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Don't miss the Brazilian real estate boom!

From: Tecnodisc Investimentos Lda
Subject: Don't miss the Brazilian real estate boom!
Date: Mon, 13 Sep 2004 01:27:44 -0300

Don't miss the Brazilian real estate boom!

With the European property boom ageing a little, and with the very strong Euro, now may be the perfect time to diversify your portfolio and invest part of it in the next boom market: Brazil.
We are a team of European and Brazilian specialists, whose aim is to select the best opportunities for real estate investors, and to look after their interests - all the way until the exit.
Being focused on investors, our approach is quite different from traditional real estate agents. We select realty based on market price evolution, profits, ROI, time horizon, risks, and exit strategies. The best investment for you may be one of the 'dream homes' that Brazil has on offer, but it can just as well be an off-plan investment, a land development project, a hotel or a commercial property. Whatever your investment profile is, we'll make sure you'll get the right deal - and the right profits.

Read up on the Brazilian real estate opportunities!

High rewards for private capital due to limited availability

Brazil's financial institutions are burdened with an enormous debt burden from the past, and both the national bank and the commercial banks have only limited resources to fund investments in the country's industry.

Western banks collect cheap money via the savings deposits from the average consumer, and then make them available to the entrepreneurial world. Brazilian banks can not rely on this cheap source of money, and the rich minority has taken over the role of financing industry - and real estate - directly.

And obviously, as demand by far outstrips the available supply, the premium offered to capital investors is high.

Off-plan investments in new development projects

Many developers, especially those selling condominiums, offer interesting payment schemes which present a nice opportunity for investors. Many developers allow you to buy apartments off-plan, i.e. before or during construction, when the price is still low, and with down-payments totalling no more than 30-40% of the property price.

By the time the property is finished, it will command a higher price - both because of market price increases and the higher appeal of a completely ready house. This means that investors can 'flip around' the property around completion time to an other, 'final' buyer. Doing so, you can pocket a price increase of 15 or 20% - while you have never paid up the full amount. Depending on the downpayment, and speed of construction, profits on these deals can range from 40 to 100% per year!

Even if, in a 'worst case' scenario the property can not be sold immediately on completion, the balance to be can usually be financed (often by the developer himself), typically over 6 years or so.

Low property transfer costs

Brazil only applies a 2% transfer tax on real estate property - which keeps the transaction costs among the lowest in the world.

Extremely advantageous exchange rates

In the distant past, the Brazilian currency was artificially linked 1:1 to the US$ - and most prices still reflect these old price levels. However, over the past few years 1$ has stabilized around 3 real. As a result, 100000$ will buy a house

The Brazilian GDP hides a sizeable upper class with world-class buying power

While the Brazilian GDP is only some 4000$ per inhabitant, it's social inequality hides a large aflluent class that has a buying power that at least rivals the European and US consumers.

In fact, wealth in Brazil is extremely badly distributed.
10% of the population owns no less than 50% of all resources, and on the other hand 50% of the population must make-do with no more than 10% of the countries resources.

If one applies these ratios to the GDP, the wealthiest 10% (some 16 million consumers, concentrated in the South: Rio, Sao Paulo, Belo Horizonte) have a GDP per capita of at least 20000$ - quite comparable to most of Europe or the US. And in fact, their standard of living is even higher: as the cost of living is much much lower, 20000$ buys a lot more luxury than we can imagine...

Moreover, the rich keep getting richer; not surprisingly if you realise they have a labour force at their disposal who'se monthly wage is just some 60-70$...

Limited Social, Political and Economical risks

Brazil is a highly catholic, peaceful, democratic culture, quite unlike other Southamerican countries.
In spite of huge social inequalities, and well-known corruption, there is almost no social violence.

For the past few years, Brazil has been wisely and succesfully using western monetary and fiscal policy, and it has mastered the control of inflation and currency rate, in spite of astronomic international debts from the past.

Brazilian tourism market set to explode

Brazil didn't realize its huge tourism potential until a few years ago - but now has understood it can create an enormous influx of capital and has started to exploit its touristic potential.

And what a potential!

Just reflect on what makes destinations interesting for tourism, and you'll realize that Brazil literally has it all - sunshine, nature, culture, access, and infrastructure.
First of all, sunshine. With its 8000 km of coastline, stretching from just above the equator to milder climates further south, Brazil has lots of sunshine, all year long.
Its beaches, usually white sands lined by palm trees, and often with stunning views over some islands just outside the coast, only compete with the tropical rainforests.

Brazil also has more than one third of the world's fresh water reserves - and that is visible in the thousands of rivers, suitable for bathing or rafting...
The Carnaval of Rio and Salvador, the famous 3 km wide waterfalls of Iguazu, the Amazon, the Brazilian music and dance add attractions of a level and range that can simply not be found in most destinations of the Caribbean.

All major operators have realised this now, and five-star resorts like Costa do Sauipe near Salvador feature resorts by Marriott's, Sofitel Renaissance, and Breezes.
It is also quite meaningful that The Club Med has only 3 resorts in South America - all 3 of them in Brazil - and two of them are brand new resorts in the south of Bahia, near Salvador and Porto Seguro.

Tour operators are also massively adding Brazil to their offer; and an extensive scheme of charter flights covers Natal, Recife, Fortaleza, Salvador and many other destinations.

Is it risky?

Overseas investments are more risky than investments in your home town - if you do them on your own.           

On your own, you probably don't have the language skills, you don't understand the culture, economy and politics of the country, you don't know the real market prices, and you don't know the legal system. And it may not be worthwile, to go and supervise your investment property on a regular basis.

In contrast with this, we had created by people with the highest skills in geo-marketing; it can fluently communicate with local partners, and has a very deep understanding of real estate investment and developments. It only invests in markets where it can obtain sufficient critical mass so it can work with the most qualified local partners.

What kind of projects do you invest in?

We generally invest in projects that have a relatively short time horizon and like to free our investors' money up quickly, often 12 to 18 months after the initial investment. Long term capital appreciation and/or rental income are usually very interesting, but we have found that quick rotation of our investments usually delivers higher returns while it limits the exposure of your capital.

We sometimes enter projects using the combined assets of several of our investors, so we can negociate better prices and assure that the projects are followed up closely without eating up profits with legal, travel costs etc.

How is the tax situation in Brazil?

Brazilian authorities are very happy with foreign investment money flowing in, and very little questions are being asked. As long as the money enters Brasil openly via an international bank account they do not care how are where the money was made. 

Why should I invest with you instead of a local agency?

Local agents are paid by the sellers, and will often say or promise anything to get the sales and the commission. Once the sale is closed, they care little or nothing about your investment results.

We, however, depends on a long-standing relationship and repeat business with its investors. Working only for you, we can be much more objective and rigid in our selection. And once you have made your investment, we use all our knowhow to make sure you get all the profits you're expecting - because we know that this is exactly what will make you come back.

Can you custom-design an investment project for us?

In fact, that's what we like best. If you tell us your investment criteria - budget, expected return, time horizon,  risk profile, etc., we can help you find the best investment for you.

Should you be worried about safety?

Brazilians are remarkably peaceful, christian people, and in spite of the huge inequalities between rich and poor they are not a violent people at all. Compare this to most South- or Central American countries and the difference is striking.

But obviously, in some of its multi-million mega-cities, there is violence in some areas of town where fights between gangs and police are taking place. And petty crime is common in the top tourist spots like Copacabana in Rio, where the combination of night-life, drunk tourists and prostitutes creates lots of opportunities for pick-pockets.

However, in most of the country, especially in the coastal villages and resorts, there is no violence or danger to speak of.

Feel free to contact us !


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