Massive infrastructure spending combined with increase demand for housing, both for owner-occupancy and rental, is expected to boost the real estate market for several years.
In Q3 2009, the average price of new launches surged by 25% to BRL3,465 (US$1946) per sq. m. from a year earlier. The number of units launched also rose by 44% to 7,858 units from 5,462 a year ago, according to Cyrela Brazil Realty, Brazil’s largest property developer. The average price of sales increased by 13% while the number of units sold rose by 28%, within the same period.
Cyrela’s total pre-sales contracts for Q3 2009 reached BRL1.63 billion (US$916 million), significantly higher than the average of BRL636 million (US$357 million) for the past three quarters. Other major property developers also report stronger sales figures.
Economic prosperity ushered in by President Lula da Silva’s government led to rising incomes and lower unemployment. Financial market reforms created a new housing finance system, allowing households to turn their higher incomes into mortgage payments. Under his watch, the economy grew by an average of 4.7% from 2004 to 2008.
The right to host major international sporting events serves as monuments to Lula’s achievements and economic success. Brazil is the first South American country to host the Summer Olympics. On the other hand, the last time that the Soccer World Cup was hosted by a South American country was in 1978 by Argentina.
Brazil’s economy was not able to avoid recession in 2009 but contraction was minimal at -0.7%. Economic recovery is expected to resume in 2010 with a GDP growth of 3.5%.
There are no restrictions on foreign property ownership in Brazil, except for areas near borders, coasts and other areas of national security.
Read Price History »
Apartments in Rio have average yields of 6.52%, according to our research, which covers properties ranging from 65 square metres to 275 square metres.
Apartments in Sao Paulo have average yields of around 7.15%, for apartments measuring between 120 square metres and 450 square metres. Penthouses in Sao Paolo tend to yield more. Though the average Sao Paolo penthouse yield in our sample is just 7.35%, this is somewhat distorted by the presence of very large penthouses of 700 square metres in the sample. Small Sao Paolo penthouses can yield over 8%. (this is somewhat exceptional, that we trust our own figures enough to use them as a basis for price change.... but it IS three years, and there are no other figures. So we reckon it’s ok.
Effective Tax Rate on Rental Income |
|||
| Monthly Income | US$1,500 | US$6,000 | US$12,000 |
| Tax Rate | |||
| Click here to see a worked example | |||
| Source: ACAL - Consultoria e Auditoria S/C and KPMG Disclaimer | |||
Rental income earned by non-residents who reside in low-tax territories are taxed in Brazil at a special rate of 25%.
Capital Gains: Capital gains tax is levied at a flat rate of 15%.
Inheritance: Inheritance and gift taxes are imposed at progressive rates depending on the value of the inheritance. The maximum tax rate is 8%.
Residents: Residents are taxed on their worldwide income. Income tax is levied at progressive rates, up to 27.5%.
Total roundtrip transaction costs, i.e., the amount it costs to buy and sell a property, amount to between 11% and 12% of the value of the property.The real estate agents' fee is usually 6%. Registation fees amount to around 2% of the property's value.
Registration requires no less than 14 separate procedures. The process can be completed in about 47 days.
The landlord is generally protected by a guarantor i.e., a third person responsible for paying any unpaid rental debts of the tenant.
Tenant Eviction: Evicting non-paying tenants can be difficult, as the courts tend to be saturated. The duration of eviction suits varies by State.
Instead, he introduced a pragmatic approach that combines the free market with social support for the poor and workers - similar to a European social democracy.
His spending reforms led to a budget surplus and within the first two years of his term, lowered Brazil’s credit risk.
Sound economic management has led to falling inflation and foreign debt. After weak 1.15% growth in 2003, the economy grew by an average of 4.3% from 2004 to 2006 before growing by more than 5% in 2007 and 2008. This was in sharp contrast to the average annual growth of 1.7% from 1998 to 2002.
The government also launched Bolsa Familia, a family grant programme for poor families that has helped more than 44 million people. The minimum wage was also modestly raised, at above-inflation rates. The unemployment rate was successfully brought down to below 8% for most of 2008 from more than 12% in 2003.
Prospects for strong economic growth for the next decade soared after the announcement of hosting the Olympic Games in 2016.
Massive benefits from the games include an injection of US$51 billion until 2027 and the creation of 120,000 jobs annually until 2016, according to studies by Sao Paolo business schools for the Ministry of Sports. The government plans to provide $11 billion of investments.
Rio de Jainero promised "impeccable games" that will improve the city's infrastructure, security and environment, and generate 50,000 temporary jobs and 15,000 permanent ones.
Aside from the real estate industry, sectors to benefit clearly from the games include tourism, transport, and retail sectors. Hotels and airlines are expected to be among the biggest winners.
Long-term improvements in terms of peace and order and security are also expected. Massive relocation and reconstruction of favelas are also anticipated to provide long-terms benefits to residents of Sao Paolo and Rio de Jainero.
