With rocketing inflation rates now relegated to the history books and a blossoming economy, property investment in Brazil looks hot, says Lucy Davis
After decades of financial uncertainty, Brazil’s new-found economic stability has led some to proclaim that the world’s fifth largest country will be one of its future financial leaders.Recent reports that it has discovered sizeable new reserves of oil is an exciting prospect for the government – and of course for investors too. Oil aside, the economy is in good shape, as high commodity prices, pushed by demand from China, have brought in currency and created jobs over the last year or so.
Foreign investment doubled last year to US$34.6 billion, and Brazil’s currency, the real, recently hit a nine-year high against the dollar. The company’s GDP is projected to grow steadily too, with an increase of just under 4 percent expected during 2009.
The economic outlook wasn’t always so rosy for South America’s largest country. The nation of beautiful beaches was once renowned for its galloping inflation, which reached, almost unbelievably, 933 percent in 1988. However, President Luiz Inacio Lula Da Silva appears to have brought the situation under control, and inflation currently stands at a much more respectable rate of around 4.5 percent.
As unemployment falls and wages continue to rise, more Brazilians are finding themselves with extra money to spend, and the number of houses bought with mortgages rose 72 percent last year, an all-time high. Would-be investors need to know, however, that the mortgage market remains underdeveloped, so much so that as yet foreigners cannot borrow money from local banks. You will have to arrange alternative financing if you are not paying for a property upfront.
Drawn by the fine white-sand beaches, balmy weather and its famously colourful carnivals, tourists continue to flock to Brazil in their droves. The tourism sector ended the first four months of 2007 with record figures in both the number of domestic arrivals â€• up by a staggering 30 percent â€• and the volume of foreign funds coming into the country. Due to Brazil’s escalating popularity as a tourist destination, the demand for short-term rentals is increasing. Driven by the low cost of living and sunny climate, there is also a marked increase in foreign property ownership, as tourists opt to buy their holiday or retirement homes.
Thankfully, that dream house won’t break the bank. Property in Brazil costs around HK$2,437 per square foot with rental yields of between 8 percent and 12 percent.
A 538-square-foot apartment in the country’s largest and richest city, São Paolo, will cost around HK$390,000. For a property of this size, in the heart of town, you can charge rent of approximately HK$3,000/month and expect yields of 9.6 percent per annum. Larger sized units generally have lower yields (5.4 percent to 7.2 percent). When it comes to the suburbs, rental yields for a 538-square-foot apartment are between 4 percent and 8 percent.
Investing doesn’t begin and end in Brazil’s business hub, however. Rental yields for apartments in cities such as Fortaleza, Bahia and the capital, Brasilia, are around 4 percent to 7 percent, and as with São Paolo, canny investors are purchasing smaller units, which are more in demand, to guarantee solid returns.
While properties in Rio de Janiero are considerably more expensive than you’ll find in São Paolo – expect to pay around HK$535,000 for a 538-square-foot apartment – you can also charge HK$4,600/month in rent since legendary beaches, such as Copacabana and Ipanaema are right on your doorstep. Another destination worth considering, that’s proving increasingly popular with expatriates, is the beachside city of Natal, where you can pick up a 1,225-square-foot apartment for just over HK$1 million.
Before you rush out and buy in Brazil, there are a few important factors to consider. Foreign nationals need the approval of the Brazilian government when acquiring property, and a tax registration number from the Cadastro de Pessoa Fisica (CPF) is required before you are permitted to purchase. Before you shake on a deal with an estate agent, make sure he is charging the average rate, which is normally 6 percent of the property. The registration fees amount to around 2 percent of the property’s value (total transaction costs around 12 percent) and completion usually takes around 47 days.
Click here for international property listings and reference articles