Following from our email yesterday, which was the 2nd in a 5 Part Special Investment Series, we bring you today Part 3 which focuses on how to buy safely in Brazil…
How to buy safely in Brazil
Brazil has a very structured constitution when it comes to land and property ownership that, when followed, affords foreign nationals the same rights and protection of full freehold ownership as any Brazilian national. While not the most glamorous aspect of buying international property, it is one of the most important to ensure your money and purchase is protected throughout your ownership.
The first indicator when considering buying in Brazil is to identify that sales are being made locally on the project you are interested in. This is something any Brazilian lawyer can easily check with the local notary (Cartorio) office to the project. The importance of this is twofold; One – it demonstrates that the pricing is accurate to the local market and that there is a distinct local interest in your development. Two – it shows that the developer must have all of the build licenses in place in order to be able to sell to the local Brazilian market. This is because it is considered a serious a crime in Brazil to sell to any Brazilian national without full build licenses achieved. The same law does not extend to foreign buyers, so if there are Brazilians already buying on the project you are interested in then you can be assured it is strong.
The second indicator is to ensure that the development or property passes a thorough legal due diligence. This checks that taxes are paid up to date, licences to build (i.e installation licences are valid), planning permissions are in place, and that the deeds are registered correctly (Escritura). The legal due diligence should also check that there no outstanding debts or legal challenges with the property that you are buying. We would always suggest a Brazilian international lawyer conduct this. For instance if using a Brazilian lawyer based in the UK, they can manage any foreign national purchase, and should have a lawyer’s Escrow account in a highly regulated market. They also must maintain an indemnification policy for clients as to the accuracy of their due diligence as an extra layer of protection.
To own property all purchasers (including foreign and domestic investors) are required to secure a CPF Number which is a tax registration number. This is something that your lawyer can do as part of their legal work. Registering via a CPF will provide you the same constitutional rights of ownership in Brazil as any local national. This is to ensure that all contracts of purchase are registered with the notary, the title deeds are registered appropriately and that your money is registered via the Brazilian Central Bank coming into the country. There are also stiff tax penalties and potential ownership challenges if a purchase is not registered against this CPF Number. The developer or owner you are purchasing from should also have a CPF or CNPJ (Company registration) number to demonstrate they are the legal owner to which the property is registered before you buy. You will also need to ensure your purchase contracts are in Brazilian Portuguese. If you do not see Brazilian Portuguese on your contract then the purchase contract cannot be registered with the Brazilian notary. Again this is something a Brazilian lawyer would know, and why we would recommend engaging a lawyer during purchase so you have peace of mind knowing all of the above has been checked.
In summary, local sales are one of the biggest measures of both the financial viability and legal strength of a project. If the local market is buying, then you already have a clear indicator of your greatest exit market to hand. For instance, our Brazilian development partners sell two thirds of all property within their developments to Brazilian nationals locally. This demonstrates that the value of what you are buying is accurate and appealing enough for the ‘experts’ locally to also want to buy. When it comes to your exit sale a strong domestic market is an essential ingredient for sustainability in any investment in land or property.
Lastly, the developer themselves are an essential ingredient. Look at their business model. Is it realistic in actually delivering a project? Do they have a lot of debt finance in order to deliver to their promises that may put delivery at risk if the bank changes its lending criteria? Have they shown consistent sales and consistent delivery? Have they a strong local presence? A number of international developers pre-sell to the international market ahead of licences, knowing they cannot sell locally. This can put your project at risk if licenses are not achieved for instance, and planning is notoriously lengthy in Brazil so always buy where it has been achieved already. Also ask things like how long has the developer been in the market? Is it their speciality? Who are their local partners for construction and delivery? Who is the local Notary to their development holding the title deeds? All important questions a trustworthy developer should be able to explain on your first contact.
Ultimately the market opportunity in Brazil is exceptional. If you buy in line with this advice , most of which can be managed on your behalf by a well recommended independent Brazilian lawyer, then you have reduced your risks immensely and have a strong purchase.
Brazil is a big country, however there are key areas that are particularly ripe for investment, and one that has particular strength with the domestic market that you will discover more about in Part 4 tomorrow…
If you would like to request information on our Brazil opportunities, or a copy of our fantastic free Investment Guide: The Definitive Guide to Investing in Brazil, please ‘click here’.