Investment Property in Brazil

Due to a great improvement in the economy of Brazil over the past few years, it is now viewed as a viable property investment option.  Early investors are currently seeing excellent returns in Brazil's hot-spot locations.

Worldwide property investors are now turning their attention to Brazil as it fast becomes a leader in the field of emerging markets. Returns on investment are considered to be excellent and investors are increasingly aware of the high growth potential that Brazil offers as a stable though fresh, new investment market.

Why Invest in Brazil?

Brazil has been clearly identified as an emerging market among worldwide property investors. Returns on investment are excellent and investors have become aware of the high growth potential of Brazil as a stable new investment market.

• Property capital appreciation of 20% per annum in some locations.
• Favourable currency exchange rates, making property transactions cheap for foreign investors.
• President Lula’s progressive policies, bringing many improvements to Brazil, including a decrease in inflation to an all-time low at 5.7%.
• Active encouragement and incentives for foreign investment - you can own 100% of land and property.
• Cost of living often 20% of that in the UK/Europe and property maintenance costs extremely low.
• Some of the lowest property prices in the world.
• Increase of thriving manufacturing industries relocated to Brazil and boosting the economy.
• Expected self sufficiency in oil reserves within the next year.
• Some economists believe Brazil is among the leaders of the future, along with Russia, India and China.
• Year-round sunshine, with average summer temperatures of 21°C.
• Great natural beauty with fantastic scenery and 7,000 km of beaches.
• Friendly nature of the Brazilian people.
• Vibrant cities with carnivals and music.
• Low international risk of war, terrorism or SARS in Brazil.
• Easy access via direct flights from many international airports.

Property purchase specifically as an investment vehicle is a popular option among those aiming to capitalise on the excellent growth potential of property in Brazil. This type of investment can consist of an off-plan purchase for sale prior to project completion. Alternatively, a buy-to-let situation can provide reliable rental income from the property, along with substantial capital appreciation.

According to independent investment experts, including many articles in international investment press, Brazil is now widely considered to be a highly profitable market. The economic climate and tourist infrastructure are currently undergoing major upheaval, while the country’s economic strategy has caused much growth in the past 3 years. While Brazil remains on a steady growth curve, investors are urged to catch this promising market from the very start, while prices remain low and high returns on investment are inevitable in current hotspot locations.

Brazil has excellent direct flight communications with the UK and the rest of Europe, making it a convenient holiday destination. This accessibility increases potential investment yields and reinforces the promising future of Brazil. A low cost of living, great quality of life, a fantastic climate, tropical beaches and a rich and vibrant culture are all valuable contributing factors to Brazil's success.

Capital Growth Predictions

Based on solid evidence, general opinion is that as an emerging market, Brazil offers some promising growth potential to all types of investor. While some areas of north eastern Brazil around Bahia are currently attracting as much as 20% annual capital growth, and other areas are also experiencing price rises at a healthy rate, Brazil undoubtedly represents a profitable opportunity to early investors aiming to gain the greatest returns possible on their investment.

Rental Yield Predictions

Rental income from Brazil property is of great interest to investors as high rental yields are already achievable from property located in the current tourist hotspots of Brazil. It is expected that mortgage payments and bills can be covered for the year from the rental income achieved during the peak season months alone (December to February).

Brazil Economy

Currency exchange is at a favorable level for foreign investors and inflation is encouragingly low at only 5.7%. In addition, President Lula’s policies encompass strong internal investment as well as funding from the USA to improve the economic structure and entice tourism to Brazil, while continuing to encourage large foreign businesses to establish themselves in Brazil.
Economists now predict that Brazil will be among the economic leaders of the future, along with Russia, India and China.

Off-Plan Property in Brazil

Many developers in Brazil offer beneficial payment schemes. We carefully vet these offers and work with only the most reputable and secure development companies that operate in your favoured location. Payment schemes currently on offer allow you to buy property off-plan, i.e. before or during construction when the price remains low, with down payments of between 15% and 40% of the property price.

By the time the property is finished, prices rise due to market forces and the greater general appeal of a completely finished property that is ready to move into. Investors therefore sell the property on to another property purchaser and in doing so, enjoy some excellent returns of between 15% to 60%, whilst never having paid the full purchase price. Depending on the down-payment and speed of construction, profits from off-plan deals can range from a staggering 40% to 100% per annum.

Investors should however exercise due diligence and choose wisely, making sure that the property is located in an area where they will resell quickly and easily or where there is a high rental demand for their buy-to-let investment in Brazil. With an off-plan investment, even in the “worst case” scenario if the property cannot be sold upon completion, the final balance due can often be financed by the developer himself, typically over 4 years or more. Furthermore, the rental income may pay off the finance of this loan and yield further eventual return on investment.

How Can Property be Cheaper Off-Plan?

In order to limit financial risk and debts, the developers of any project will wish to sell units off-plan. They understand that if buyers cannot see a physical property at the beginning, they will demand a lower price, while relying purely on the developer’s reputation, the property location, artistic impressions and computer simulations on which to base their decision to purchase.

In addition to the excellent off-plan price, some highly beneficial finance structures are in place. You sometimes need to pay only around 20-40% of the purchase price in the form of a deposit, while the rest is payable upon completion. This may be financed by a mortgage if necessary.

If you decide to invest in off-plan property, you will need to decide which strategy you will adopt to achieve your return on investment. Our experts will help you to choose the most appropriate plan, creating an investment programme suitable to your needs, whether this is pure investment in Brazil or a buy to let strategy. We will also assist you in finding the most appropriate location to suit your investment needs.

Maximising Profit from Off-Plan Investment in Brazil

Purchasing Early

Prices never remain low for long and, as construction progresses, prices begin to rise steadily. In Brazil, as in any other market, it is important to buy as soon as possible during the early stages of development when prices remain very competitive but are already beginning to rise. Early investors will invariably see the greatest returns.

Purchasing the Best Units

Early purchase allows investors to choose the most sought after properties on any given development. The best units always offer higher capital appreciation in the smallest time frame and can often demand the greatest rental incomes. Penthouses are often firm favourites.

Prices Increase as Development Matures

As the development begins to be constructed, the value of the units begins to rise. A completed show home is normally available for viewing at this stage, while buyers are taking less of a risk as they now do not need to rely 100% on plans.

Prices Appreciate as More Units Sell

As more units are sold, the price of the remaining units rises. Units sell faster when buyers are able to physically see them. There is often a phase payment structure in place which mirrors the increasing value of the properties. To the early investor this means that, should you decide to sell your property, it will be worth considerably more at this stage than when you made your initial purchase and paid the 30% deposit.

The "Buy-to-Let" Market in Brazil

Brazil deserves some serious consideration as a location for those looking to buy property overseas. With capital growth in Brazilian property at around 20% per annum in recent years, Brazil beats other high performers in Europe such as Spain (17 per cent) and France (10 per cent).

High levels of inward investment and a generally stable economy have made Brazil a safe arena in which to invest and an increase in the amount of tourists entering the country can only be encouraging news to all investors in buy-to-let options. The climate and lower cost of living make Brazil a destination much in demand for those looking to buy property abroad as a holiday home, as well as for more "serious" investors.

The Brazil Tourism and Culture Movement aims to transform the country into one of the twenty most attractive tourist destinations of the world. Current plans are aiming to attract more tourists to Brazil and achieve 2007 objectives stipulated by the ministry of tourism of a total of 9 million visitors and around $8 billion (USD) in revenue for the country.

Purchasing a property to let in Brazil will involve careful consideration as to whether or not the property is ideally located for tourists, while careful analysis will need to be done on matters such as tourist amenities and accessibility to airports as well as what type of tourist will be visiting. Early investment and the correct formula to suit your market will bring you excellent returns on your buy-to-let property in Brazil.

Buy-to-Let Example Case Study

John decides to purchase an investment property and he decides that the "Buy-to-Let" investment strategy is for him.
John has savings of around €80,000.

Investment property X is a new development with beautiful sea views and priced at €250,000.

Initially John pays his reservation fee of €3000 to hold the property.

Next John pays a 30% deposit of €75,000 (minus his €3000 reservation fee already paid). John acquires a mortgage for the remaining €175,000 at a rate of 2.75% (example only) this translates to a monthly mortgage repayment of €481.00 (interest only) which is equal to €5772.00 over 12 months.

John starts to rent his new property immediately and during the 3 months "High Season" he receives €2000 per month in rental income. These rental payments exceed his annual mortgage repayments and still leave John with 9 months of rental potential to make a further profit.

If we assume that average rental rates for John’s new property are as follows (conservative figures):

• High Season - €2000 Per Month
• Low Season - €1300 per Month

Now we assume that John decides to go on a short term rental strategy maximizing his income over the High Period. He easily rents his property for 3 Months during the high period earning €2000 per month. After this period he has a delay in getting his next tenants but over the course of the year he rents his property for a further 6 Months only.

• 3 Months x €2000
• 6 Months x €1300

Total Rental income = €13,800 after subtracting the €5,772 Mortgage repayments John has made a profit of €8,028.

* In this example we have not included any rental management or community fees that may apply but also we have only assumed rental income for 9 months of the year and with many holiday makers now booking private accommodation via the Internet this is very achievable.

Short-Term Letting vs Long-Term Letting

The final decision to be made by the "Buy-to-Let" investor is which letting strategy to use. It is obvious that the highest income is made by the property owner by short term letting during the high season. However you must bear in mind increased overheads due to constantly finding short term rental clients, as well as maintenance costs between clients.

Long-term rentals typically pay less per month but usually require far less input from the property owner. Some property owners choose to rent long-term during the low season, then short-term to higher paying tourists during the high season. The decisions to be made regarding your letting strategy are usually answered in part by the type of property you purchase

The “Buy-to-Let" strategy is an important formula to get correct as even in a very busy market there is still competition. In order to maximize occupancy rates it is vital that you correctly select your location, property, unit and monthly rental charge as these factors will directly effect occupancy and, in turn, your rental income.

This type of investment brings the added benefit that during the time your property is being rented out and earning you an income, it is still appreciating in value at one of the fastest rates available, while someone else is paying your mortgage. Meanwhile it is providing an off-peak holiday home for your personal enjoyment.

Buy-to-Let investments are catching on fast in Brazil as investors now consider them to be a sound investment decision.

Summary

Current evidence shows that investment property in Brazil is now a highly beneficial market in which to invest. While the tourist infrastructure and economic climate is improving rapidly in Brazil, investors are urged to catch this market at the very beginning while prices remain incredibly low and high returns on investment are inevitable.