Why Brazil?
Our approach to everything is to be as thorough and detailed in all the advice we give during all stages of the investment process. Below offers more detail on Brazil as an investment location. As this is detailed, if you would prefer to read the information at a later date, feel free to down load our PDF document which encompasses all the detail below and more!
Please click on bullet points below or scroll down for further explanation:
• Introduction – everything you imagined and more.
• Fantastic All Year Round Climate.
• Stable Politics and Favourable Demographics - entrenched democracy and stable politics with a population in excess of 185m.
• Solid Economic Credentials - economic stab
• BRIC country – along with Russia, India and China.
• Favourable Investment Climate - no restrictions on ownership of property - active encouragement of international development in the property market.
• Sound and Robust Legal System - on par with Western standards.
• Resource Rich Economy – major mineral exporter, huge recent oil finds with commodity prices at all time highs.
• Emerging Agricultural Superpower.
• Fantastic Culture and People.
• Favourable Tax Regime – no capital gains tax after five years.
• Accessibility - ever increasing accessibility to the international audience, only 3 hours behind GMT, and similar flying time to the Caribbean from mainland Europe.
• Underdeveloped Mortgage Market Rapidly Expanding - currently only a small percentage of the Brazilian population have a mortgage, this is predicted to change and develop rapidly.
• Growth in Local Buying Power and a Rapidly Emerging Middle Class.
• Untapped Tourist Potential – Brazil is currently enjoying a boom in tourism, this is predicted to grow further and for a long period (source WTO).
• Security of Investment - no tornados, hurricanes, tsunamis, earthquakes, volcanoes, unrest or racial tensions.
• Development Governed by Ecological Sensitivity.
• Low Cost of Living.
• Undervalued Property Market – get in early.
• World cup coming to Brazil in 2014!
Click here for FAQ – how do I get to Bahia from abroad?
Start no further than thinking about everything you ever imagined about Brazil, glorious coast line, beach lifestyle, spectacular carnivals, crystal blue seas, friendly people, and by and large you will find this to be true.
Brazil has a rapidly evolving diversified economy, already the tenth largest in the world, and predicted by Goldman Sachs to be among the largest five in the world by 2050, described as part of the BRIC block of emerging economies. Brazil is a land of immense beauty, an emerging agricultural superpower, replete with resources, and blessed with a climate and lifestyle to rival anywhere in the world. Politically, Brazil is a stable democracy, approaching an investment grade international credit rating, welcoming to foreign investment, with a robust legal system, an underdeveloped yet rapidly evolving tourist industry and some of the best value for money property in the world.
Whilst some emerging property markets have peaked, others have lost favour or prominence, Brazil is very much on the cusp of something very special - and it is easy to see why. To understand the logic and reasoning for investing in Brazil, it is vital to understand its climate, location, politics, economy and favourable conditions for the foreign investor. To stand back and compare these to the value for money achievable alongside its recent economic performance, it suddenly becomes apparent as to why so many people think Brazil is not only on the verge of further economic prosperity, but the nascent property market is in the early stages of what will become a sustained property boom.
Climate
If any country can boast an all year round climate, then surely it is Brazil. As the world’s fifth largest country, weather clearly differs throughout its vast expanse, but to generalise there is less seasonal change than experienced in Europe and the USA, and the seasonal changes become more pronounced the further down south you travel.
The Northeast coast is almost as hot as Rio during the summer, sometimes up to about 35°C, but the delightful year round tropical breeze means the heat is rarely over bearing, and the temperature is rarely far from 27°C.
Politics and Demographics
As a nation of 185 million people, Brazil is the world’s number 5 most populous country. Unlike other parts of South America, Brazil is categorised by a secure and stable political system and is a secular democracy. Like most European nation states, it has a separation of executive, legislative and judicial powers, at federal, state and municipal levels.
The vast population makes Brazil appealing to inward investment, due to the sheer size of the internal consumer market. Many would be surprised to learn that it has the 10th highest GDP in the world, and clearly this is expected to grow – and grow substantially.
Economics Credentials
President Lula, voted in overwhelmingly for a second term in October 2006, has presided over a period of rapidly improving prospects and growing economic stability; he is particularly revered by the poor.
Under his government, with a legacy of economic mismanagement, hyper-inflation and currency instability to contend with, he initiated widespread economic reform, such as the encouragement of foreign investment and the repayment of foreign debt. The resultant economic performance has been spectacular, aided by IMF backed policies of fiscal tightening, a strict inflation regime and a floating exchange rate.
Interest rates have dropped from a peak of 26% in 2003 to a headline real interest rate of around 7% by early 2008. Rates are falling due to Brazil’s huge trade surplus, driven largely by its export based mineral economy in a climate of record commodity prices. This trade surplus and accumulation of foreign exchange reserve will only continue, as recent oil finds come on line and as Brazil’s prowess as an emerging agricultural superpower increases, as well as environmentally driven exports of bio-fuels, such as ethanol. All these factors will further boost Brazil’s trade surplus, ensuring more stability and lower interest rates. Inflation is currently down to a highly respectable 5%, having suffered bouts of hyper-inflation during previous periods of instability and military rule. This has particularly benefitted the poor.
To instil the virtues of Brazil’s recent economic performance, despite falling interest rates, where typically one would expect a currency to depreciate - due to lesser returns of holding the currency – for a number of reasons, Brazil has experienced an impressive currency appreciation. Notably, the strong export base of Brazil’s economy means it now sits on massive foreign exchange cash reserves - over $180billion - with Deutsche Bank predicting they will be up to $221billion by the end of 2008. This will put strong pressure on the currency to continue its appreciation.
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To give you an insight into Brazil’s potential, Goldman Sachs, the highly respected US investment bank, published a highly influential report, which is commonly mentioned in all Brazilian property literature. In a nut shell, they include Brazil as one of the four BRIC economies, i.e. Brazil, Russia, India and China, stating that these four global economies whose potential and rapid growth are such, that their economies are capable of eclipsing today’s major economies by 2050.
The dilemma of the developed world is a loss of power, resources and expertise to the developing world, this is not a myth but a current reality and an increasingly significant trend. A few years ago, people cited China - and increasingly India - as the main benefactors of this trend, for amongst other reasons their large populations, massive internal markets and cheap costs of labour and production would give their economies a massive competitive advantage versus the West. Those with a credible view and proper research potential did not stop there, knowing other significant factors contributed to this shift in power, notably finite resources and access to these. Brazil, similarly to Russia fits neatly into this category, making up the other half of the future ‘big four.’
Favourable Investment Climate
Brazil is both open and welcoming to foreign investment in its property market. In recent years many large international holiday companies have, and are increasingly investing in tourist infrastructure, and overseas buyers are increasingly looking to Brazil for both investment and as an exotic location for a second home.
Sound and Robust Legal System
Brazil’s legal system is highly developed, on par with Western legal standards. We will happily recommend you independent legal advice and talk you through all aspects and legal implications of all stages of the process, whether you are buying, renting, leasing or developing property.
Resource Rich Economy
Brazil is one of the few countries in the world to be self-sufficient in oil, mainly due to its ever-increasing oil reserves and the fact that a large percentage of its cars run on domestically produced environmentally friendly ethanol. Around 85% of Brazil’s energy needs are derived from renewable sources. With vast reserves of minerals, including substantial iron ore deposits along with other natural resources, these currently account for a significant percentage of exports. Brazil also has a third of the world’s drinking water reserves.
Brazil is rapidly emerging as a potential significant international exporter of oil. With some major recent finds (link to BBC article in resources) in its resource rich Atlantic basin, many believe Brazil will emerge as a major oil exporter, potentially on par with those in the Middle East. Petrobras, the state petroleum corporation, is the 8th largest oil firm in the world by market value.
With commodity prices at record highs, and global demand predicted to increase, Brazil can only benefit further from these trends.
Emerging Agricultural Superpower
Brazil is the world’s second largest producer of natural resources, second only to Australia, the agricultural sector is booming and is therefore a large contributor to exports. Agriculture accounts for 10% of GDP (30% when including agri-businesses) and 40% of Brazilian exports. Brazil has the world's largest commercial cattle herd (50% larger than the U.S.).
Brazil has abundant natural resources; it is a huge agricultural power – and indeed an emerging superpower - it is the world’s largest producer of coffee, sugarcane and oranges; thus attracts numerous international food processing groups.
Source: FITA*
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*FITA – Federation of International Trade Associations.
Fantastic Culture and People
Brazilian people are laid back in every sense, with their love of a party and passion for life; they are genuinely some of the friendliest people on earth. Embodied by their world famous carnivals, the Brazilians joyously ooze passion for food, dance, music and football.
Eponymous to the Brazilian culture is the beach. The climate and laid back traditions bring resonance to their most sacred of passions, spending time on their glorious coastline. Not only do they like to look beautiful here, but like carnival, it is a place which welds together the many facets of their culture, notably sun, sport, beauty, drink, food, dance and football!
Favourable Tax Regime
Capital gains on property in Brazil are taxable, to both Brazilians and foreign investors alike. However the rate is set at only 15% (dependent on any double taxation treaties your country may have) and this can be avoided completely if you:
a. Reinvest the proceeds in Brazil.
b. Hold the property for five years.
Accessibility both International and Domestic
Brazil is highly accessible to both mainland Europe and the USA, this is increasing all the time. Most of the major cities are accessible all year round, via many of Europe’s big name airlines, and the coastal Bahia region through charter flights, regular between March and September, as well as other airlines all year round. Internally there is a developed low cost airline industry serving the country’s 185 million people, this allows the wealthy predominately Southern based population to access the Northern coastal areas.
Underdeveloped Mortgage Market Rapidly Expanding
Essential to Brazil as an investment location is the potential for growth in it’s under developed domestic mortgage market. Unlike many Western economies, at present Brazil has a small but rapidly expanding mortgage market, with only a small percentage of the population having taken out a mortgage. In 2006, total consumer mortgage loans outstanding in Brazil was $0.7bn, compared to $3,328bn in the USA, (source: Banco Cental do Brasil, US Federal Reserve). Historically this has to do with a variety of factors, mainly relating to political and ecomomic turmoil, with resultant high interest rates making mortgages unaffordable to the general population.
As Brazil continues to advance economically, its political stability, new mortgage friendly laws and ever increasing prosperity will provide a sound foundation for further credit and mortgage expansion.
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Brazilians are rapidly becoming more affluent, President Lula recently claimed that as many as seven million Brazilians had entered the middle classes in recent years, and that Brazil was experiencing an intensity of social integration like never seen before. Deutsche Bank predicts that GPD per capita will increase in 2008 to $8485, back in only 2005 this was $4793, hence an almost 80% increase.
Brazil’s recent economic performance has ensured that the middle classes are rapidly expanding, with incomes rapidly increasing and mortgage lending on the up, this will rapidly increase demand for property. The world renowned Economist Magazine recently produced a report describing a new lower middle class ‘emerging almost overnight.’ It describes millions of people who are ‘the main beneficiaries of the region’s hard-won economic stability.
As previously mentioned, with the mortgage market set to expand, domestic buying power will increase rapidly, resulting in a huge amount of locals waking up to the potential of property ownership.
This is especially the case as the large cities can often be noisy, chaotic, polluted and unfriendly, making a second home or place from which to commute a relative sanctuary.
Untapped Tourist Potential
Although tourism is expanding rapidly, Brazil currently receives only around 5 million international tourists per year, which relative to its size, location and suitability for tourism, is relatively small, just a little over a quarter of the amount of the Caribbean islands.
Security of Investment
Brazil, unlike many parts of the world, suffers no major hazards or natural disasters. It has no hurricanes, tornados, tsunamis, volcanoes or social unrest. Contrast this, for example, to the annual hurricane season the Caribbean receives.
Low Cost of Living
To generalise, the cost of living in Brazil can be as little as half of Western Europe or the USA, ensuring a high quality of living for relatively small expenditure.
Low Property Prices
As Brazil is relatively low down the development cycle, prices per square metre are incredibly low. Properties can easily be bought at prices less than a half of those found in emerging Eastern European markets and a less than a quarter of the price of properties in mature markets, such as Spain. It is widely expected that beach front property prices will continue to appreciate until 2050, when Brazil should fulfil its potential of becoming one of the world’s pre-eminent economies.
World Cup Coming to Brazil in 2014!
With the football World Cup being staged in Brazil in 2014, expect property to boom until this date and beyond. The World Cup will not only significantly boost tourism and raise Brazil’s profile, but will also be a further boost to the economy and infrastructure investment.
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