Financial protection
All finances are held in a Special Purpose Fund, which prevents the developer from using your money to fund other projects. Money will only be released once the surveyors are satisfied about progress of the project. This ensures that the developer uses your money appropriately.
Developer underwrites Quintas das Fontes
DDC Portugal has underwritten the development at Quintas das Fontes which makes them accountable for any delays or financial issues. This adds yet another layer of risk minimisation.
Optional buyers’ insurance
To further safeguard the investor, the developer will, at a small additional cost to the investor, undertake to provide buyers’ insurance, to guarantee completion of the development.
The legal bit
The main rules applicable to the Special Purpose Fund are:
The developer’s assets will secure all tax-related debts of the development, whereas the Special Purpose Fund will only be liable for debts and obligations that are specific to the construction of the development.
The developer is liable for damages caused to the Special Purpose Fund. By establishing a Special Purpose Fund, the developer underwrites the obligation of administrating and preserving the fund.
This includes:
i) presenting deadlines for the works to be carried out; the presentation of quarterly cost balances to the Buyers Commission of Representatives;
ii) the operation of the special bank account opened for the monies of the Special Purpose Fund;
iii) maintaining appropriate and accurate accountancy;
iv) allowing any individual or entity, appointed by the Buyers
Commission of Representatives to supervise the works in progress and all documents pertaining to the Special Purpose Fund.
DDC Portugal will furthermore underwrite the development as co-guarantor, for specific performance, should the developer not meet his obligations in terms of the agreement with Ready2invest.
Before a development can begin construction it needs to be incorporated (properly registered), which means that the specific apartment is already an individual legal entity from the outset (as opposed to a fraction of a building). During the incorporation process, the developer needs to supply all the legal documents, the building schedule and finishings list.
When you purchase a unit you automatically become part of the Buyers Commission of Representatives. This Commission has the legal strength that permits it to oversee/supervise the construction schedule (including the finishings) and the Special Purpose Fund. If the developer fails to deliver on any of the building schedules or finishings, set forth during the incorporation, or becomes insolvent, the Commission can remove and replace the developer and take the development to completion. This is a very easy and efficient procedure, as seen in the Brazilian Civil Law.
Price comparables
The property market in Fortaleza is diverse, ranging from top-of-the-range beach-view apartments in the city centre to lower end favelas in the north-west of the city. The area around Quintas das Fontes, to the south-east of the centre, is primarily a mid- to high-class residential suburb.
In Brazil property is generally measured in accordance with its gross size, so to evaluate the average market value we can break the total price of the comparables down to their component price per m2.
Please note: kitchens are not generally desired in Brazilian newbuilds as residents like to choose their own, so are not included in the price of the Quintas das Fontes apartments; their value is subtracted from the price of comparables before we calculate the price per m2. They will cost between €4,000-8,000 but will not be necessary if you intend to sell your apartment, only if you rent it long-term.
An average market value in the immediate vicinity of Quintas das Fontes of €950 per m2. This indicates that our apartments average a 37% discount to market value, as demonstrated:
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Massive 37% under market value
Historically in Brazil, property was bought with cash rather than using mortgages. However, with a growing economy, rising salaries and falling interest rates, banks are becoming more willing to lend, and more and more locals have the opportunity to buy with a mortgage.
The off-plan advantage
The concept of buying off-plan is still fairly new in Brazil. Locals are reluctant to buy something that is not yet built, and Brazilian banks will not offer mortgages for this. This is good news for property investors because it means that developers are more willing to negotiate discounts in order to raise development capital early on. Developers will sell off-plan at lower prices for early phases in order to raise capital and higher prices in later phases to deliver profit.
Great deal
We have been able to secure a further 72 apartments at Quintas das Fontes at an excellent discount to market value. Our comparables indicate that the apartments are discounted 37% to the average market value.
Affordability
Although there is currently no financing available for overseas buyers at Quintas das Fontes, the average price is only €596 per m2. This is half of what you would expect to pay in most Eastern European cities – and a quarter of what you would expect to pay in more mature markets. Thus you could buy an apartment at Quintas das Fontes outright for the same amount of money that would be required for just the deposit on an equivalent property in Spain or France.
The advantages of buying under market value
Buying at a discounted price to market value gives you three main benefits:
1. You gain instant equity – i.e. the amount of your discount becomes your equity when you sell. This locks in profit when you buy and means that capital growth becomes a bonus rather than the only way to profit.
2. It covers your downside – the market would have to drop by almost the full amount of your discount before you would begin to lose money. This acts as a substantial safety net.
3. Buying at discount also acts as a leveraging tool. Capital growth is achieved on the market value of your property, not on the discounted purchase price. This means your discount has a similar effect on your capital as it would through buying with a mortgage – but without the repayments.
Exit strategy
The Quintas das Fontes development is a local play. When you come to sell, your primary target market will be the domestic middle- to upper-class sector. The middle class in Brazil is growing rapidly and with rising salaries and financing for completed units becoming increasingly available, demand is increasing rapidly, especially for secure gated communities that are close to the beach and the city.
There are a number of reputable, English-speaking local estate agents in Fortaleza. We would suggest using them when it comes to selling on your unit. Ready2invest will provide a guide list of possible estate agents closer to the time of completion, but you are of course free to use whomever you prefer.
Short-term
With the property laws in Brazil firmly supporting the buyer, there is no restriction in selling on your apartment at any price before it is completed. You may therefore be able to pass on some of your discount to initiate a quicker sale. However, local mortgages are generally only available for completed property, so demand for a finished, bricks-and-mortar unit may be higher than for an off-plan purchase.
Long-term
Holding the apartments from mid- to long-term will allow you to make the most of the expected high capital growth. In addition, as you are purchasing in cash, there are no mortgage repayments and any rental income obtained can be considered additional profit.
We always strive to find developments where there will be a balance between the number of investor-owned units and locally-owned units. This helps to prevent a glut of properties being released by investors into the market at the same time. Quintas das Fontes is a large, 1,500 unit development and our 80 units will likely be the only apartments not bought as owner-occupied homes. This is a very favourable balance for investors and could help keep demand strong when the time comes to sell.
Rental potential
There are few direct comparables in the local rental market for quality property in Fortaleza, although some older properties yield between 6-12%. There is a substantial section of society who want to rent property long-term, and who are looking for quality places to live. Many of them have permanent jobs but, as yet, cannot afford to obtain mortgages to buy their own property. There are numerous lettings agents in Fortaleza who will be able to manage your property for you.
Also, it is worth remembering that if you do choose to rent your apartment out, any rental income you receive will be a bonus, as, owing to the staged payments for this development, you will have no mortgage payments to make after completion.
Investment scanerios
We include below a couple of investment scenarios which indicate the required investor outlay, potential rental income and estimated profit forecast. We have included varying, yet realistic rates of growth in order to present a full spectrum of possible returns.
1. Short-term hold
Investor description
I will wait for the property to compete before I sell. I think a finished, bricks-and-mortar apartment will be easier to sell into the local market. I will profit from the discount available at purchase and, hopefully, capital growth in the market as the property completes.
This scenario could deliver a profit of 145% over 4 years
2. Quick flip
Investor description
I like to get in and out of an investment quickly so will attempt to “flip” my apartment – sell the apartment before it completes. This can save on completion costs. However flipping is a risky strategy as there is no guarantee that I will be able to sell in time, therefore I am prepared to cover my costs should I have to complete. To encourage a quick sale I will offer a discount to the market value of the property.
You could enjoy an annual return of 30% in this scenario
3. Mid-term hold
Investor description
I think that the Fortaleza market will flourish over the next 7 years or so and will hang on to my property after completion to maximise my returns. I will rent it out to produce an income and then sell it locally. As the mortgage market matures I may try to take out some financing on it at some point.
This scenario indicates a potential rate of return of 19% per annum
Newly built houses and apartments in Brazil do not generally include a fitted kitchen and light fittings as standard.
Our apartments at Quintas das Fontes will have a fully fitted bathroom but kitchen and light fittings are extra. The developers can provide kitchens and light fittings at an extra cost estimated to be in the region of €6,000. Therefore if you purchase an apartment there you have two options:
1. If you decide to buy an apartment and hold it for onward sale into the Brazilian market, you do not have to install a kitchen. Any purchaser will expect to have this expense, and indeed may prefer to install their own choice of kitchen and fittings.
If you plan to rent your apartment out, or wish to use it yourself, you will need to put in a kitchen. This amount is not payable until the completion of the property, in around 2½ years’ time.
Techinical specification
One of the advantages of investing in Brazil is that developers must log with the local municipality the finishing details of their developments before they can register their project. This is to protect potential buyer’s interests and to ensure, by law, that the developer will deliver the apartment finished to the pre-arranged specifications to the buyer. Below is an abridged version of the technical specification list for Quintas das Fontes. A full list is available upon request.
Tax and property ownership process
Brazil allows unrestricted ownership by foreign nationals of land and property, and all property there is freehold. The only restricted areas are those in or close to environmentally sensitive land like nature reserves, national parks and marine reserves, some agricultural land and land near the national borders.
The process of buying is relatively straightforward. The purchaser must obtain a tax registration number known as a CPF - Catastro de Pessao Fisica, which you can apply for using a lawyer whilst in Brazil, or via the embassy in the UK. Once you have secured this document, the money to pay for your land or property is required to be brought into the country via an international wire transfer to the Banco de Brasil. This is to enable the government to keep track of all monies entering the country. Again, this is a relatively simple process that a good lawyer can assist with.
Government Purchase Tax
This is charged at between 2% and 7% depending on the cost of the property. At Quintas das Fontes its is 5%.
Income Tax
Income tax is payable on rental profits at the following rates:
Between €4,500 and €9,000 the rate is 15% and anything over this is taxed at a rate of 27.5%
Value Added Tax
VAT is charged at 18% in Brazil on merchandise, transport and communication services. Luxury items attract 25% VAT.
Capital Gains Tax
When you come to sell your property, capital gains tax is 15% of the profit if you buy through a company. The rate for individuals buying is 27.5%, although you are exempt from this if you re-invest in another property in Brazil.
Local Tax
This varies from region to region and as a general guide is charged at approximately 0.6% of the value of the property.
Currency
Currency Exchange
Small differences in exchange rates make a big difference to the end amount you pay, and specialist companies compare extremely favourably to the high street banks. Ready2invest currently works with Moneycorp and Currency Solutions, currency conversion companies in London that offer an extremely personal service and excellent rates.
Moneycorp
Moneycorp, the UK’s leading foreign exchange company, can help you achieve the best exchange rates, making your money go further. They have been trading foreign currencies since 1979 and are the only foreign exchange company in the UK to have been certified to ISO 9000 Quality Assurance.
In addition, you can take advantage of the following benefits:
No commission charges or receiving bank fees.
Fast, efficient worldwide transfers.
A dedicated dealer to guide you throughout your currency transaction(s).
Extended office opening hours
Monday - Friday 7:30am - 10:30pm and 10:00am - 4:00pm Saturday.
Moneycorp offers a very straightforward, efficient and cost-effective service. Exchanging and transferring money is an easy three-step process:
1. Open a trading facility - you can register online by visiting the Moneycorp website at www.moneycorp.com or calling their London office on +44 (0)20 7589 3000
2. Book a transaction - once a trading facility has been set up, a dealer will call you and discuss your individual requirements with you. Rates are booked with your dealer over the telephone.
3. Transfer your funds - dependent on the date you require your currency.
Our contact, Ben Nicholson, is always available to take your calls at their London office and can be reached on +44 (0)20 7823 7500
Currency solutions
UK’s premier foreign exchange company for clients purchasing property overseas. Their up-to-the-second trading facilities allow you to trade or fix the exchange rate on your purchase at the most opportune time, saving you money.
• Best exchange rates. Rates are guaranteed to better any bank or financial institution saving you money.
• First-class personal service. A dedicated personal dealer makes everything simple and hassle free.
• No hidden costs. Every penny will be accounted for. There are no extra charges and the service is free.
They say:
“Exchange rates change constantly throughout the day, so the sooner you approach us, the more time we have to find and guarantee the best exchange rate available for your purchase timeframe. With a range of options to satisfy the most demanding of customers, rest assured your personal dealer will guide you hand-in-hand through all the trading options to match your requirements.”
Nigel Hodges, our dedicated R2i dealer will be happy to answer any questions you have. The London office number is 08700 42 43 44 or check out www.currencysolutions.co.uk.
Lawyers
Lawyers representing Ready2invest clients in any foreign country must be able to accomplish the following:
Act with power-of-attorney for the investor.
Guide through the conveyancing process until completion.
Provide a good level of service especially around busy times, such as completion, keeping the investor up to date with what stage they are at.
Provide an English-speaking key contact who can respond to enquiries within 48 hours by email or phone.
Provide English translations of contracts and key documents.
Provide receipts for all disbursements or out-of-hand expenses.
Include within fees the cost of all notarisation, apostils, postage, tax registration and other legal paperwork that will need to be done in Brazil.
With these key points in mind, we chose a local Portuguese firm Plataforma Legal, headed by Miguel Almeida Fernandes, as by far the best firm to represent our investors. We have worked with Miguel before and he is an experienced and trustworthy lawyer. He is used to dealing with foreign property investors and speaks perfect English. He is based in Portugal but has an office in Brazil to handle this development.
Their fee will be €1,600. As with all our developments, we ask that the investor pay 50% of the legal fees upfront and 50% at completion. This “aligns” the lawyer with the investor and ensures that a high level of representation is maintained throughout the life of the investment.
We believe this represents tremendous value for money, as the service they offer is wide ranging and actually exceeds our criteria in many ways. If you have any questions for Miguel Almeida Fernandes, please drop him an email at: almeidafernandes@mls.com.pt or call him on 00 351 210 194 602.
The ready2invest fee
The Ready2invest fee for an apartment in Quintas das Fontes is £2,500 payable for every individual reservation made. This amount is due immediately as a non-refundable reservation fee, should you choose to purchase a property through Ready2invest.
What our fee covers:
FINDING THE DEAL
Finding the deals through our network
of international finders.
Personally visiting all developments for
face-to-face meetings with key personnel and viewing the sites.
Negotiating the discount using R2i reputation and buying power.
Financially structuring the deal for maximum returns.
Completing extensive research and due diligence on:
• Title
• Planning
• Legals
• Country and town
• The development
• The developer
Securing protection for your investment.
Sourcing reputable local English-speaking lawyers in every country wherever possible.
Negotiating favourable fee structure with lawyers.
Service
Our Investor Relations staff help you through your entire investing process.
Their roles incorporate:
Answering any questions you may have during your investment process.
Guiding you through the contract and payment process.
Helping arrange a Power of Attorney if necessary.
Help organise and liaise with mortgage companies where necessary.
Arranging site visits (1 week’s notice needed).
Help source and organise furniture packs where appropriate.
Help source local letting agents where appropriate.
Update you on the progress of your investment.
Provide a friendly ear for any worries or queries you may have regarding your investment.
What we don’t do:
We don’t arrange mortgages
We don’t convert currency
We don’t manage finished property
We don’t advise on tax
About Ready2invest
When Jonty and Alise Crossick sold their retail business and moved into property in August 2003, they invested just £300,000. Twelve months later they were sitting on a property portfolio worth over £7 million with equity of over £3.5 million.
In October 2003, Jonty and Alise set up Ready2invest Limited to share their property strategy with others and deliver a professional investment brokering solution in a fragmented market. The company has become well known for its thorough research and due diligence, and for negotiating and engineering exceptional deals in the marketplace.
“We think like investors, we behave like investors and we personally invest in the developments we launch. Ready2invest grew out of a need to group together with other like minded investors in order to create the buying power to get great deals.”
Over the past two years, the company has built up a customer base of over 17,000 investors, and has achieved over €200 million of off-plan sales in many countries across Europe, each with its own administrative and legal procedures.
“Our job is to build trust with the developer and trust with you. If you know that the properties we offer are well researched, superbly priced, judiciously selected and located in prime spots, then we believe you will buy through us. If the developer is confident that we can sell a lot of properties quickly and efficiently, thereby taking some of the pain out of his transaction process, we can negotiate unbeatable deals with him. The result? You, the investor, wins. The developer wins. And we win.”
Next step
To reserve an apartment in Fortaleza without delay, please complete and sign the Reservation Form and return it to us with a non-refundable reservation cheque for £2,500.
Reservation cheques should be made payable to Ready2invest (Fortaleza).
If you are as excited as we are about investing in Brazil, then call us now on
+44 (0)1273 627 900 and speak to one of our property consultants.
For full registration details including the Registration Form and a list of Reservation Terms and Conditions, please download the full brochure as a PDF below.