Brazilian developer courts Asian investors with cheap assets amid recession

Firm seeks funds from region by offering attractive returns as nation reels from slowing economy and graft scandal

PUBLISHED : Wednesday, 12 August, 2015, 12:04am
UPDATED : Wednesday, 12 August, 2015, 12:06am

Brazilian developer Ritz Property is tapping into Asian investors' growing appetite for global investment diversification, offering attractive returns for higher risk as Latin America's biggest economy slips into recession.

The attraction was the weakening Brazilian real, which has lost almost 25 per cent of its value this year, making assets cheaper to acquire, said Arun Rama, the company's managing director in Asia.

"When we first started [three years ago], people only knew two things about Brazil - football and samba," the Singaporean-based Rama told the South China Morning Post.

Rama has been taking investors to Brazil for familiarisation trips for the past two years, with the latest one scheduled for November.

Asians have been a rising force in global real estate investment in recent years but mainly in developed markets such as London, New York and Sydney - seen as safe bets against China's economic slowdown and the region's geopolitical instability.

Risks in Brazil are also on the rise as the government of president Dilma Rousseff struggles to stave off a possible credit rating downgrade to junk status amid falling commodity prices and a growing corruption scandal that has seen some of the country's biggest construction bosses jailed.

"Exactly because the economy is slowing down, there are many opportunities to buy assets approximately 40 per cent below the price a year ago," said Marcelo Sasaki, a Sao Paulo-based senior manager of global property consultancy JLL. "We are sure Brazil will recover."

Global funds such as Blackstone Group and Brookfield Asset Management have been bargain hunting.

More recently, Brazil's Jive Investment Holdings raised R$500 million from Credit Suisse's private banking clients for Brazil's largest-ever distressed asset fund, seeking to diversify into toxic credit and real estate assets.

Sasaki said that as domestic bank lending was expensive - interest rates are sometimes more than 20 per cent per annum - the best approach was to borrow from a developed country with low interest rates.

That is what Rama has been doing at Ritz Property, offering returns that beat competing markets, although he declined to give a specific figure.

One crucial difference between Brazil and other developed markets is that there is little appetite for Asians to buy holiday or retirement homes, or homes for their children's education, given that Brazil is far from their home countries.

The money Ritz Property raised from Asian families - it has also recently started talks with institutional investors - would be used to finance infrastructure construction at its projects, such as water, electricity, telephone and sewage facilities and amenities, Rama said.

It would otherwise be harder to sell raw land plots to Brazilians to build their homes, and the prices would not be high.

What Asian investors get is a title deed under the so-called undivided fractional interest as collateral for the amount they put in.

The contracts have clear exit plans: Ritz Property will buy back the title deeds upon loan maturity - three years for its first project sold in Asia and 18 months for the latest one, Rama said.

Sasaki said the more traditional and safer approach was to invest through a fund.

It was also important to have a good lawyer, he added.