Brazil's real estate market beckons investors

Rich resources and a growing economy make buying property in the South American country attractive for people in the Gulf

• By Nicole Walter, Senior Reporter
• October 22, 2010

• Rio de Janeiro. The middle-income class can afford homes of $100,000 to $300,000 and these are being snapped up in Rio de Janeiro.
• Image Credit: Getty Images

Dubai:  The World Cup 2014 and the Olympics 2016 may seem far away but GCC investors recognise that now is the time to get into the country's real estate sector.

"The country is very high on our agenda for investments," said Rakesh Patnaik, executive director real estate, TFI, subsidiary of Barwa Bank Qatar.

"As GCC investors we see the World Cup and Olympics as very positive for value creation, which starts now and can only go up until the events take place," he added.

Brazil has a strong case besides the major events taking place in its country. As Patnaik said, out of every $10 (Dh36.7) of foreign direct investment (FDI) into Latin America, $8 flows into Brazil.

The country's size, rich natural resources, and varied economy have made it a major player on the global scene. Coupled with political stability and a clear economic policy, which has succeeded in lifting many into the middle and upper-middle class, the country looks like a low risk investment as well.

Presidential elections are in full swing, but André Gutierrez Pereira, head of urban development, technical advisory, Sao Paulo City Hall denied any notions they could imply change for investors.

"The laws, such as for the financial market, have been stable for the last 15 years. Whoever wins is likely to implement the same policies as they have proven successful over the last couple of years," he said.

Investor sentiment

Paulo Gomes, chief strategy officer, Pramerica Real Estate Investors Latin America confirmed the sentiment as an investor. "These are major elections but different from other times. The outcome this time will be almost a non-event for the financial markets. There may be a slight change in policies but nothing major," he said.

The seeds for a sustainable property sector have been sown. "The President has helped a lot of low income earners to move into the high income bracket, and they want new homes and a new life, so a lot of housing is needed," Cecilia Reinaldo, managing director, Fine & Country, Middle East, told Gulf News.

The middle-income class can afford homes of $100,000 to $300,000 and these are being snapped up in Rio de Janeiro, for example. It isn't about flipping property but a stable rental income.

"We're focusing on projects around the Olympic Games. Most of the off-plan properties in Downtown Rio are sold out as the local demand is very real. In Dubai we're offering more of an education as there is a lot of curiosity about buying property in Brazil. We have quite a few clients based in the DIFC," said Reinaldo.

A two-bedroom apartment close to the Olympic Village and beach starts at $170,000 and can yield yearly rental returns of 12 to 15 per cent. "We deal with local developers in Rio de Janeiro. An investment offered needs to be sensible, some foreign developers promise up to 200 per cent returns and that is simply not real," Reinaldo said.

The government keeps an eye on property ownership. In Brazil one needs to have the National Taxpayer Registration (CPF) number, the main citizen identification document in Brazil to buy and own.

"You can get a CPF number as a foreigner. It assures sustainability on the legal side. One can't just run away with the money, but the consumer is protected. Equally any reservation form issued by a developer is a 10 page document explaining all the details of the property," Reinaldo added.

Larger scale

Real estate investments on a larger scale can be found in Sao Paulo, the country's financial centre, a significant research and development as well as major logistic hub for South America. And with 22 million people contributing 30 per cent to Brazil's GDP living in this mammoth city the demand for real estate is constantly rising.

"Urban growth is a big challenge for us, all the jobs are in the downtown area causing traffic jams with thousands of people commuting daily from the suburbs," said Gutierrez Pereira.

We got rid of most of the slums but there are social problems in the suburbs, where we plan to provide jobs and transport and at the same time we have to conserve the greenbelt of the city, he added. "The trick to lure investors into these areas is dishing out fiscal incentives," he added.

As far as other major centres in Brazil are concerned, Gutierrez Pereira said, in particular the middle and south of the country needed more retail and hospitality offerings.

"We're very much interested in what's happening in all major cities, there are two dozens of them in Brazil. We take a long-term view and participate in all segments of real estate from industrial to housing," said Gomes. Reinaldo warns that although Brazil is ticking all the boxes, such as expectations that economic growth will continue, nothing in life is forever.

Foreigners

"One needs to be able to get out and I fear projects, like land plots sold in the north-east by foreigners could suffer," she said.

Patnaik sees his exit strategy in Sao Paulo's stock exchange. "We invest in US dollars and the exchange rate with the Brazilian real is very positive. The currency is good for an exit strategy. The country has a very active stock market and that creates opportunities to exit via a listing strategy."

Although Brazil's strong FDI certainly helps, Gomes pointed to the growing internal consumer base and active investor strength, strong pension funds, retail and stock markets.

"All of that helps exits in the real estate market whether malls, offices the exit strategy is clear," he said.

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