The truth about Brazil’s Real Estate Market

Useful links (Other people’s opinion) 

Private vs Institutional Buyers (see this link for an external perspective)    

Is Brazil suitable for small private overseas property buyers.  Who and what you should buy in Brazil (link to http://www.propertycommunity.com/forum/brazil-property/18038-buy-brazil-you-might-want-read-first.html article) 

“If you want to live on the beach (or elsewhere) in Brazil and are prepared to pay cash for your second or retirement home, go for it. This country’s coast is beautiful, and beach life here could be everything you’re looking for in a new life on the water.

If you’re a big-time investor with deep pockets and the time and inclination to figure out how to navigate this market, again, go for it. This is a lively marketplace, and, as a friend says, lively marketplaces are the best places to make money.

If, however, you’re an average individual investor, certainly if you’re a novice international real estate investor, I’m with Lief. You’re better off seeking opportunity elsewhere” 

Our Perspective 

Firstly we need to say, we like Brazil both as a country and as a investment opportunity, however it is important for those not familiar with the country to get an “impartial” view balancing the positives with the negatives.  Many issues will relate more from the perspective and issues of the investor rather than anything specific about Brazil.  

Overview

When buying a property (for investment) always think who will buy it after you – who will you resell it to. The applies equally to off-plan, new or second-hand properties.  In Brazil the quality of the developer is important to the buyer. The only true measure of an investment property is when you eventually sell it.    

Our advice is that for “the man on the street”  it is better to buy into Brazil through a fund or investment vehicle where professionals have had the opportunity to review the market, select the best options, do due diligence and consider issues such as currency, taxation and interest rates etc.  

We always recommend you visit the property you are buying and look and understand the area/neighbourhood.  Avoid buying from a brochure unless you know the developer.  Bear in mind the complexity of doing business across cultures and legal boundaries. “Where there is doubt, there is no doubt”.  Don’t buy unless you are a 100% confident. Remember Brazil is the same size as Europe or continential US and so you will have as much variety in prices by location as you have across Europe.    

In the long run, like the stock market, realistic house price should reflect the income of the buyer/owner/user.  People will pay between 10-30% of their disposable income for the mortgage payment or rent of a property.     

Similiarly commercial properties will reflect the turnover/income of the business based in that property.     

Brazil is experiencing both growth in jobs and income as more and more people join the middle classes.  Brazil is successfully reducing poverty.    

The Real Estate market will perform well and those suited to the domestic market will be best as the resale opportunities will be focused on domestic buyers.     

Brazil will see significant investment in real estate quite aside from the investment in the World Cup and Olympics.  The general trends should not stop you from doing your commercial and legal due diligence when buying a property.  In the UK and US the lender might have due a valuation to help you assess the value of a property.  This is not the case in Brazil and so you should exercise care and do your own price comparasions when buying a property in Brazil.    

Brazil’s Real Estate Market has seen a period of dramatic change, starting with the IPO of 25 Real Estate companies in 2005/7.  (see below a sample of the companies and funds raised.  Total funds of $.3.5 billion+ was raised in primary offerings).  

After this followed a period of growth in mid and upper income housing, followed by a slowdown in late 2008/2009.  We have also seen a wave of consolidation and mergers of these listed companies and many of the SP/Rio based quoted companies either acquiring or partnering with regional companies to go national.    

Real Estate IPO

During this period we have seen an influx of foreign funds and investors ranging from Soros to Sam Zell and instutitions such as Hines, Calpers, Morgan Stanley as well as the growth of local Real Estate funds. Even in the estate agency side we are seeing international agents such as Remax and Century 21 expanding into Brazil (particularly in the large urban centres) in anticipation of the widening base of Real Estate customers.    

 Holiday Homes  

Brazil makes an ideal holiday home/destination, however  you should not consider buying it for investment as it is not designed as an investment option.   

Our advice is that you should buy a holiday home because you like it and can imagine using it regularly. Avoid excessive leverage when buying holiday homes. This does not mean that you won’t make a profit but if your motives are mixed so will your returns.  Take account of how often you will visit it, make allowances for lack of or cost of long haul flights.  Understand the complexity of managing an overseas property (eg, security, taxes, need for back accounts to pay municipal taxes, electricity etc).  While many people have bought in Brazil, this is not a mainstream market compared to Spain, France, US etc.  (this is part of the attraction for many about Brazil as it is a bit off the beaten track and Brazilians are very friendly).  

Beware of companies/agents offering properties claiming that you will have capital appreciation – ask them for data.  Make sure you are buying at the correct price for the type, location and quality of the property.  Many properties are over-priced for foreign buyers.  When we used to sell properties we would routinely see properties being marketed up by 30-100% by other agents.     

 Land plots were often sold for $10,ooo when the locals could be paying as little as $800.       

Apart-hotels    

It is better to buy a unit in an established apart-hotel complex as these have the management required to look after your property and its rental income.  You also have a track record and the units have had a chance to “bed in”. Remember that if buying an apart-hotel off-plan, that these will take 1-2 years to get established before the expected rental yield will happen.    

Development Investment Opportunities    

Development Projects aimed at the domestic market such as residential developments, industrial, shopping centres and offices make good investment options but once again seek professional advice to make sure you are not buying at a “foreigner’s price” .  It is not unusual for Brazilian vendors to charge one price to locals and another (higher) to foreigners.     

The development opportunities has also been reflected in the share price of listed real estate companies.  The sector has shown returns of 190%+ in 2009.    

Land Plots    

Buyers should exercise caution and due diligence when buying land plots especially those making claims on high capital growth.  The most important issues are related to selecting the right developer who has the capability to complete the development, particularly the resources, know how, and track record/integrity.    

Commercial Property    

This segment has seen a large influx of foreign investment and with rising demand, little spare capacity and falling interest rates has seen good capital growth.  We expect this to continue but slow down as prices adjust to international levels.  Brazil in dollar adjusted terms has shown excellent returns over the past few years.    

 TV Ad for residential property  

If you require advise or consultancy to help you source property do not hesitate to contact us.