Fortaleza Real Estate: Strong Demand And Limited Supply

Brazil’s domestic economy continues to grow. The North-East is growing faster than any other region. Foreign investment is up and gaining momentum. Direct-flight access from the U.S. is …

Brazil’s domestic economy continues to grow. The North-East is growing faster than any other region. Foreign investment is up and gaining momentum. Direct-flight access from the U.S. is increasing. Brazil — and Fortaleza in Brazil’s north-east in particular — is getting serious about marketing to foreign tourists. Fortaleza is already one of the biggest domestic tourist destinations in Brazil. Numbers were up by 16.8 percent last year. Growth has continued this year. The World Cup is coming to this country in 2014, with Fortaleza likely to be a host city. Multibillion-dollar infrastructure projects are underway.

The domestic mortgage market is opening up and Fortaleza is becoming increasingly popular as a retirement destination for people from southern Brazil and Europe. Condo prices are up by up to 20 percent since April 2008 and continue to rise.

The short-term rental market in Fortaleza right now is a gift to investors. Buy quality preconstruction and you will enjoy the prospect for capital appreciation during construction. On completion you could enjoy some of the strongest rental yields I have ever seen.

This is one of the reasons I remain bullish about this real estate market. The supply of suitable units is tiny by comparison to the rental market. This trend is a big factor in the type of condo units I have recommended to members of Real Estate Trend Alert when we talk about investing in Brazil.

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One member I know who invested in the Beach Class condos recently spent a month exploring the coast around Fortaleza. He wanted to use the boardwalk area as his base. A short-term rental was the obvious answer…but agent after agent told him the same thing — "sorry, no rooms to let." Finally, through one of our contacts in Fortaleza, he managed to secure a rental that isn’t even officially on the market…for which he’s paying 200 reais ($85) per night.

Invest in Brazil: What Are the Key Drivers?

This supply shortage is big news in Fortaleza. One of the city’s leading newspapers, O Povo, writes that the market is currently running at close to 100 percent occupancy. The key drivers are vacationers, business travelers, company executives, and retirees from southern Brazil.

My own contacts tell the same story. Carmen Ary Ferreira has been in the rental management business in Fortaleza for 15 years.  When I met her seven months ago, she was seeing a strong short-term rental market. But today she is seeing 100 percent occupancy. In an e-mail she sent yesterday, she says: "Ronan, I manage 150 apartments and not one is available tonight.” She hasn’t seen anything like this in 15 years.

This is good news for investors who have purchased units in developments such as Beach Class and Landscape. These units will be perfect for short-term rental, a big point in their favor. I have visited flats (serviced condo suites) currently on the short-term rental market in Fortaleza. Typically their amenities are limited to restaurant, laundry, and room service. They are dated and of average quality. The units I advise investors to buy will have five-star amenities. Pools, gyms, health and beauty centers…all the bells and whistles a business traveler looks for, including meeting rooms and party rooms — for when the work is done. These will rent fast and command a premium.

Will an Investment in Brazil Now Go Up?

I expect short-term rental demand to continue to increase in the coming years, especially as there is a limited supply of quality hotel beds in this area. The Brazilian economy is growing, and the local economy here is growing faster. Tourist numbers are up and ever more people are relocating from the congested and expensive south of Brazil. Major infrastructure projects including a $16 billion oil refinery are on the way to the area.

Of course this wouldn’t mean much if supply was also rising. But it’s not.  In fact, it can’t. There is practically no development land remaining on or around Fortaleza’s boardwalk area. Increased demand will drive rates higher.

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