ABSOLUTE gUIDE sERIES to Investment Property
Brazil
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Date of Publication: September 2008 © Obelisk 2
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Contents 5. Welcome to Brazil
Dedicated to providing impartial information.
6. Economic Growth & Stability 2008 has been one of the best years for the
14 - 15. Secondary Market
Brazilian economy.
Properties in the Natal area have seen rental yields of
7. Currency & Banking
around 10% per year.
Brazil’s flexible exchange rate has led to “significant
16. Mortgage Market
appreciation of the real”.
The Brazilian mortgage market is small but growing fast.
8. Foreign Investment
17. Market Risks
Foreign direct investment increased by 84% from 2006 to 2007.
9. Political Situation & Stability Politically stable having firmly established democracy in 1985.
10. Tourism Tourism in Brazil is expected to contribute US$88.3 billion to the economy in 2008.
11. Infrastructure Brazil airports will receive US$2.5 billion for expansion and modernisation by 2010.
12 - 13. Property Market Brazil is one of the world’s few “stand-out hotspot locations in 2008”.
Brazil presents few problems for foreign investors.
18. Purchase Process Foreigners are permitted to buy, own and rent property in Brazil.
19. Investment Costs Costs of buying are generally low.
20. Summary A buoyant economy, thriving tourist industry and booming property market all contribute to Brazil’s excellent investment potential.
21. Verdict
Brazil is a leader among developing countries.
22. Obelisk Advantage
Obelisk approaches its projects purely from an investment perspective.
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Boa Vista Belem Sao Luis Teresina
Manaus Rio Branco
Fortaleza
Cuiaba Salvador
Natal
Recife Maceio Aracaju
Brasillia
Campo Grande Londrina
Vitoria
Rio de Janeiro Sao Paulo Joinville Caxias do Sul
Porto Alegre
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Brazil forms part of the Obelisk Absolute Guide Series, dedicated to providing impartial information to numerous property investment destinations worldwide.
Welcome
to Brazil
As the market leader for overseas investment property,
provide you with in-depth, clear-cut knowledge on the
we are committed to providing cutting edge information
most important factors influencing your property
for property investors, one aspect that has earned us
investment decision in Brazil.
the award of International Property Specialist 2008 by Business Britain magazine.
In this guide you will find recent economic performance and predicted growth, a profile of the current
We are therefore pleased to present our latest Property
property market and its future potential, along with
Investment Guide to Brazil, an essential tool for the
tourism trends and infrastructure improvements. The
investor planning to buy property in this country. This
guide also includes information about Brazil’s mortgage
guide forms part of the Obelisk Absolute Guide Series,
market, the buying process and buying costs.
dedicated to providing impartial information about numerous investment destinations worldwide.
Obelisk’s Absolute Guide to Brazil offers investors objective and authoritative information to facilitate an
At Obelisk, we are only too aware of the importance of
informed decision about investing in Brazil. We trust that
extensive research into an investment destination and,
you, as an investor, will find this guide indispensable.
as part of our policy to offer investors the definitive service, this guide has been rigorously researched to
Here’s to Successful Investing!
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GDP Growth (Q2 2008): 6% GDP Per Capita (2007): US $9,695 Unemployment (Q1 2008): 8.1% Inflation (Aug 2008): 4.7%
Economic Growth
& Stability 2008 has been one of the best years for the
potentially huge oil reserves, Brazil has enjoyed GDP
Brazilian economy – the export and commodity
growth of 5.4% since 2007, and The Economist
markets are booming, strong GDP growth is forecast at
forecasts an average annual GDP growth of 4.4% until
least until 2012 and the currency sits at a 9-year high
2012. In spite of rising food prices, inflation is in
against the US dollar. In recent years, Brazil has
check and should fall within the Central Bank’s target
undergone complete economic change and looks ready
of around 4.5% (+/-2%) for 2008. The job market is
to undergo the transformation from developing
booming – 32% of jobs created in Latin America in
nation to world power. With its strong economic
2007 were in Brazil – and year-on-year unemployment
growth, Brazil, currently the world’s 10th-largest
rates in July 2008 fell by nearly 1.5% to 8.1%.
economy and one of the best performing stock markets in the world in 2007, looks set to fulfill the Goldman
Reflecting Brazil’s promising economic
Sachs’ 2003 BRIC theory, which believes that Brazil
performance, Standard & Poor, the financial ratings
(along with Russia, India and China) will become one of
agency, awarded the country the rating of BBB- in
the world’s most powerful economies by 2050.
April 2008. The rating, representing investment status, reflects the important progress made in
Rich in commodities and with the recent discovery of
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macroeconomic management.
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Currency
& Banking The Brazilian ‘real’ is currently strong and the International Monetary Fund (IMF) reported in their 2008 Article IV Consultation, that Brazil’s flexible exchange rate has led to “significant appreciation of the real.” According to the IMF, the real appreciated by 16.5% during 2007 and record strength against the US dollar has allowed Brazil to accumulate reserves. In January 2008, Brazil became a net creditor with the rest of the world, having paid off its foreign debt. Brazil’s banking system is developing at a good pace and Standard & Poor’s investment rating reflects the maturity of the country’s institutions. The IMF believe the financial sector to be generally sound and have praised the measures being taken to limit risk-taking practices.
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Foreign Companies Investing in Brazil Wal-Mart, ArcelorMittal, Epson, Fiat, General Electric, Global Crossing, L’Oréal, Repsol YPF, Unilever and Volkswagen.
Foreign Investment In recent years, Brazil has become increasingly
In April 2008, Standard & Poor stated that FDI so far
attractive for foreign direct investment (FDI).
in 2008 had reached an estimated US$12.4 billion,
According to the AT Kearney 2007 Foreign Direct
a figure that shows Brazil is on target to match the
Investment Confidence Index, Brazil is one of the
record figure of US$34.6 billion investment in 2007.
world’s favourite investment destinations and rose from seventh to sixth place from 2006 to 2007. Asian
Recent increases in commodities and energy prices
investors – increasingly present in Brazil – rank the
have boosted investor interest in Brazil, a country
country fourth as a favoured FDI destination while
rich in raw materials, oil and gas. Brazil is one of the
Brazil’s main FDI sources, the US and Europe, rate
world’s top biofuel producers and major FDI has been
Brazil seventh and eighth respectively in their list of
made in this field. The manufacturing sector,
prefered investment locations.
particularly cars – Fiat recently invested US$2.8 billion in the expansion of their plant at Betim – and
Brazil attracts a major share of FDI in Latin
telecommunications are also extremely attractive
America – according to the Brazilian investment
markets for FDI in Brazil.
agency, APEX-Brazil, 30% of Latin America’s FDI went to Brazil in 2007 and the UN’s Latin American Economic Commission reported that FDI increased by 84% from 2006 to 2007.
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Mercosur Member: Founder member since 1991 WTO Member: Since 1995 Political System: Federal Republic Ruling Party: Partido do Movimento Democrático Brasileiro, Partido dos Trabalhadores Next General Election: October 2010
Political Situation
& Stability Brazil is politically stable having firmly established democracy in 1985 after more than 20 years of military rule. The current President is Luiz Inacio Lula da Silva (first elected in 2002 and re-elected in 2006) and the government is made up of several parties including the main Partido do Movimento Democrático Brasileiro and Partido dos Trabalhadores. The next general election is due in October 2010. The current government is largely responsible for consolidating Brazil’s macroeconomic stability while increasing social spending. Brazil now has an important international presence with its participation in UN missions and its leadership among emerging nations. According to President Lula, Brazil is being transformed “into a great economy and a great nation.”
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Visitor Numbers (Q1 2008): Around 1.8 million Tourism Contribution to GDP (2008): 6.2%
Tourism Brazil received over 5 million tourists in 2007, a figure its National Plan for Tourism 2007-2010 aims to increase to 9 million visitors a year, creating 1.2 million new jobs. In Q1 2008, Brazil received 1.8 million visitors, an increase of 5% on the same quarter in 2007. According to the World Travel and Tourism Council (WTTC), tourism in Brazil is expected to contribute US$88.3 billion to the economy in 2008, an amount that is predicted to increase by nearly 56% by 2018. Travel and tourism currently accounts for nearly 6% of jobs in Brazil, which is forecast to rise substantially when Brazil hosts the World Cup in 2014. Brazil is world renowned for its myriad of attractions including its 7,400km of tropical beaches, the wonders of the Amazon rainforest and the vibrancy of its people and culture. The north east region of Brazil, centred around the resort of Natal, is increasingly popular with tourists, particularly Brazil’s wealthy population, and major investment (over US$1.8 billion) in new hotels, golf courses and resorts is underway in the area. Natal is also home to a new airport, São Gonçalo, which, when completed in 2010, will be the largest in South America.
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Tourism Contribution to Employment (2008): 5.9%
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Infrastructure Natal São Gonçalo Airport will be the largest airport in Latin America Modernisation and expansion of all airports in World Cup match destinations Investment of US$21.7 billion in roads, railways and ports Brazil’s successful bid to host the World Cup in 2014 will
Brasilia, Rio de Janeiro and Sao Paulo, will receive
provide a huge boost to the country’s tourism and will
US$2.5 billion for expansion and modernisation by
project Brazil into the international limelight. Conscious
2010.
that Brazil needs to address the current lack of infrastructure in many parts of this huge country, the
The 2014 World Cup, expected to attract over 500,000
Brazilian government has announced several ambitious
visitors, will see massive investment in infrastructure such
investment plans for the near future.
as public services – for example, hospitals and new hotels as well as stadiums in the 18 proposed match
Through the government Growth Acceleration Program,
locations throughout the country.
US$21.7 billion of public and private funds will be used to improve transport infrastructure including roads – these
Brazil has received major investment in retail
are set to receive over 75% of the investment - railways
infrastructure in recent years and the American retail
and ports.
giant, Wal-Mart, recently announced plans to invest US$1.1 billion in Brazil. Wal-Mart aims to open between
Airports are another major focus for investment. Natal’s
80 and 90 new stores during 2009 in addition to the 36
new São Gonçalo Airport is under construction and those
stores established in 2008.
in cities hosting World Cup matches in 2014 such as
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Brazil, a relatively new arrival on the international property scene, was classed in the Knight Frank International Residential Review 2008 as one of the few “stand-out hotspot locations in 2008�. Capital Growth (over last year): around 30% in the north east Average Annual Rental Yield: between 4% and 9.9% in the north east 12
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Property
Market
Brazil, a relatively new arrival on the international
Brazil is making significant progress to improve
property scene, was classed in the Knight Frank
transparency within its property market. According to
International Residential Review 2008 as one of the
the Jones Lang LaSalle Real Estate Transparency Index
few “stand-out hotspot locations in 2008”.
2008, from 2006 to 2008 Brazil registered the largest
According to the Review, Brazil’s natural beauty,
increase in transparency in Latin America (along with
favourable climate and competitive pricing means it is
Panama) and was 11th in the world, increasing its
“attractive to international buyers.”
score in 4 out of 5 categories.
One of the areas in Brazil to fulfill the above criteria is
Still classed as an emerging property destination
the north east region around Natal, currently a major
within the global market, Brazil offers property prices
focus of international investment interest centred mostly
that are around a third cheaper than European
on the coastal areas of this stunning region. Brazil
equivalents such as those found in Spain and Portugal.
releases no official statistics on house price increases,
Referred to as the “darling of emerging markets” by
but Knight Frank report, average price growth in the
Forbes magazine, Brazil is also considered by the
north east region - Brazil’s emerging luxury second
Financial Times to be “a safe investment destination
homes’ location - has been very strong over the past
that is unlikely to falter.”
couple of years and states that in 2007, prices increased by around 30%. The report goes on to forecast this impressive growth is to continue.
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Secondary
Market
Brazil’s international property market is currently led
second home markets) adds to the resale market
by the Portuguese (27%) followed by the British (15%)
potential. Demand for housing in Brazil as a whole is
and Spanish and Italians (12% each). According to
currently extremely high – Reuters Real Estate analysts
Knight Frank, “as the Brazilian second homes’ market
put the shortfall figure at over a staggering 27 million
becomes more sophisticated and is more widely
properties over the next 15 years.
promoted, it is likely that the demand from international purchasers will increase.”
With properties situated in developments in beach resorts in the Natal area seeing rental yields up to
A fundamental factor behind the growing Brazilian
around 10% a year, the rental market presents good
property market is the ever-increasing wealth among
potential in many areas of Brazil including the major
Brazilians. Brazil’s middle class represented nearly half
cities and resort areas such as those on the Natal coast-
the population in 2007 when Brazil’s millionaire
line. Rising tourism(mainly domestic but increasingly
population increased by 46%, one of the highest
international) has led to demand for quality short-term
increases in the world.
rental accommodation, with Brazil’s newly-affluent population keen on luxury holiday accommodation in
The growing number of households with sufficient wealth to enter the property market (both first and
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beach resorts, particularly in the north east region.
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According to Reuters Real Estate analysts, 27 million properties are needed in Brazil over the next 15 years to meet the demand for housing.
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Mortgage
Market The Brazilian mortgage market is still in its infancy, but the housing market has recently had an enormous boost with the introduction of mortgages for Brazilian nationals. Mortgages are currently unavailable for non-residents, although this is expected to change imminently, a move that Ken Thorkildsen, Director of Obelisk Private Finance believes will be “excellent news for property investors and will open up the property market substantially According to Joao Robusti, President of the Sao Paulo Real Estate Association, mortgage loans represent a mere 2% of Brazil’s GDP, compared to 69% in the US. However, although the Brazilian mortgage market is small, it is growing fast. Brazil’s Central Bank reported a 30% year-on-year increase in mortgage loans from August 2007 to 2008. Increasing demand from domestic buyers is boosting the mortgage market and by extension, the property market. Brazilian banks are continually introducing new mortgage products for Brazilians and lending terms are becoming more flexible. However, according to Forbes, the term ‘subprime’ is virtually unheard of in Brazil. While mortgage lending interest rates are currently higher than in many countries, it is believed that the ever-increasing demand for mortgages in Brazil will soon lead to a significant drop in mortgage interest rates.
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“Domestic demand, and in particular investment, will make a much stronger contribution to growth than in the past, supported by the deepening domestic financial markets.” Source: The Economist
Market
Risks
Property investment into emerging markets may carry
are the effects of rising inflation stemming from higher
some degree of risk. However, the degree that market
commodity prices. However, the government has
risk in a particular country affects a property
introduced inflation curbing measures including raising
investment depends largely on thorough due diligence
interest rates and Barclays Wealth Research believes
conducted prior and during the purchase process.
that inflation is still within the Central Bank’s boundaries.
Although Brazil presents few problems for foreign
Although there are few visible signs as yet, Brazil may
investors, it currently has one of the world’s least
be affected by the global credit crunch. However,
equal societies with a huge gap between rich and
Brazil seems on target for the Economist’s predicted
poor. However, the government Institute for Applied
5.4% GDP growth for 2008 and analysts believe this
Economic Research study found that the gap between
will be “sufficient to allow real incomes to rise in the
the highest and lowest salaries in Brazil fell by almost
forecast period”, a factor which will in turn lead to an
7% between Q4 2007 and Q1 2008. The same study
increase in domestic demand.
found that the Gini index (the international standard for measuring equality – most Western European
In the past, some property analysts have expressed
countries have Gini ratings of around 0.35) fell to
concern that high depreciation of the real is likely.
0.505 in 2008 from 0.54 in 2002.
However, according to the Economist, “capital inflows will remain firm and the real will depreciate only
Another concern facing the Brazilian property market
modestly in 2008-2012.”
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Purchase Process Brazilian laws and legal processes may be very different from what you are used to and Obelisk strongly recommends that independent legal advice be taken during a property purchase. Below is the standard purchase process in Brazil and issues that may affect a property purchase. Under Brazilian law, foreigners may buy, own and rent property in Brazil and are entitled to similar rights as Brazilians regarding property ownership and tenant rights. The only restrictions affecting foreign buyers in Brazil include certain areas of land subject to national and security interests. All foreigners purchasing property in Brazil require a tax identification number (cadastro de pessoa fĂsica/CPF). The CPF identifies the buyer for tax and registration purposes and is obtainable from the Brazilian tax office. The transfer of all funds for a property purchase into Brazil must be made through the Central Bank of Brazil where records are kept of the transfer. Before buying, the buyer should apply for a certificate known as ‘Certidao de Onus Reais’, an identification document for the property which states its entire ownership history. A sales contract is drawn up detailing the full conditions of the sale and also acts as receipt for the deposit paid. The final sales deed completion is normally carried out in front of a public notary. The deed should then be registered at the Real Estate Registry.
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Investment Costs Brazilian taxation is complex and subject to change. You are therefore recommended to take expert and up-to-date advice on taxation issues affecting the purchase and ownership of property in Brazil. The costs of a standard property purchase in Brazil may include the following: Real Estate Property Tax at 0.3% to 1% of the purchase price. Real Estate Transfer Tax from 2% to 6% of the purchase price. Capital gains tax: Brazilian non-residents are subject to capital gains tax or withholding tax on profits made from the sale of property in Brazil. Withholding tax is levied at 15%, except when double taxation treaties provide for tax relief. However, when profits are remitted to a tax haven (Brazil regards any country or territory with income tax rates below 20% as a tax haven), withholding tax is levied at 25%. Any income arising from property rental is taxed at the same rates as income tax, which currently range from 15% to 27.5%. All properties are subject to an annual urban municipality tax (Imposto sobre a Propriedade Predial e Territorial Urbano/IPTU). Rates vary between municipalities and are based on the assessed value of the property.
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Summary The following summary provides key highlights to consider when investing in Brazil’s property market: Brazil is currently enjoying an economic
Major Brazilian airports are set to receive
boom with predicted annual GDP growth
US$2.5 billion for expansion and
of 4.4% until 2012.
modernisation by 2010.
Brazil’s currency is strong and reached a record
Brazil is one of the few “stand-out hotspot
9-year high against the US dollar in 2008.
locations in 2008”.
Brazil ranks sixth in the world’s favourite
Property prices in the north east region
investment destinations and received 30% of
increased by 30% in 2007.
Latin America’s foreign investment in 2007. Brazil qualifies as an emerging market Foreign direct investment increased by
with prices around 30% lower than
84% from 2006 to 2007.
European equivalents.
Political stability has contributed hugely to
Demand for housing hugely exceeds
Brazil’s macroeconomic stability.
supply with 27 million new properties required over the next 15 years.
Tourism is a fast expanding sector of the Brazilian economy and the National Plan
The mortgage market is expected to open
for Tourism aims to ensure annual visitor
up to non-residents in the very near future.
figures of 9 million. Brazil’s property market is increasingly Infrastructure will receive a major boost from investment for the World Cup 2014.
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transparent and buying costs are low.
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The Absolute Guide Series Rating
Based on our extensive research, Obelisk has introduced a 5 star rating system to summarise the investment potential of a country. The availability of finance, economic stability, political stability, the strength of the local market to provide an exit strategy and the potential to earn from investment are the key criteria that determine the investment grade of each country.
Verdict Brazil is currently undergoing one of the most remarkable transformations in the world. It is a leader among developing countries and an emerging world power, expected to be amongst the global economic giants by 2050. The Brazilian presence in the international financial and commodity markets has expanded hugely based on the country’s large and developed agriculture, manufacturing and mining industries, and sizeable services sector. Already a major exporter, Brazil’s economy has recently expanded still further with the bio-fuel industry. The recent discovery of huge oil reserves off the Brazilian coasts means the economic future is even more promising. Brazil’s booming economy has led to increased affluence among the population whose middle class has expanded considerably and whose number of millionaires was one of the fastest growing in the world in 2007. As a result, the demand for quality homes from Brazil’s wealthier population has increased and the Brazilian property market has excellent potential. Based on thorough research we have carried out on Brazil, we at Obelisk believe that Brazil is a good option to explore for overseas property investments, promising high capital growth and return on investment.
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Obelisk
Awards Obelisk ‘International Property Specialist 2008’
Advantage
Voted International Property Specialist of the Year 2008 by Business Britain magazine, Obelisk has been recognised as the authoritative voice within the industry and its clients benefit from the company’s uncompromising high standards and professionalism. Obelisk has identified a simple and transparent purchase process for its clients as a simple, four step process: 1.
The client chooses and reserves the unit that best suits their investment requirements, and Obelisk takes the client through a compliance procedure.
2.
An independent lawyer, sourced and appointed for the client by Obelisk, will have already carried out full due diligence on the project. They will issue all purchase contracts and paperwork to the client.
3.
On receipt of this contract, the client will sign and make the first payment. The lawyer will notify the client of all further payments when required.
4.
The appointed lawyer will also represent the client in all aspects legally required within the country of purchase, ensuring that clients of Obelisk enjoy the benefits of simple and hassle-free real estate investment.
For more information about Obelisk’s investment opportunities in Brazil, contact us now on info@obeliskinternational.com, visit our website at www.obeliskinternational.com or call us FREE on 0808 160 0670 (UK) or 1800 932 514 (IRE).
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Disclaimer The material contained within this document has been prepared for information purposes only. Information contained herein is not to be relied upon as a basis of any contract or commitment. The information is not to be construed as an offer, invitation or solicitation to invest and opinions expressed are based on market conditions at the time of print and may be subject to change without prior notice. Information contained herein is believed to be correct, but cannot be guaranteed. In case of queries or doubt you should consult an independent investment adviser. No personal recommendation is being made to you and the past is not necessarily a guide to the future. The brochure in its entirety – text, images, marks, graphics, logos, buttons, combinations of colours, and the structure, selection, ordering and presentation of its content – is protected by the legislation on intellectual and industrial property, it being forbidden to reproduce, distribute, publicly disseminate or transform it, except for personal private use. It is also forbidden to reproduce, relay, copy, assign or broadcast, in whole or in part, the information contained in this brochure, for whatever purpose and by whatever means, without written consent.
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Call us free from UK: Tel. 0808 160 0670 Call us free from Eire: Tel. 1800 932 514 For general and international enquiries contact us at: Tel: (0034) 952 820 319 Fax: (0034) 952 825 790 Alternatively you can email: info@obeliskinternational.com or visit: www.obeliskinternational.com