clause in the contract for the registration, so please pay special attention to this, as Brazilian realtors often leave this out.”

All transferred funds will pass through Banco do Brasil, in order to double check where they are from and where they are going, according to Messenger’s Beach Property Brazil website. The website states that a transfer typically takes five to seven days. Santiago said that foreign investors should consult with their attorney before making any transfers, as there are many rules and regulations that must be followed in order to ensure that it goes smoothly.

Investors should allow for approximately 7 percent of the purchase price for various taxes and fees, according to Messenger’s site. Legal fees vary from 1 to2 percent, purchase tax depends on the property’s location and varies from 3 to 4 percent, notary fees are 1 percent and registration fees are 1 percent, according to the website.

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