UAE residents can find Brazilian property the real deal
With a struggling economy, tumultuous political situation, high unemployment and crime, a volatile currency plus mosquito-borne Zika and dengue viruses stifling tourism, you might expect investors to be put off buying into Brazil’s property market.
But that hasn’t deterred British expat Andrew Smith from taking the plunge.
The married 37-year-old, who works in telecommunications and has lived in Dubai for more than nine years, bought five Brazilian properties off-plan in 2013 and sold them 12 months later at 23 per cent profit. “This was something I entered into with a clear exit strategy and invested through a broker in London. All funds were held offshore and in escrow,” he says.
Then in 2014, he purchased a two-bedroom property in the Brazilian beach resort of Praia de Pipa, attracted by the developer’s generous payment scheme for the property in an exclusive complex with a rooftop Jacuzzi.
“We paid around $114,000, but on an interest-free payment plan. As the currency devalued, this worked in our favour as it meant we were paying less when transferring our money to Brazil,” he explains.
“Of course, the property price has also fallen but it is not something we want to sell. We rent out the property and have never actually visited it. All lets are handled through the team that manages the apartments and I only pay for the cleaning, which is about Dh25 per time. On average we make around 17 per cent yield and our occupancy levels are exceptional, so I am currently looking to increase the rental price.”
Despite Brazil’s many woes, he may be making a sensible investment decision.
When the Olympic torch arrives in Rio de Janeiro in August, over 1 million visitors will follow it there to enjoy the games.
However, Rio is not merely a holiday resort, it is a huge draw for the country’s young and ambitious to move to, find work and settle down.
“Cariocas”, as Rio locals are called, are also considered less likely to want to leave the city and live elsewhere in Brazil when they reach adulthood. Until recently, it has been tough to buy prime real estate near the sea, however, according to Rio realtors, the city’s prime real estate situation has loosened over the past six months.
“It has always been a challenge to find new prime properties for sale in Rio as many owners just weren’t interested in selling. For locals prices haven’t changed so much, but for foreigners it’s becoming very attractive,” says David Seale managing partner of the Rio-based estate agent Town Imobiliària. Mr Seale, 38 and from Australia, has lived in Rio for over a decade and says now is a good time to buy.
“The market is still largely cash- dominated, not mortgage-driven, so the population isn’t suddenly in a situation where they need to sell their property to survive. Therefore, owners are not scrambling to sell, but there is a lot less cash around, so some are now much more amenable to offers.” In addition, the Brazilian real has plummeted in value against major world currencies, recently falling to its lowest level since its introduction two decades ago. If you had $1 million to buy a property in May 2014, it would have given you around 2.2m Brazilian reals; now it would buy you nearer 3.5m reals, increasing your purchasing power by almost 60 per cent.
“Taking currency and prices into account, property can be bought for nearly half the price the market was demanding only a few years ago,” says Dubai-based Russell Midgley, 34, a partner at the global property investment company Aspen Woolf, which has helped Middle East investors purchase over 500 properties in Brazil, including about 40 from the UAE.
“Unfortunately, Brazil has received lots of negative press over the last couple of years. It’s initially difficult for some investors to see past the gloom, but the more astute do stand to make significant returns.
“Brazil is currently very affordable for UAE and international investors earning in stronger currencies. Rio is a massive tourist destination and always will be in high demand because of what it offers. It is popular with both international and Brazilian tourists, which makes it a strong rental market. During Brazil’s summer, which is November to March, Rio is packed with people from all over the world and many visit year-on-year.”
Mr Midgley says Aspen Woolf sold the majority of its Brazilian properties during the good times between 2010 and 2012. Back then, while the rest of the world was in recession, Brazil was booming and investors flocked to the country to take advantage.
“All the data coming out of Brazil [at that time] was positive, unemployment was low, foreign investment was increasing, interest rates were falling, inflation was falling and GDP growth was high,” says Mr Midgley.
Now he says there has been a “mini-spike” in interest in Brazil from this region, with many believing Brazil’s worst recession in decades may be close to bottoming out thanks to the Olympics and hopes the country’s new leadership will restore confidence in the world’s ninth biggest economy.
“Because of the low oil prices, investors are looking to seek alternative markets to make their money work,” he says. “The general belief is Brazil is attractive because of the weak currency and the huge potential the country has long term.”
So how can a foreigner get involved? Investor Mr Smith urges buyers to do their homework. “It is a minefield and you must be wary of glamorous sales agents and multinational companies selling off-plan,” he warns.
“The European developer we went with is based in Brazil, close to Pipa, and came recommended, which gave us more confidence. Even then it was not all plain sailing, with difficulties obtaining certain documentation and doing things as basic as managing registration of the electricity meter. I worked with a local lawyer who I paid to check everything out for me in advance.”
Mr Midgley says foreign buyers sending money from abroad must be registered with the central bank of Brazil. Also, recruitment of a reputable property lawyer and estate agent is crucial in terms of advice and guidance through the process.
Mr Seale recommends Rio as a good location to invest as “there will always be someone interested in buying it”.
“We have recently sold three- bedroom apartments in Ipanema for under $400,000, with mainly Europeans snapping up the bargains found in older style apartments that may require some work – such as no private garage and some stairs to walk up,” he adds. “Europeans value the character of older architecture, while Brazilians prefer newer, more recent constructions, so apartments in older buildings can make fantastic investments if buyers are willing to spend on renovation.”
He adds that Rio has particular idiosyncrasies that mean buyers must engage an agent who knows the local market intimately.
“Prices of particular blocks can vary significantly from street to street, as fussy locals simply prefer some to others. The ultimate purchase is an investment that appeals to foreigners as well as locals and other Brazilians buying and renting in Rio,” he advises.
“Properties anywhere on the beach are assets that rarely fall in price and can be difficult to source. There are some deals to be found, but small beachfront apartments are currently priced at around $1.7m and the prices in general haven’t dropped off much during the downturn.”
For investors looking for a bargain, Brazil has a lot more to offer than just Rio, says Mr Midgley.
“We have sold lots of property in other beautiful tourism hot spots towards the north of Brazil, which offers a calmer lifestyle than the big cities.”
Mr Smith urges caution. “If you make this choice, be prepared for hard work,” he says. “It is ultimately a third world country and many things don’t run smoothly. We found it useful to use expat forums to get feedback on specific locations, agents and developers and there is no harm calling any Brazilians you know for their opinions.”
Rental yields in Brazil
Yields range from 3 per cent to 7 per cent, depending on whether apartments are rented long- or short-term, as of November last year.
Rio de Janeiro
Average yield: 3.6 per cent for a 200 square metre flat, which typically costs US$857,400.
Average yield: 6.4 per cent for a 200 square metre flat, which typically goes for $495,400.
Barra da Tijuca
Average yield: 3.8 per cent for a 200 square metre flat, which typically goes for $604,600.