Land and Property Investment Opportunities in Brazil
Why purchase property in Brazil?
- Brazil is one of a few countries that allow foreign investors to buy land and property in their own names on a 100% freehold basis.
- The real estate business and property purchase process for foreign investors is straightforward compared to other countries.
- Currently Brazil is experiencing strong economic growth with stable increases in GDP per annum.
- The growing tourism industry prompts continual rise in capital gains and high rental yields across the country.
- Improved air transit times are making Brazil a more accessible location for short term investors and traders.
- National housing deficit maintains a strong domestic real estate market.
Who can purchase land and property in Brazil?
Options for purchasing land and property as a foreigner are straightforward and primarily relate to the location. Under civil code any foreign investor may purchase urban land and commercial or residential property on urban land without restriction.
However to purchase rural land and property on rural land, foreigners must hold a permanent residence visa and already have established ownership of urban land. So if buying in a quiet coastal or border regional area is part of the dream then additional cost and requirements will need to be considered.
Urban land and property options, cash in with no restrictions
Purchasing urban land and residential property – Whether you are looking to purchase urban land or property for personal residence or straight investment gains, the prerequisites and process for foreign buyers is the same and can be initiated before entering Brazil.
Birth certificate translated into Portuguese and Notarized – The official translation can be notarized by the consular of the Brazilian Embassy in the buyer’s home country.
Provisional Brazilian Individual Tax Number – (CPF) Cadastro das Pessoas Físicas A provisional CPF can be obtained at the Brazilian Embassy in the buyer’s home country upon having the translated birth certificate notarized.
Certificate of Solvency – This can be obtained by the buyer’s bank in the home country or registered auditor if planning to purchase through a company.
Brazilian Bank Account – Upon entering Brazil the buyer must obtain a national bank account number to receive a formal CPF. The buyer may open either a current or savings account with any registered bank of Brazil (Banco do Brasil).
Buying urban land and property for personal residence, security vs initial outlay
If the purpose of buying residential property is primarily for personal residence with long term security then the chances are location and property aesthetics will be important considerations.
For buyers that plan to not relocate permanently and use the property to generate income whilst residing elsewhere, guaranteeing minimal variation in ongoing payments on a set period of investment will also be just as important. If immediate relocation is not necessary the decision to buy existing or off-plan property implicates key financial considerations.
Existing property and fixed cost purchase – Private purchase generally involves full payment of the property following an initial deposit of 10%. Payment must go directly to the seller via the Central Bank of Brazil which acts as regulatory and provides a level of security with foreign investors.
The process also means that upon obtaining a CPF on a previous visit, foreign investors are free to purchase from abroad. Buying existing property increases investor security by eliminating risk associated with fluctuations in regulatory indexes.
It is also beneficial for buyers who are looking for stable capital gains, but want the option to sublet immediately upon purchase.
Off-plan property and instalment schemes – Off-plan purchase schemes often allows for more creative input with the final design which can benefit buyers planning to use the property themselves long term.
Buyers can pay in instalments of 12 to 84 months subject to variable interest rates with an initial deposit of anywhere between 10 to 40%. Prices of condominium style properties in the pre-construction phase of development can be up to 40% cheaper than its price upon completion due to the risk involved, but does limit freedom to sublet immediately.
Payments are not fixed and follow changes in both the National Index of Civil Construction (NICC) and General Index of Average Price (IGPM), which are susceptible to general economic trends and sudden market collapse.
Buying urban land and property for short term investment, small is big
Buying property purely for investment growth is also still justified despite signs of a bubble possibly occurring in the future. Coupling the reduced initial outlay of off-plan property in the pre-construction phase with the high rental yields possible upon completion, offer attractive incentives to purchase.
Buying through developers also allows foreigners to own prime coastal locations without the limitations associated with residence and rural land ownership. Annual rental yields are a useful sign of how capital gains relate to underlying occupier demand.
In high development locations where investment capital drives real estate averages up, rental yields are often very low by global standards due sudden availability. This is not the case in Brazil where yields in Rio and Sao Paulo are higher than in any other prime locations of countries with fast expanding economy and are on a par with London, New York, Sydney, Tokyo and Paris.
Although growth in rental yield is visible across most property sizes in Brazil, data does suggest greatest yield with smaller sized properties in key hot spots.
Rio saw the strongest increases in yield last year, with apartment properties increasing on average by 48%. In Sao Paulo apartment prices increased across all size ranges apart from 200+ sq.m. The average price for a 50 sq.m apartment had increased by 33% by last November, where as the prices for apartments of 120 sq.m had increased by only 10%.
Taking these trends into consideration when looking at the availability of off-plan property, it seems that small property equals big investment.
Buying urban land and property for long term investment, investor friendly incentives
Regardless of whether high rental yields are a key reason for pushing foreign buyers’ to bite the bullet and purchase property in such hot spots sooner rather than later, the overall real estate market looks set to continue growing across such locations.
A recent survey by the US Association of Foreign Investors for Real Estate reported that Sao Paulo, climbed 22 places to rank 4th in the top global cities for foreign investment. Since 2008 prices have increased from anywhere between 90 and 120%, in Rio and Sao Paulo.
Furthermore this variable rate of return has not been subject to any additional tax levies which may penalize non-resident investors in other countries. Brazil has and continues to support foreign investment and with its tax on capital from the sale of real estate fixed at a flat rate of 15%, foreign buyers who don’t want to relocate but do want a piece of the actions, can with ease.
But it doesn’t stop there; the Brazilian government also wants to encourage long term foreign investment and has several very attractive capital gains exceptions which are again, accessible with urban land purchase and no residency.
Firstly, the seller may be exempted from this tax if they use the proceeds from the sale to buy other residential properties in Brazil within 180 days from the first contract execution date.
This serves to protect the release of foreign investment and its underlying influence on driving the economy on a whole, but also gives foreign buyers’ greater flexibility to follow the greatest yields coming from new emerging hot spots.
Secondly, an additional exemption is granted to individuals selling their only residence, if they have owned it for at least 5 years and if the sale price does not exceed R$440,000 ($203,000 USD).
Although with current trends and the impact the World Cup and Olympic Games will surely play on further boosting the economy investors will expect gains in excess over the period, however this exception does provide a baseline safety net to protect against complete market collapse and another reason why Brazil is looking so fruitful for many.
Typical Purchase Costs
Transfer Fee 2% – 4%
Notary Fee 1.25%
Registration Fee, inclusive of Impostos sobre transmissão de bens imobiliários (ITBI) 0.75%
Legal Fee 2%
Real Estate Agent Fee 3% – 6%
Cost paid by buyer 6% – 8%
Cost paid by seller 3% – 6%
Cost Total 9% – 14%
Rural land options, restrictions mean commitment
For the most part opting to pursue purchase of rural land in Brazil involves many additional factors for independent buyers and makes urban land investment look like a walk in the park.
Corporate squeeze by foreign companies or majority foreign owned Brazilian companies mostly in the agribusiness sector have forced the Brazilian government to toughen legislation and reintroduce law protecting sovereignty as of late.
However with agribusiness accounting for 40% of Brazil’s export market and only 28% of rural land currently dedicated to generating such farming products, there’s still justification to allocate rural land for other productive practices.
Foreign investors who therefore want to establish new ventures which can also bring something worthwhile to Brazil’s economy can do with a relatively clean canvas. In some instances buying small scale rural land for investment may be an essential part of master plan or acquisition for foreign investors looking to relocate.
So whether a more relaxed approach to life in modern farming or group investment into a resort complex with lifelong friends are on the horizon, Brazil still has some potentially investment sound opportunities worth considering when it comes to rural land ownership.
Who can purchase rural land in Brazil?
Options for purchasing rural land as a foreigner may be classed as fairly limited and require residency status regardless of the approach taken.
Unless you are employed by a mother company to a Brazilian company or have intentions to relocate for retirement purposes, your presence and purpose for seeking residency must clearly demonstrate benefit to Brazil as a nation or injection into its economy. For most business independent foreigners this will be through one of two ways.
Start-up companies – Administrators, managers or directors of start-ups which have been operating outside Brazil for at least five years preceding the application date are eligible to apply for residency as part of a transition in relocating the business.
This may be a viable option for start-ups in web based services or unique product distribution. Two key commitments need to be considered however with this approach.
Firstly, as part of the transition to register the company as a Brazilian entity, power of attorney must be given to its new legal representatives in Brazil.
Secondly, after a set period of operation the company must have created 10 new positions for Brazilian employees. A maximum of three visas may be applied for, each being issued initially for two years. After this period the company has to meet certain criteria which demonstrate benefit to Brazil, such as employment or training.
Investors – Foreigners who invest foreign funds into productive activities such as training and specialised labour are also eligible for residence.
This investment route carries a minimum buy-in of R$150,000 ($70,000 USD) but does allow for greater business freedom and the potential to meet employment requirements with new work force which may already be needed as part of relocating a business.
Rural land distribution and foreign buyer restrictions
There are also restrictions on the amount and location of rural land a foreigner may own. In Brazil rural land is measured in modules, which can equate to anywhere between 250 (620 acres) and 5000 (12,350 acres) hectares per unit.
The size of a module is governed by the municipal region in which the land is located and can vary in distribution. Rural land purchase is regulated by the Ministry of Agriculture across municipals and requires all foreign investors to first seek approval before purchase.
The ministry also stipulates that resident foreigners may only own a maximum 3 modules for private or non-government involved projects. In some cases ownership of more than 3 modules may be granted if plans relate to overall development of the country, but under no circumstances can exceed 50 modules.
Furthermore to protect even distribution of foreign investment across regions no more that 25% of total land modules may be owned by foreigners in each municipal and only 10% may be owned by foreigners of the same nationality.
If you have any questions, or have your own thoughts on investing in land/property in Brazil, please add your thoughts below.
Written by SaaSicorn
Ranking SaaS Websites like it's our job (because hey, it is our job).
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