Brazilian Government Expects R$6 Billion from Sale of Properties

RIO DE JANEIRO, BRAZIL – The federal government expects to raise R$6 (US$1.5) billion in 2020 from the sale of its real estate holdings.

The forecast is to raise R$3 billion from the auction of 425 properties, including land, apartments, houses and stores, and the remainder from the sale of a portion of 100,000 plots of land under an outdated “forum” regime (similar to a a perpetual lease).

Under these “forum” contracts, citizens or companies own 83 percent of the land and the federal government, the other 17 percent. An interim measure issued at the end of last year seeks to simplify the process by which occupants acquire full ownership of such lands.

An ordinance should be issued by February to provide the details of the computerized evaluation of these properties, which will dispense with the face-to-face visit, which makes the procedure time-consuming.

The measure further allows for the direct sale of federal properties to be brokered by realtors, as well as increasing discounts when the first auction of the property is unsuccessful – now by 25 percent. Before, the government was authorized to grant discounts of up to ten percent after a twice-failed auction, for properties up to R$5 million.

“By providing a 25 percent discount at the second auction, an attempt is already being made to correct a problem that may be pricing or market. And, in keeping it interest-free, it goes for direct sale”, explained the Secretary of Coordination and Governance of the Federal Patrimony, Fernando Bispo. In direct selling, the 25 percent discount is maintained.

Real Estate brokers will be involved in the direct sale, registering and showing the government’s properties to potential buyers – responsible for paying the brokerage fee.

According to Bispo, the secretariat should publish a decree to clarify the details of this partnership by February. “In general, the payment of brokerage depends on the market. There will be an ordinance in which we will regulate and supervise that the percentage of the market is maintained,” he said.

Collection

The forecast for raising R$6 billion is bold if we consider the numbers in recent years. According to the Ministry of Economy, between 2018 and 2019, only 39 properties were auctioned, collecting R$273 million.

Meanwhile, between 2017 and last year, 49 land parcel sales were completed (court redemptions), with a collection of R$1.79 million. Today, there are 320 requests for redemption of the “forum” under analysis.

“The government’s goal is to divest the properties that have no governmental use, which end up being abandoned, and make life easier for citizens with the redemption of the forum. Managing the assets is behind the initiative,” said Bispo.

An efficient management of these properties is something that is being charged to the federal government. A state report published in October 2019 showed that only 100 properties located in Brasília – vacant and that in the process of being sold – consumed R$1 million (US$0.25 million) in condominium fees, half of that amount disbursed in 2019.

By 2022, the government’s goal is to sell 3,775 properties, expecting to raise around R$36 billion. To achieve these figures, the Executive relies on a change in culture and practices regarding the sale of these properties.

Bispo stresses that the market did not feel legal security with the operations: “This government is giving security to investors that they will be doing business at the same level of security as the private sector”, he said.

He mentioned that the bidding notices have changed to provide potential buyers with greater information about the asset, such as how much debt the property owes and the federal government’s level of responsibility for it.