Buyer's Investment Guide for Real Estate in Brazil
Brazil Land Consult
January 2011 -
The process for buying property in Brazil is simple but somewhat different from elsewhere in Latin America. Here more than anywhere, it is worth having good, competent legal counsel. Engage your lawyer in the process before you sign anything.
Get your CPF number: You must obtain a tax ID (CPF) number to purchase a property in Brazil. This is not needed to execute a sales contract, but will be needed for the title transfer.
Apply for title insurance, if you intend to do so. Title insurance brings peace of mind to many people buying in foreign countries, where the laws and local property issues are unfamiliar. Title insurance is available from First American. To obtain more information, contact Turalu Brady-Murdock at email@example.com.
Complete a private sales contract. In this sense, "private" means one that is not registered with a notary. In this contract, you'll specify the purchase price and any terms or conditions for the sale. (When you pay for the property, the seller cannot withdraw the money from the bank without presenting this contract.)
Create an escritura publica, which will be the public record of the sale. This step is mandatory for any property valued at more than BRL$10,000.
Pay the transfer tax, which is 2% of the value of the property.
Take the escritura (and proof of tax payment) to a special notary who performs the recording of real estate transactions. This notary enters your property into the official registry.
Legal Procedure of Buying Property in Brazil
When buying property in Brazil, all transactions must be made through Brazil's central bank. All money sent to Brazil must come through the official banking system, in communication with the central bank.
Also, it's important to note that when closing on a real estate purchase, the Brazilian bank that represents the seller can credit the money to him only if both parties have signed the contract. This means that if you transfer the amount to the purchase of an asset and the seller tries to change the conditions of the deal before the contract is signed, he will not be able to credit the value, and the money will be returned.
An overseas investor can also purchase real estate in Brazil without leaving his or her home country. With a power of attorney given to a lawyer or other trusted party, the procedure can be held without difficulty. To obtain a power of attorney in a country outside Brazil, there is a procedure involving a local notary public and the Brazilian consulate in the jurisdiction of the investor's residence.
The representation of an attorney ensures the Brazilian property purchase process goes smoothly.
For more information on the legal aspects of buying real estate in Brazil, contact Brazil Land Consult we have a list of English speaking lawyers.
Can Foreigners Buy Property in Brazil?
A question that normally comes up before assessing the conditions for investment in Brazil is, Can I invest in Brazil?
The answer to this question is a positive Yes, the foreigner not only can invest in Brazil, but also is encouraged by the Brazilian government to do so. Facilities in obtaining visas and treaties to avoid double taxation are clear examples of the Brazilian government's interests.
There are no restrictions on foreign property buyers who are purchasing urban land, beachfront properties, houses, or condos. Foreigners have the same rights as Brazilians, and residency is not required.
There are, however, restrictions on foreigners who wish to buy large tracts of rural land used for agricultural purposes. If you're considering a large land purchase, consult your attorney for guidance.
But investors seeking to participate in the real estate, tourism, export, or environmental markets don't have to worry about the restrictions.
Costs of Buying Real Estate in Brazil
Closing costs will total about 4% of the purchase price, plus the cost of any legal fees or title insurance. The 4% breaks down as follows: 1% for creation of the escritura, a 2% transfer tax, and another 1% to register the property.
Capital gains tax is usually 15%, paid at the time of the sale. Reinvestment of the gain into another property—and deferral of the tax—is permitted under Brazilian law.
Condo fees are generally inexpensive by North American standards. For a typical condo project with a pool and basic services, expect to pay less than $80 per month.
Property taxes will vary with the municipalities involved, but most beachfront condos that I looked at were forecast to be around $250 per year.
Why Is Brazil a Good Place to Invest in Real Estate?
Opportunities and Growth Potential in Brazil
When it comes to investing in real estate in Brazil, there are still many beachfront properties ready to be developed for the growing number of visitors from around the world who are enchanted by Ceará's coastline.
In the last five years, property values have doubled because due to foreign investments, but the forecast of the growth to come is still very good for investors.
Fortaleza is the No. 1 location for Brazilian tourists, and the number of U.S. and European visitors is increasing, evidenced by the growing number of international and charter flights and numerous international companies seeking to introduce regular direct flights to Fortaleza.
Infrastructure and Politics
The credibility of the state government is recognized by national and international institutions, which has allowed Ceará to receive credit for investments in infrastructure such as an international airport, which links Ceará with Europe and the U.S., as well as a port, which allows for import and export of merchandise to and from large ports around the world.
A well-maintained road network linking the inlands and beaches supports the current growth, with potential for environmentally conscious investments, such as renewable energy (e.g., biodiesel, wind power, and tide power).
Water supply is assured by means of a system that interconnects the state's watersheds. Internet services can be found in even the more remote places, allowing for constant communication.
Cost of LivingIn Fortaleza, medical care is available at costs well below U.S. and Europe.
Lawyers, architects, and engineers are accessible and affordable to assist with development. The local universities provide a large number of professionals.
The work force is also very affordable. You can have a full-time housekeeper at your home for less than $300 per month.
There are dozens of reasons why Ceará is the chosen vacation destination for Brazilians. Currently, Fortaleza and its neighboring beaches are receiving the most attention due to the low cost of properties and the potential return on investments.
Growth of Foreign Investment
According to a national survey, of every 10 properties sold, three of them are being purchased by foreigners. That means that, at this very moment, 30% of the property, especially beachfront property, is in the eyes—or hands—of overseas investors.
This growing demand is evidenced just by looking at the large number of enterprises currently under construction.
The real estate market is just beginning to boom, and the options for potential investments are numerous: apartments, residential services, hotels, lofts, lands, and condos.
Either for living or for making a living, the northeast coast of Brazil is growing fast.
Real Estate Taxes in Brazil
IPTU is the property tax. It's established locally in every city, but the amounts normally go from 0.5% to 1.5% of the evaluation of asset, depending on the use of the property and its location.
ITBI stands for real estate transfer tax, based on the value of the asset or the evaluation of it. The amount is normally 2% of the base above mentioned, having to be paid in order to officially register the change of property before a notary public. To officially transfer the asset there are some other costs involved, such as the signature of a public contract and the register of the contract at a notary public, or Cartório de Registro de Imóveis (cost depends on the value of the asset).
Capital Gains Tax
IR represents the income tax. The value depends on the amount of capital gain, since the rate goes from 15% to 25%. Note that there is a new bill establishing that in every five years a tax benefit can be used for capital gain purposes. This is generally for the seller of an asset with capital gain, and the reinvestment of the value obtained toward other real estate assets until 180 days after the sale.
Investment Guide Brazil
Brazil is a property market early in its growth curve and Fortaleza leads the way. With property growth in the region of 20% year on year – it certainly offers investors a healthy return on investment. Fuelled by great improvement in the economy and President Lula's progressive policies to be continued By Dilma the new newly elected president. Brazil is set to become a major tourist destination and a property investor's paradise.
Based on a surge in enquiries relating to Brazil, currency specialist HiFX predict in their 'Annual Global Property Hot Spots' that Brazil will be an investor's favorite in 2010\2011and according to Forbes Magazine 'Brazil is the most interesting international opportunity for investor's right now'.
Many of us have seen the growth in property markets and wished we had invested earlier or had bought more properties when prices were low and you could get the perfect property investment balance, of strong growth and strong income returns. Brazil now offers the astute investor the perfect opportunity to enter at the early stages of the market, before prices start to reflect its growing status as one of the world's most promising economies and tourist destinations.
Positive political and economic outlook
Brazil has experienced strong economical reforms over the last few years. Under the strong leadership of President Lula, interest rates have fallen from 26% in 2003 down to 11.25% today and inflation currently stands at around 4.3% after reaching a high of 2,500% in 1993.
Over recent years major companies in Brazil like Petrobras, Unibanco and InBev have recorded increased profitability, stimulated by a growing middle class community with higher levels of disposable income. Multinational companies such as the mining giant Anglo America are encouraged by the country's economic potential and are making substantial investment in sectors ranging from manufacturing, tourism and property.
According to the Economist, Brazil's role as a global energy producer is likely to increase dramatically over the next ten years. The country is already a relatively important oil producer, and following recent announcements of major offshore deep-water discoveries, the largest Latin American country will move from being self-sufficient to becoming a net exporter.
"Some locations have seen capital appreciation of more than 1,000% in 5 years," says Felipe Cavalcante de Melo Lima, president of the Association for the Development of Tourism and Real Estate in the Brazilian Northeast.
• Brazil is one of Goldman Sachs four BRIC economies (Brazil, Russia, India, China) acknowledged as one of the worlds future economic powers, Brazil is now OFFICIALLY the fastest growing emerging market in the world. These countries are set to spend an estimated $21.7 trillion on infrastructure and property.
• Brazil is well positioned to ride out any global downturn with its rich supply of natural resource, strong internal demand and the export sector enjoying extensive trade with Asia.
• Large populations, hungry for growth, stable economies and a political will to make huge changes and attract investment.
• Growing economy (annual GDP growth at a staggering 6%).
• An under priced real estate market with significant government and international investment.
• Excellent historic annual growth.
• Tourism in recent years has increased by over 400%, making Brazil the country with the highest tourist growth rate in the world.
• The world's 5th largest landmass with 7000 km of stunning beaches.
• Year round tropical climate with 300 days of sunshine a year with an average temperature of 27c.
• Friendly and inviting population.
• Increasing demand for key luxury developments outstrips supply, therefore guaranteeing land price increase of 20 – 30% over the next 4-5 years.
• An emerging middle class that can spend more on its homes, causing a huge housing deficit.
• Strong growing local Brazilian market eager to buy into European style developments.
Brazil is host to the Soccer World Cup in 2014 and is gearing up for the increase in tourism and worldwide exposure. Fortaleza in Brazil's north east has just been given the honor from football's ruling body FIFA to become a host city for the 2014 World Cup
And Fortaleza will hold world cup games along with other North east cite Recife, Salvador and Natal.
Brazil is one of the world fastest growing economies and in part this is due to its expanding tourism and its abundance of natural resources. Its recent discovery of oil and gas reserves now makes it the 8th largest oil nation on the planet. This is further underpinned by a forward thinking sovereign state that balances financial prudence with a flair for investment back into the country's infrastructure.
Brazil's land prices have been kept low by the limited availability of finance and credit, with only a small percentage of the population holding mortgages hence the mortgage market is in its infancy.
Huge increase in domestic wealth is combined with a proactive government that's investing in the country's economic security, tourism and infrastructure.
• New mortgage laws have recently been introduced allowing locals to acquire mortgages. Wide open mortgage packages are expected to be available in 2009.
• Land ownership is far more secure in Brazil than in other Latin American destination.
• The Government is investing heavily in supporting tourism projects by financing major utilities and infrastructure projects including building new airports.
• Outstanding currency appreciation: In 2002 Brazil's currency was about 4 to 1 to the US dollar; today it is 1:65 to 1 US dollar. The Brazilian reserve reached $101 billion in April 2007.
• Large domestic population of 190 million people, many of whom will embrace credit and mortgages.
• Currently the 10th largest economy but forecast to grow to the 5th largest.
• Some of the best beaches in the world with fantastic tourism potential.
• Emerging real estate market where there currently is a deficit of 8.0 million houses.
• Forecast that in three years real estate loans will rise from 2% to 7% of the GDP -39.5 to 163 billion.
On a final note
The director of the Ministry for Tourism, Hermano Carvalho, told Construction News:
"There are about 20 million people in the new middle class and GDP will continue to grow this year 2011
"We are still building hotels, resorts and gold courses. We won't stop. GDP is still growing"
Make Brazil your investment choice