Investment Strategies

Short Term Investment Strategy
Key Opportunity
As we have been saying before, Brazil is one of the best emerging markets in the wolrd with a great tourist potential such as climate or environment which attracts and encourages all kind of investments. Brazil is turning into one of the favourite targets for Europeans and North Americans when it comes to invest money or just for tourism. Prices are very low, but they will not remain low for long. You will see the price of a property rise rapidly as soon as the construction process progresses. You can get here a very simple rule, the sooner you buy, the more returns you will get if you plan to resell your property. Currency exchange is exceptionally favourable at the moment, making it cheap for foreigners to invest or buy a property, this way, investing in property instead of buying Brazilian Reais (plural for Real) will make you save huge amounts of money when it comes to changing a vast quantity of currency.

Timescale
Investors should know that the average term of investment should be between 12 and 18 months (from reservation to resale) as the average construction time in Brazilian projects is now 18 months. The most common method of paiment is divided into four different “episodes”. The first one, around 30% with the signing of the contract, second one of 20% on skeleton structure, another 20% upon completion of the roof structure and a final 30% when the construction is completed.

Key Risks
One important thing when investing large quantities of money is of course consider all kind of risks. The main point when dealing with properties is knowing how attractive can it be for potential buyers, because if your property is considered as magnificent or outstanding, risks will be practically inexistent. It all depends on the location, the proximity to the beach, the surrounding facilities, etc. As Brazil is still an investment markets, many of the civil projects are not completed yet, which are expected to be finish between 18 months and 2 years time. Such a developing area must have large numbers of contructions going on. Investors need to watch out what locations may have an oversupply of properties if their idea is to resell that property once it is finished. If the property you are about to buy is located in a torist resort, try to find out what facilities will it have and how far are the ones that it lacks. Many investors resell the properties even before the completion of the property has ended. If you are not able to resell it prior to the completion of the construction, do not worry and be patient, it will be sold.

Medium to Long Term Investment Strategy - Key Opportunity
While pre-release and select off-plan prices continue to remain competitive, Brazilian capital appreciation will continue its healthy growth for many years to come. As the Brazilian economy continues to thrive and the middle class continues to strengthen and expand it will be accompanied by an increase in demand for primary and secondary residences. Due to the infancy of the market, projects are currently being developed in prime locations, close to towns, tourist attractions, lagoons and beaches on previously undeveloped land. As the market develops, natural decentralization around these locations will lead to later developments being built in less desirable locations, resulting in lower returns on investment.

With regards to rental opportunities for popular locations such as Natal and Fortaleza, the demand is currently increasing steadily and projections are also for a healthy increase. The government is investing heavily into infrastructure in the area to improve living conditions to entice both permanent and transitory residents to the areas. Most notable amongst these investments is the 50.7 million US$ spent on the new bridge over the Potengi river, renovating Ilha de Areia Branca port, creating an access to Sao Goncalo do Amarante airport, expanding Natal port and doubling the capacity of highway RN-063 by widening a stretch between Nisia Floresta and Sao Jose do Mipibu.

In addition to this investment, the construction of the new airport itself is estimated at over 150 million US$. The International airport of Sao Gonçalo de Amarante is scheduled to be complete by 2010 and the Brazilian Government and BNDES (Brazilian bank responsible for the development of the northeast) has estimated that around 5 million annual arrivals will land at the new International airport in Natal as opposed to the 1.3 million registered in 2006.

Since 2003, the number of both domestic and international visitors travelling to Fortaleza and Natal has increased massively. 3.25 million passengers arrived in Fortaleza in 2006, which is an increase of 1.4 million (76% increase) when compared to the arrivals of 2003. 268 thousand were international visitors, which represents an increase of 72% compared to the figures from 2003. In Natal, the increase of international visitors exceeded an amazing 148% increase in the past three years, rising from 101 thousand arrivals to 250 thousand per year.

Whereas the increase in international visitors to Brazil between 2003 and 2006 was 19%, the increase for the whole Northeast region was a staggering 32%. With the ongoing investment into the infrastructure this is sure to continue to rise over the years to come, providing the resorts and developments in the region with a steady flow of rental demand.

Safety
Due to the sheer size of the country and the diversity available it is easier to be in a safe area than to find a high risk area. Most of the developments currently being planned are a long way away from major cities and therefore as safe as any European country. Due to the Brazilian disposition however, many small Brazilian villages can even be more welcoming to outside visitors than your average European village. Welcoming disposition notwithstanding Brazil, similar to any other country, has safe locations and less safe surroundings. The slums or “favelas” in major Brazilian cities are, similar to anywhere else in the world, best for tourists to avoid.

Timescale
Depending on if the developer is Brazilian or an international company, the construction time of any given development can vary greatly. Many times, the lengthiest part of the process starts after acquiring development rights to the land until the actual construction begins. Brazil has very strict ecological laws when it comes to developing coastal land. Aside from the normal legal process of buying the land and having the architectural plans approved, the project is required to pass inspection by up to four different official Ecological agencies before the construction license is granted. Once the license has been granted and depending on the size of the development, construction time can take an average of 2 years. While this 2 year period can be enough to ensure a healthy return on investment, the ideal situation is to plan a 3-5 year strategy.

While the returns on short term investment can be very appealing, the returns expected over the next ten years in Brazil point to much higher returns. There is currently no option for financing in Brazil and full payment is made over the length of the construction. The optimum choice for investors is the lowest possible initial payment with a high end payment however the more common available projects require a 30% payment on initial contract followed by 30% during construction and a final 40% on completion and hand over of the title deeds.

As with any overseas property investment, once you have decided on the property you wish to purchase, you will require legal representation to ensure that your best interests are protected at all times. The first and foremost concern should be to carry out a full due diligence inspection of your chosen property. While IPW does our own due diligence checks on any project which we promote, including checks on the legitimacy of the project, solvency of the developer, etc, every overseas property investor should perform their own due diligence on the development of their choice, either through their legal representatives or by any other research tools they see fit.

By appointing independent legal representation, the client can be sure that all necessary paperwork is in place before signing purchase contracts. Bank Guarantees are not common place in Brazilian property developments; however many reputable developers have either Bank Guarantees or Insurance Guarantees in place to protect investors’ interests.

Once the due diligence checks have returned favourably, a private contract will be prepared between the developer and the investor which will specify all of the terms and conditions including delivery date. Upon signing this contract, the investor makes a non refundable payment is made (an agreed percentage of the sales price minus the original reservation deposit).

The property sale process is finalised before a public Notary with the investor and a representative of the developer signing the Title Deeds. Once this document is signed, the investor receives the keys to the property and takes possession. Property ownership is 100% freehold in Brazil.

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