Brazil’s Secondary Home Luxury Market

By OP-Mall

Brazil is by all means a vast country with an area that covers 8,514,215 km² and occupies about half of South America’s land mass. With four different time zones and a wide range of climatic regions, Brazil has established itself as new emerging market for luxury development. A new report released by Knight Frank clearly indicates that things have only just started to heat up in regards to Brazil’s real estate market.

With a projected GDP of around US$ 2,250 million by the year 2020 (currently at around US$ 1,500 million it is clear that future growth will play a massive role for second home investors from overseas.

Brazil’s growth in recent years has mainly been driven by the wealthy European, American and South American market with the focus lying along Brazil’s north east around Bahia. The regions of São Paulo, Rio de Janeiro and Florianópolis are more popular with wealthy Brazilians and other South Americans.

It is no wonder to see Brazil’s property market flourish if we take into consideration the proximity to mainland Europe with 6 hour flights to Portugal from Fortaleza, capital city of the Brazil state Ceara.
New money

While the south eastern regions are less developed for luxury tourism, the north east however currently boasts around 150 developments of which most are less than desirable in quality standards. The reason being is that local developers are lacking the resources and ability to build luxury resorts for the top end market.

However, this situation is expected to change for the better in the near future when large overseas developers enter the Brazilian market. As demand increases, so will the quality of available real estate. Plus with the recent discovery of the Tupi oil field offshore Brazil’s coast, the country will join the ranks of the world’s major oil exporters when productions are at fully operational in 2013.
Infrastructure

Current infrastructure in the country leaves much to be desired with roads being especially bad. However, due to the large distances within Brazil, tourists and investors can easily get around by plane with 48 main airports of which 21 are international airports.

The government also plans to further extend all infrastructure to give new home buyers and tourist and more comfortable experience overall.
Why Brazil?

3,300km of stunning white sandy beaches in the north east region alone can’t lie and that is why overseas investors buy second homes like there is no tomorrow.

Wouldn’t you want your own slice of tropical paradise? By far the biggest overseas buyers are Portuguese and that is no surprise as Brazil used to be a Portuguese colony. Second in line for a slice of paradise are the UK buyers followed by Spain.

Current average unit prices in resorts along the northeast coast of Brazil are around US$335,000, revealing a price of US$1,422/m2 for villas and US$1,903/m2 for apartments, although of course there are properties which considerably exceed this. Within the few genuinely luxury resorts, average values currently range between US$3,000-US$3,500/m2.
Brazil Buyers Guide

Purchase costs in Brazil are generally lower than in most European countries and are typically as shown below:

* The municipal transfer tax (ITBI – Imposto Sobre Transmissão
de Bens Imóveis) – varies between municipalities but is typically 2%-3% of the sale value.
* Legal fees are less than 1% of the sale value.
* Agent’s fees are usually in the range of 4%-6% of the sale value – this is normally paid by the seller.
* Mortgages are not widely available for foreigners in Brazil and funds are typically transferred from abroad. This process attracts some additional costs.

The following European citizens do not require a visa to enter Brazil and may stay up to 90 days at a time and 180 days in any year:

Andorra, Austria, Belgium, Bulgaria, Croatia, Czech Republic, Denmark, France, Finland, Germany, Greece, Hungary, Iceland, Ireland, Italy, Liechtenstein, Luxembourg, Monaco, the Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, United Kingdom, the Vatican.

Foreigners can buy property in Brazil with the exception of a few designated areas. In order for a foreigner to be allowed to buy property in Brazil, it is however first necessary to obtain a Brazilian tax identity (called a CPF – or Cadastro de Pessoa Física).

Ownership costs

Various taxes will have to be paid if you own Brazilian property:

* Income from renting out a property is taxed within the normal personal income tax system, which has progressive rates from 15%-27.5%. For foreigners, the rate is 15% (or 25% if resident within a tax haven jurisdiction).
* Capital gains are taxed at a flat rate of 15% of the declared value.
* There is an annual urban municipality tax (IPTU – Imposto sobre a Propriedade Predial e Territorial Urbano) with rates varying between municipalities, but typically less than 1% of the assessed property value. There is also an annual rural property tax levied on land located outside the urban zones of the municipality. This is a federal tax and rates vary
depending on area of the land and the ratio of utilised land to the total land area.
* For properties acquired within integrated resort developments there will be a monthly service charge which will vary between developments and according to the level of services / facilities required by the owner. This is subject to private law and the particular conventions of each project.

Demand is Key

As more and more Europeans search for a second home far away from the frosty long winters, they are looking for a few key pointers to decide where to buy. They want:

* Accessibility
* Affordability
* Lifestyle
* Infrastructure
* Technology
* Availability

The Brazil of the near future fulfills all of these and much more and that is why the country’s real estate market will go from strength to strength.