Mortgages
Non-Status Mortgages available from the developer
The Brazilian government has endeavoured in recent years to bring its interest rate down with some success. The rate is currently at 22% which sounds very high to us in the UK, but is a distinct improvement on past years when it reached 26.5%. As a result, the mortgage market in Brazil is in its infancy, as few people can afford finance at that rate. As the government continues its fiscal improvement programme, the interest rate should drop, thus stimulating the mortgage market and providing potential buyers with finance.
Mortgages for foreigners are incredibly difficult to find, and the rate, the paperwork and red tape involved is off-putting to say the least. At The Plantation, however, we have sourced non-status finance from the developer at a rate of 9.9% over a 10 year maturity.
The developer of The Plantation is prepared to offer investors a 70% loan-to-value (LTV) non-status mortgage. It is extremely difficult to obtain mortgages for land purchases in any country, so to be able to add the benefit of leverage to an already booming emerging market investment is great news. Plus, being a non-status mortgage, this financing will be available to all.
What are the mortgage terms?
Mortgages for land at The Plantation are non-status.
The interest rate is 9.9%.
The term is 10 years.
Payable quartely in pounds sterling (£).
In Brazil it is otherwise nearly impossible for foreigners to source mortgage finance.
The advantages of leveraging
Structuring a deal as efficiently as possible is one of our four principles of property investment and can turn a good investment into a great investment. Buying with a mortgage provides a large leveraging effect to your investment which can magnify your returns.
For example: If you bought a plot for £10,000 cash and it realised 30% growth, then you could sell it for £13,000, making a 30% return on your initial capital by turning £10,000 into £13,000. However if you bought the same plot using a 70% LTV mortgage (borrowing £7,000 and only investing £3,000 of your own capital), then you could still sell the plot for £13,000. You would have to repay the £7,000 mortgage but you would have turned £3,000 into £6,000 – a return of 100%!
Options available
The option to buy another plot in a year’s time at today’s price!
We are offering investors at The Plantation the chance to option further plots when they buy. This means that after buying one or more plots today, you can then pay a non-refundable £500 for each further plot you wish to option. This reserves the plot for you and freezes the price. In twelve months you will then pay today’s price for your reserved plot. It is also possible to obtain financing on these optioned plots, on the same terms.
You are permitted to option one plot for each plot you buy. For example, if you buy three plots, you may option up to three additional plots. Please see page 23 for a list of available optioning plots.
Economic growth in Brazil – The BRIC phenomenon
Brazil is a giant in all senses of the word. It is the fifth largest country in the world and the ninth largest economy1, with a huge population of 183 million. It is also emerging as an economic giant. It has the biggest economy in South America and has been grouped together with Russia, China and India as one of the “BRIC” countries, predicted to show enormous economic growth in the near future.
The BRIC phenomenon was first defined in a report by global financial analysts, Goldman Sachs. It identified that given these countries’ huge workforce, abundant natural resources and improving economic strategy, they have the potential in the next 50 years to outstrip the current economic leaders on the world stage. The report predicted that: “The importance of the BRIC economies in global capital markets is also going to rise dramatically”.
A recent article in the Financial Times reviewed the BRIC progress since the initial report: “Five years on, Mr O’Neill (Goldman Sachs) says that not only has the BRIC phenomenon exceeded his expectations, but that the dream is likely to continue in the years ahead.” Goldman Sachs estimates that the quartet have accounted for 30 per cent of global growth since 2000, with the BRIC share of global GDP rising, in dollar terms, from 7.8% to 11% over the same period.
Further, the BRIC states’ emerging clout has reverberated around the global economy, nowhere more so than in the commodity markets, where China and India’s seemingly insatiable thirst for metals and energy has propelled a multi-year bull run, boosting the economies of exporters such as Russia and Brazil”2.
The Goldman Sachs report is just one indicator of Brazil’s enormous potential. There are many reasons to be optimistic for Brazil’s economic future. It is self-sufficient in oil which has drastically reduced its dependence on expensive imported fuel. It is currently developing a deal with the US to export Brazil’s production of the bio-fuel ethanol, manufactured from sugar cane (currently in Brazil, 8 out of 10 new cars run on this non-fossil fuel).
Brazil is famously home to a million millionaires, and while there is no denying that the country has a problem with poverty, the middle class is growing. “The middle class in the BRIC could grow fourfold in the next decade” (3)
Brazil’s economy grew by 5.1% in 2004, dropped to 2.3% in 2005 but increased sufficiently last year to reassure the IMF that its policies were succeeding. Foreign Direct Investment (FDI) into Brazil in 2005 was a healthy US$30 billion and a record trade surplus of US$44.8 billion was beaten only by their BRIC colleagues in Russia and China.
The current government, headed by President Luiz Inacio Lula da Silva aims to be tough on the economy to encourage growth and in his inauguration speech in January 2007, he vowed to bring down inflation and foreign debt, and increase the minimum wage. He has been partially successful, bringing inflation down to a more manageable rate, currently at 5.7%, and is working to encourage foreign direct investment amongst other economic reforms.
The word is spreading about Brazil and the economic potential there is best summed up by comments in the Goldman Sachs report: “Fantastic opportunities… spectacular potential”.
What does this mean for investors at the Plantation?
Economic growth and improvement is great news for property investors in a country like Brazil.
1. It demonstrates stability, both economic and political. The creation of the conditions for economic growth enable capital growth to occur, thus pushing up the value of your investment there.
2. A growing economy means salaries are pushed up and domestic demand for property also grows as the population becomes more able to afford to buy. This demand in turn pushes up property prices making an investment in land there increase in value. It creates a strong onward sales market for your land or property.
An improving economy means that a greater percentage of the population improves their circumstances and an increasingly wealthy middle class grows. This group will want to buy holiday or second homes in the most popular holiday destination in Brazil – Bahia.
1. siteresources.worldbank.org/DATASTATISTICS
2. search.ft.com/ftArticle
3. goldmansachs.com/insight
The Brazilians’ holidaydestination of choice
Bahia’s coastline is an extremely popular holiday destination for Brazilians – it has a perfect combination of beach and climate for the busy city dwellers of Rio and Sao Paulo and is easily accessible. These monster cities have huge populations (6.2 million and 10.3 million respectively) and are overcrowded, traffic-jammed and hectic. Bahia offers a change of pace and space to relax, and is only a 2-hour flight from these cities. The beaches are beautiful, and Brazilians love the laidback, party atmosphere of the area. Bahia is also known to the Brazilians as a great party destination – during Carnival season, after the party has left Rio it relocates to Porto Seguro and continues for another week!
Bahia state is home to some of the most upmarket resorts in Brazil, the most famous of which is Trancoso, south of Porto Seguro, where boutique hotels abound and figures such as Gisele Bundchen, Naomi Campbell and several sporting stars already own second homes there.
Also, south of Salvador is the upmarket resort of Itacare where renowned hotelier Anouska Hempel is opening a spa resort in late 2007.
Word is spreading about these idyllic resorts – and Bahia is starting to register on the international tourism radar too. It is increasingly featured in travel articles – it recently appeared in the prestigious Condé Nast Traveller magazine as well as Marie Claire, the Daily Telegraph and the Sunday Times. Several British travel agents have started to send their holiday makers there.
“US investors and retirees are discovering Brazil and choosing it as a location for a second home or somewhere to retire to.”
Brazil has the highest helicopter ownership per capita in the developing world, so it is not hard to see that there will be a large group of locals who holiday there and who will be keen to buy land in this in-demand area.
As the word spreads about Brazil’s great beauty, climate and high standard but low cost of living, overseas investors will be keen to buy a piece of paradise. US investors and retirees are already discovering Brazil and choosing it as a location for a second home or somewhere to retire to.
Tourism in Brazil is a growing sector. The country had 5,358,000 visitors in 2005, an increase of 4% since 2004, placing them as the fourth greatest tourist destination in the Americas. Of these, 991,000 were Argentine, 792,000 from the United States and 373,000 from Portugal. All of these factors contribute to create a strong onward sales market – we anticipate that land at The Plantation will be in demand from the local market, as well as UK, American and European buyers.
Transport connections from UK, US and Europe
You can fly to Brazil direct from London and Manchester, flying to any of the major cities of Salvador, Sao Paulo or Rio de Janeiro. As it is such a large country, internal flights are common and relatively cheap.
Brazil is a popular destination for the Portuguese who share a language with the Brazilians, and also the Spanish and Italians. It is growing in popularity amongst Americans too, who are keen to sample the unique colour and energy in a country that offers them good value for their dollars. Delta, American, and United Airlines all serve Rio and São Paulo from major U.S. hubs, and Continental offers non-stop flights out of Newark and Houston to São Paulo. From there, Brazilian carriers TAM and Varig make the two-hour flight to Salvador.
1. http://www.world-tourism.org/facts/eng/pdf/highlights/highlights_06_eng_lr.pdf
Economic & political stability
Brazil is now one of the most stable countries in South America. President Luiz Inácio Lula da Silva, known as Lula, has just been re-elected for another four years, on a groundswell of public optimism reflected by Brazil’s increased economic and political stability. All his key speeches since his re-election have focused on ‘unshackling the Brazilian economy’ as he looks for faster economic growth, and opportunities to take advantage of the global economy.
Consensus around common objectives has been the Brazilian way. Successive governments successfully liberated the country from military rule in the 1980s and stabilised the currency in the 1990s. These have developed the foundations for a strong economy2. Sustainable economic development is a key priority with policies focusing on economic and social inclusion, education, and the internationalization of the Brazilian economy. This, combined with changes in tax reductions has increased buying power in the economy.
2. www.braziltradenet.gov.br/frmBrazilTradeNet.aspx
Exit strategy
The land at The Plantation will be much in demand from both the domestic market and international buyers. The reasons for this are its great position next to an established town with good amenities and its location at the heart of Brazil’s most popular holiday destination and tourist numbers are expect to rise sharply over the next few years. Bahia is the number one spot for both the domestic and foreign markets and the state government has planned investments of US$2.2 billion into the tourism sector by 20101.
There are two main strategies that investors may wish to adopt to realise their returns from a Plantation investment:
Land Banking
Land banking is a form of investment whereby the investor buys land and holds it for a period of time to benefit from rising prices and capital growth. Land in a rising market is valuable, especially land with outline planning permission obtained, close to amenities and stunning scenery. As an investment, buying land eliminates the need to find tenants and extract rent from them in order to make a return.
Selling on to the local domestic market should be considered - the demand for homes in Belmonte is high. In addition, some of the plots at The Plantation are relatively small which will allow locals from Belmonte to buy and build on them as permanent homes. International interest and domestic holiday homes seekers are often attracted to land with planning, as they may shape their dream residence, buying their very own piece of paradise.
Building
The alternative strategy is to buy a plot with a view to build a villa on it yourself and then sell on the finished property for maximum gain.
The plots at the Plantation are offered for sale on the understanding that the buyer can only build residential property on them. Investors buying land at The Plantation are not permitted to build retail or business premises on their plot.
Investors have the choice of either building villas to their own design or alternatively the developer has designed villas that you can chose to build through his construction contractors. The plans and prices for these villas are available on request from your property consultant at Ready2invest.
For investors choosing this strategy, a UK-based project manager will be appointed by the developer to oversee the construction of villas.
www.setur.ba.gov.br/
Developer villa options
Very Cheap Build Costs
A UK-based project manager will be appointed by the developer to oversee the build of villas. Below are a selection of villa types drawn up by the developer’s architect that are available for smaller plots. The decision to opt into this scheme and build a villa must be taken within 2 years of purchase.
Build costs from £268 per m2 offer fantastic value for money. Eastern European build costs are upwards of £400 per m2 for example.
How will I make money on this deal?
The next few pages highlight some possible investment strategies that could be adopted for a Plantation Investment. Incorporating the deposit amounts, the discount to market value, expected high growth and payments. Based on historical data and looking at Brazil’s current economic growth, we have included different, yet realistic, rates of growth in order to present a full spectrum of possible returns.
1. Short-term investment with finance
Investor description
Investors who are keen to minimise capital outlay and gain quick returns. Investors relying on a quick sale should always be able to cover their costs should they not sell by their planned date.
2. Mid-term, multi-plot purchase with finance
Investor description
This strategy is best suited to serious investors who are looking to maximise their returns over an extended period of growth. Buying multiple plots saves money on purchase costs and allows for extra options on future plots.
3. Long-term cash purchase
Investor description
For investors looking for a long term investment, and perhaps with the option to build themselves. A cash purchase is most financially rewarding for longer term investment as the mortgage term is only 10 years.
Payment timetable
Protecting your investment – where does your money go?
Once you have sent in your R2i fee and reservation form, a contract is issued to you. You then sign and return this with a 30% deposit which is placed in a Ready2invest client sterling bank account in the UK. This is then transferred to the developer’s bank account at which point the land title is issued to the purchaser. The land title process in Brazil is similar to that in the UK, in that there is a central land registry to avoid title disputes.
Plots for sale
Purchase plots
We have secured 250 plots of an average size of 360m². These plots have outline planning permission for residential buildings, with a permissible build size of a third of the plots times 1.5 storeys.
Buying land at The Plantation - FAQs
At what planning permission stage is the land?
The land currently has outline consent, this is more than simple zoning, meaning the detail of the designs are agreed in principal, subject to villa choice per plot. This consent is valid for 5 years, after that investors wishing to build any property on their land must re-apply for planning consent.
When DO I get title?
Ownership title is ready to be handed over immediately, therefore investors buying in cash will need to pay the full amount within 14 days of contract. Investors purchasing with finance will recieve title on reciept of their first mortgage payment.
Is there a deposit payable?
As previously stated on page 7, there is non-status financing available from the developer at a rate of 9.9% over a ten-year term. If you decide to buy with a mortgage, there is a 30% deposit payable to secure your plot.
How do I pay my mortgage?
Mortgage payments will be due on a quarterly basis and can be paid in pounds sterling. There is no penalty charge for early payments.
What else is happening on the development site?
The developer has a distinct aim to design The Plantation sensitively and to the benefit of the town of Belmonte. It is with this understanding that he has gained planning permission to develop The Plantation. He has secured planning for low density villas on the site. There will also be swimming pools, restaurants and boutique shops.
What size property can I build?
The planning permission grants that you can build on one third of your plot, to a value of one and a half storeys high. This means that the maximum “footprint” you can have on your plot is one third of your total plot size, (i.e. 120m² on a 360m2 plot). And your total amount of permissible floor area is 1.5 times this figure (180m2).
So for example on a 360m2 plot you could build a maximum 120m2 ground floor allowing a 60m2 first floor. Or you could build a smaller 90m2 ground floor and an equal 90m2 first floor, or any combination in-between. Both examples equal 180m2 and neither exceed the footprint size.
How many plots can I buy?
There is no limit to the number of plots you can buy. Adjacent plots can be combined to build on but the building restrictions remain one third of the total area by one and a half storeys.
What are the additional costs payable?
Investors should budget 7% of the purchase price for additional costs. Please see the page 26 for more details on some of the
costs involved.
How do I reserve another plot and pay next year?
Investors who buy a plot at The Plantation are also offered the option to reserve further plots at today’s price payable with a non-refundable payment of £500. This means you can secure further plots in a year’s time but still pay today’s price, in effect freezing our excellent price.
When do I get the land title?
Cash purchasers receive their land title on receipt of the full amount for the land. Investors buying with a mortgage receive their land title on receipt of their first mortgage payment. Brazil has a central land registry similar to that in the UK and land at The Plantation has solid title checked by an independent lawyer.
Who is the developer/land owner?
The developer and land owner invests in property and land throughout the world. The projects he is involved in stem from Thailand through Europe to South America. In addition he has a solid track record in the UK market. It is his intention to put the infrastructure in place at the earliest opportunity and discussions are currently in place with a contractor to this effect. He plans to use a UK based project manager highly versed in construction and with particular experience in overseas property construction.
Our lawyers have carried out complete due diligence on the current land title and planning permission and are satisfied with the results.
What about crime?
As with all countries, crime tends to be concentrated in certain areas. In Brazil the big cities have an issue with petty street crime. Outside of Rio de Janeiro, Sao Paulo and Brasilia, petty crime is not nearly as prevalent. Visitors to these cities are advised to be aware of crime and take the kind of precautions you would in any major city. Bahia’s crime rate in gerneal is much lower than these cities.
Is there currency risk in Brazil?
Currency risk is an unavoidable aspect when buying overseas property in any market. Although the purchase of a Plantation plot is due in pounds sterling, its inherent sales value to you will be determined by the Brazilian Real’s market performance.
Brazilian Real to British Pound Exchange Rate
Historically, the Brazilian Real has been pegged to the US dollar. However, this is no longer the case, so any negative movement of the US dollar will have no direct bearing on the Real. Brazil is a growing economy, its inflation is coming under control and its interest rates dropping and, as can be seen from the graph, the Real’s performance against the pound in recent years has begun to stabilize.
No one can predict the future, but we see little to suggest that currency risk should be a major concern to investors.
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.
Stamp Duty (also known as Purchase Tax)
This is currently 3% of the purchase price.
Government Purchase Tax
This is charged at between 2% and 7% depending on the cost of
the property.
Income Tax
Income tax is payable on rental profits at the following rates:
Between £3,000 and £6,000 the rate is 15% and anything over this is taxed at a rate of 27.5%
Property Transfer Tax
Brazil applies a low 2% property transfer tax on real estate property which keeps transaction costs among the lowest in the world.
Value Added Tax
VAT is charged at 18% in Brazil on merchandise, transport and communication services. Luxury items attract 25% VAT. There is no VAT payable on land.
Capital Gains Tax
When you come to sell your property, capital gains tax is 15% of the profit, although you are exempt from this if you re-invest in another property in Brazil. If you keep your property for more than 5 years, you are exempt from capital gains tax.
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.
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 this in mind, we interviewed and spoke with many Brazilian firms and chose D B F - law office as by far the most qualified to represent investors needs.
Headed by Danilo Blenner Fumis, they will provide a complete, independent service for Ready2invest clients.
D B F - law office
Danilo Blenner Fumis
Porto Seguro (BA)
Rua do Cais, 30
Rooms 01 to 04
Zip Code: 45.810 - 000
Phone / Fax: +55 73 3288 0858
The ready2invest fee
The Ready2invest fee for a land plot in Brazil is £1,500 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. Subsequent plots are reserved for a reduced fee of £1,000.
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 a land plot in Brazil without delay, please complete and sign the Reservation Form and return it to us with a non-refundable reservation cheque for £1,500. The Ready2invest reservation fee is £1,500 and for each subsequent plot reserved the fee is £1,000 per plot.
Reservation cheques should be made payable to Ready2invest (The Plantation).
Remember to include £500 for each plot you wish to option.
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.