Local expertise is vital for buyers

PUBLISHED : Wednesday, 01 April, 2009, 12:00am
UPDATED : Wednesday, 01 April, 2009, 12:00am

Foreigners are free to buy property anywhere in Brazil. Investment returns and costs are reasonable, but investors need expert help to buy in a land where little English or Chinese is spoken and the legal system is different.

First, the good news. According to the Global Property Guide, Brazilian property law is pro-landlord, yields are 'good' and transaction costs 'moderate'. Gross yields are between 6.5 per cent and 8.5 per cent in Sao Paulo and slightly lower in Rio de Janeiro, estate agency Knight Frank reported.

In the resorts of northeast Brazil, rental guarantees of 5 per cent or more are available for a couple of years at new developments. Lettings in Brazil's holiday resorts are highly seasonal, so void periods can be lengthy, Knight Frank said.

Purchase costs, including stamp duty which varies according to the location, amount to about 7 per cent of the value of a property. When it comes to selling, the vendor pays a 5 per cent fee to the estate agent.

Rental income is taxed at 15 per cent and capital gains 25 per cent, typically. The government tightly controls mortgage lending to foreigners, but HSBC recently funded Hong Kong investors buying property through estate agency Dehouche Land.

There are some questions that investors need to think about before making any decisions.

'A lot of developers are new to the game, so buyers need to question the viability of the developer and the scheme,' Nick Barnes, residential research partner at Knight Frank, said. 'Due diligence is absolutely vital on a project.'

Buyers need local expertise to help them buy and manage properties. 'It's a long way away, so investors are entirely in the trust of local managers to manage the property, and there are not the links between Hong Kong and Brazil as there are between Hong Kong and Britain,' Mr Barnes said.

Overseas buyers must get a tax ID form called a CPF from the Brazilian government before making an offer on a property. They can do this through their local embassy or a Brazilian lawyer.

Hiring a local lawyer is advisable, because of the complexities of Brazilian law. They can represent a buyer at the completion stage of the buying process when all the parties sign the official transfer of deeds. The buying process normally takes four to six weeks.

Buyers and their lawyers must ensure contracts are properly registered. In some cases, unscrupulous sellers have sold their home many times over, leaving unfortunate buyers in a legal tangle.