Buying Brazilian properties as an investment is becoming increasingly popular for a number of reasons. Underlying them all is the resurgence of the Brazilian economy. Brazil recently announced that it had become the world’s seventh largest economy after having expanded 7.5% in 2010, the strongest growth in 24 years. Brazil’s GDP now stands at 2.1 trillion US dollars with a per capita income of $11,185 and depending on how you do your sums Brazil may already be the world’s fifth largest economy, ahead of France and the UK, according to Finance Minister Guido Mantega.
Of course the other major reasons for wanting to invest in Brazilian property are the fantastic climate, the vast and beautiful landscape, thousands of miles of coastline (the 16th longest coastline in the world) and its wonderful, friendly people.
- Brazil will be the host for the 2014 Football World Cup;
- Brazil will also be the host for the summer Olympics in 2016;
- Rio de Janeiro hosts ‘Carnival’ every year with around 1,000,000 tourists attending.
Over the past few years buying a property in Brazil has become something of a hot topic among property investors and buyers of holiday homes. The property market in Brazil is currently expanding and flourishing due to the large demand for new homes. Most of this demand comes from the rapidly expanding middle class which has seen a 65% increase over the last 5 years. Demographically the middle classes now make up over 50% the Brazilian population. With suggestions of a shortfall of over 9 million homes compared with demand, the Brazilian property market is buoyant.
The new middle class in Brazil and foreigners are all looking to buy property usually a couple of hours north of Rio.
There has never been a better time to invest in Brazilian property with returns on investment considered some of the best in the world. A quick look at some of the properties on offer will reveal a fantastic choice of property, location, budget and investment type.
Whilst it is possible to get involved on a large scale with grass roots development of residential dwellings, most overseas investors are more interested in the holiday homes market, whether as a buy-to-let investment or as a second home in the sun. Whatever it is you’re looking for, you’ll find it in Brazil.
Where are people investing?
If you are not familiar with Brazil then its vast size can be overwhelming. Where would you start looking for a good investment property? The map below shows the different states within Brazil, with popular areas the beachfronts of states like Bahia and homes within gated communities from Natal, Rio Grande do Norte which is often considered one of the safest areas of the country, moving through to the city of Fortaleza in the state of Ceara.
Note that 6% is what the German investment market considers to be the basic level of return required for any decent European market. The Germans value using the discount cash flow (DCF) method and use 6% at a capitalisation rate as standard. Compare that to the UK market where large property investors often use cap rates of 4% or less, which are in general unsustainable and best case scenarios for valuation purposes. The Australian commercial property market analysis follows a similar rule to the Germans. You may note that both the German and Australian property markets have not taken a huge hit during the current recession which is partly due to prudent market analysis in the past.
Rio de Janeiro and São Paulo
Rio de Janeiro and São Paulo are the largest and most famous cities in Brazil, and as such they probably represent the safest investment opportunities. Prices can be high however, especially in the desirable areas. However, rental levels in Rio for example are comparable to many European cities with demand for well-located apartments rising rapidly. Note you would also gain a super rent annually during Carnival. Investing in São Paulo is a brazen concept for many given the level of crime and location far from sunny beaches; this is probably a location that should be left to local investors who know the market well because they live there.
Rio Grande do Norte
Areas in the north of Brazil are relatively underdeveloped and offer investors the possibility of higher returns and a greater potential for growth. Rio Grande do Norte is currently attracting interest from investors as it expands its tourist economy and develops a supportive infrastructure. This area has breathtaking natural beauty with lush tropical rainforest sweeping down to some of the finest beaches in the world. Confidence in this area is high and some agents offer guaranteed returns of up to 6% on investments.
Ceará is a popular tourist destination in north-eastern Brazil with seemingly endless beaches and unspoilt countryside beckoning tourists from across the globe. The development of tourism in the area is a recent innovation and it has been the recipient of huge government investment to promote this previously isolated region. Now enjoying good international connections via the Pinto Martins International Airport, Ceará offers strong investment opportunities with new, top-end property developments being snapped up by overseas property buyers.
Pernambuco is a well populated area which enjoys a thriving tourist trade. With comparatively low property prices and good transport connections to Europe, Pernambuco has some great opportunities for potential property investors.
Pernambuco’s capital city is Recife, one of the largest cities in Brazil with a population of over 1,500,000 residents. The ubiquitous sandy beaches lapped by the warm waters of the Mid-Atlantic attract visitors and property investors to the area from across the world. With a solid infrastructure of hotels, restaurants, transport and other services this area is ripe for further development. The entire coastline of Pernambuco is lined with beaches, each with its own character to suit individual tastes; try Maria Farinha for water sports or relax on Porto de Galinhas, said by many to be the best beach in Brazil.
As opposed to areas such as Rio Grande do Norte which seek to exploit the low cost tourism market, Alagoas is where Brazilians go for their holidays; simply stunning beaches, a relaxed atmosphere and sympathetic building control all make for a location that has great appeal for the potential investor looking for something extra.
Most of the hinterland of Alagoas is planted with coconut trees and sugar cane and the result is breathtaking rolling green landscapes. Many of the beaches are fringed with coral reefs making the area very popular with snorkelers and scuba divers as well as surfers looking for a swell coming in off the Atlantic. The state capital of Alagoas is Maceio, a cosmopolitan and vibrant city with a great nightlife. Maceio is an exceptionally clean city of tiled buildings and wide avenues. The beachfront features a wide, tree-lined promenade that is a favourite haunt of both locals and tourists. Perhaps the most outstanding feature of Maceio is its location, snuggled along a beach that stretches for over 200kms.
Bahia is another property investment hotspot on Brazil’s fast developing north-east coast. The state capital of Salvador is the largest on the north-east coast and third largest city in Brazil with a metropolitan population of nearly 4 million people. Salvador is also known as Brazil’s ‘capital of happiness’ due to its laid back atmosphere, easy going people and countless outdoor parties. They take their pleasure seriously here and Salvador also hosts a massive street carnival. As in other north-eastern states, a great deal of investment has gone into developing the infrastructure to support the booming tourist economy. This includes a new airport and considerable road improvements. Bahia enjoys year-round sunshine, those same amazing beaches and a vibrant culture centred on music, carnival and festivals. There are government incentives to actively encourage foreign investment into the area. Property prices in Bahia remain low and capital growth is expected to continue upwards at the same current, unprecedented levels.
Unless you live and work in Brazil or have a residency visa you may find a mortgage hard to get on property in Brazil. The easiest method of obtaining a mortgage is by utilising the local branch of an international bank you have been a client of in the UK, for example HSBC.
There is another reason to invest in the north eastern coast; it is the closet point to Europe and there are flights we found for around £650 with Air Portugal with one stop-over.
Investing in Brazil is not an easy concept unless you live and/or work there or do not require a mortgage to do so. There are other methods to invest through funds and UK-based property companies selling property in Brazil such as Savills. It is a strange and fickle market though, with house prices in Rio de Janeiro rising by 80% from 2010 to 2011 while São Paulo house prices have moved 83% over the last three years. On another more personal note on costs, I personally had to buy a jumper/hoodie in Rio de Janeiro as mine was stolen so I went for a ‘cheap’ surf brand Billabong and that was the equivalent of $200 USD. It is not a cheap country.
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