To make a great Brazil Investment does need some good thought. For what it’s worth, here is an insight to my own personal logic that I have used to make my Brazil investment s and what I have learnt over the years.
Cheap land Brazil investment that seems ‘very cheap’ or ‘too good of a deal’ is normally a sign as not a good investment. Reason for very low investment prices in Brazil, is normally because it’s in the middle of nowhere. A property in near-isolation is never going to be a good investment!
We know Brazil is a large country and it has a mammoth 7,400km of coastline to match, so it is easy to end up with near-isolation. Where's the nearest shop, bar, restaurant? If you cannot answer that question then how are you going to sell your property on to a subsequent end-user?
A good rule of thumb is that if Brazilians have bought in the area, then it has something going for it, for this is a nation with famously good taste. Property in popular towns with laws protecting them from overdevelopment are the most lucrative option, beachfront or not, particularly if there are plenty of local activities to attract and occupy the tourists.
- When looking for a great future Brazil investment in up and coming growing areas, it is important to look at the whole geography location of the town. For example;
What is the neighboring town like? If it is already very popular and a more expensive area, then there’s a great chance that its success will ‘ripple’ into the next town.
Does the town have abundance in land space? If it does then the value investment growth will be slower due to higher supply. Many towns in Ceara have less limited space than others due to protected dunes or lagoons for example. This can then create lower supply and higher demand resulting in higher investment value.
Is the town clear of poverty and crime? If the answer is no, then the town will restricted to grow to any great value for many years to come.
- Many developers and certainly most real estate companies (some knowingly but most Not knowingly) have much misleading marketing material for their developments/properties etc. Most common are;
Distances, a true 2 hour drive to the city is often written as a 1 hour drive.
Where a stroll to the beach is written is often a 2KM hike to the ocean.
Where ‘our team of lawyers have done strict due diligence’ is written, often just simply means that they can legally sell what they are selling.
'The Land has full building planning to build your chosen house'! This is also a crazy statement to make. 'The town hall has ear marked a section of land for building' is how the statement should be written, IF the town hall passes the land to be sectioned into ‘quadra’s’ and ‘lotes’. But to get an actual building permit to build a house, an actual house design with full details needs to be applied for. To gain a building permit also takes a cost and patience. So how can the land have a building permit before someone has bought the individual land plot, the land plot being registered, the new owner has even chosen a house design to apply for!
- One of the more worrying Brazil investment products that are getting more common, that normally go together with my pointers on number 1 and 3, are developers that buy huge portions of land very very cheap. So cheap because its miles away from anyway without any infrastructure in place.
Developers can buy this type of huge areas for somewhere near just R$2 per meter square, then they go into the process to sub divide the land into 100’s of small land plots of say 450M2 (just big enough to build a house on). The developers will then sell these small land divisions to unsuspected buyers for huge profits at prices per meter square, near to price rates that are sold for land that is in developed popular areas much nearer to the city.
The developer will also often state that they are building infrastructure, right next to where the land plots for sale are, a hotel or/and a leisure center with shops etc etc. This to convince you that the already over priced plots are going to hugely increase in value, to make an excellent investment.
The basics of a good investment, is simply ‘supply and demand’ no matter how beautiful the area may be. A hundred hugely over priced small land plots all for sale in the middle of nowhere is never going to be a wise investment.
- Has your chosen estate agent ever been to Brazil or are they simply regurgitating a mixture of the developer's marketing material and Wikipedia? Be very wary of this. Many Overseas real estate company’s simply have very good sales pitches and techniques to wheel in the client. Most have never even being to Brazil and definitely do not know what they are actually trying to sell to you. And of cause they will lie to you to ‘close a sale’.
It's much better for you, the customer, if your agent actually knows the areas so can cast a critical eye over the location and qualities and is able to offer their considered opinion. Your estate agent is there for advice, guidance and information and should have thorough product knowledge. You are entitled to have sight of all information such as licenses, contracts, plans and so on, and any documentation issues.
- Are huge multi giant developments a good idea for your Brazil investment ? To my mind, I think not. When I was first scouting Brazil for investment potentials in 2005 and 2006 I looked into many of these giant developments in the North East of Brazil. Many of these huge developments (by foreign developers) are still not built now. Some had folded even after taking peoples deposits and some are still years behind with the investors of these apartments etc still without a property never mind an investment.
It is clear to see now that so many of these foreign developers just totally under estimated just how long and difficult it would be to gain ALL the licenses required. To gain town hall approvals is one thing, which is a point where many developers wrongly start to try to sell their developments, but to gain all environmental licenses is completely another aspect, which can certainly take years to gain and can take many redesigns of the project before being granted.
The bigger the development the harder the environmental licenses are to obtain. Brazil is just very strict on what is built on its beautiful coastlines, and rightly so.
- I have 2 main logic thoughts when I think about large developments as an investment;
(i) Would a Brazilian want to buy one, would a Brazilian want to live in seemingly holiday complex full of foreigners. The reason I think this is because the sell on investment is much more difficult if can only sell on to another foreigner, this being only 3% of the market. It is obviously better to sell in a market that can attract 100% of the market, both the Brazilian internal market and in a area that is also attractive to foreigners.
(ii) Again, simple supply and demand. Having many properties for sale in the same development does not bear well for an investment. With this being a more likely case in a huge development bought by many as foreign investors.
- So if buying into off-plan developments, I certainly believe it to have a safer investment potential if in a smaller development. But still be very cautious, you are still buying something that you cannot see exactly what you are buying because you cannot see the finished article.
Off plan photo impressions can be misleading, will the finished product be as good, what standard will the materials be, does the developer have a track record, will it even be built etc etc.
- If buying off-plan, DEFINITELY use an independent lawyer that practices in the same state in which you are buying. Ensure that;
(a) Completion dates, when the property will be registered into your name, quality finer details and advertised equipment/services are clearly written in the purchase contract.
(b) Contracts need to be written in both English (or your natural language, so you can fully understand it) and in Portuguese. IMPORTANT, a contract needs to be written in Portuguese for it to be law binding in Brazil, make sure that the contract signed by the developer is authenticated in Brazil !
(c) Your money going into Brazil direct from YOUR bank account. Funds transferred to Brazil will be automatically registered by the Banco Central to conform with money laundering regulations. This paper trail is important when it comes to reselling and getting your money back out, and will be much smoother if needing the Brazilian law to claim a refund due to developers faulting contracts etc.
- Are you paying over the odds for an off-plan development? How does it compare with a like for like resale house or apartment? To my opinion an off-plan developments should be at least 20% lower than a resale, because of the risk factors and because you cannot live in it or rent it for whatever years. For much of my findings I found many off-plans that are targeted to foreigner buyers can be about 20% higher than a similar resale.
And now in hind sight, many developments that have being completed, the investors are struggling to ‘flip’ their property investment for a worthwhile profit as they had already paid over the odds of a true market value.
- Is a guaranteed rental deal with the developer worth it? Is the 'guaranteed' rent gross or net of condo fees, bills and even commissions? How long is the income guaranteed for? How much private use of your property does the rental contract entitle you to? Is the 'guaranteed rental' actually funded by you as you've paid an artificially inflated purchase price?
Read rental contracts carefully and do your research. Better to invest in an area with an active rental market or great facilities to attract tourists, then, whether the rental is guaranteed or not, you stand to make good money regardless.
- You also need to be wary of many resale properties. Even though you have an advantage that you can see exactly what you are buying, can use the property to live in or rent straight away and can be much cheaper, many resale properties can have documentation issues.
For example, some land plots are only owned by contract and not have official land registry, or any constructions not being officially registered on the land. Make sure that your agent proves that all documentation is in perfect order or fully explains if any outstanding issues.