Brazil: Overview

RENTAL YIELDS

Last Updated: Nov 09, 2009

Yields in Rio and Sao Paolo
are good, but not spectacular

Residential prices in Brazil have been rising steady, with around a 100% increase since we last surveyed Brazil’s residential market 3 years ago. Yields in Rio de Janeiro and Sao Paolo are moderately good, but certainly not spectacular.

Apartments in Rio have average yields of 6.52%, according to our research, which covers properties ranging from 65 square metres to 275 square metres.

Apartments in Sao Paulo have average yields of around 7.15%, for apartments measuring between 120 square metres and 450 square metres. Penthouses in Sao Paolo tend to yield more. Though the average Sao Paolo penthouse yield in our sample is just 7.35%, this is somewhat distorted by the presence of very large penthouses of 700 square metres in the sample. Small Sao Paolo penthouses can yield over 8%. (this is somewhat exceptional, that we trust our own figures enough to use them as a basis for price change.... but it IS three years, and there are no other figures. So we reckon it’s ok.

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TAXES AND COSTS

Last Updated: Feb 18, 2009

Rental income tax can be high in Brazil

Rental Income: Non-residents earning rental income in Brazil is taxed at a flat rate of 15%.

Rental income earned by non-residents who reside in low-tax territories are taxed in Brazil at a special rate of 25%.

Capital Gains: Capital gains tax is levied at a flat rate of 15%.

Inheritance: Inheritance and gift taxes are imposed at progressive rates depending on the value of the inheritance. The maximum tax rate is 8%.

Residents: Residents are taxed on their worldwide income. Income tax is levied at progressive rates, up to 27.5%.

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BUYING GUIDE

Last Updated: Nov 30, -0001

Total transaction costs are moderate in Brazil

Total roundtrip transaction costs, i.e., the amount it costs to buy and sell a property, amount to between 11% and 12% of the value of the property.

The real estate agents' fee is usually 6%. Registation fees amount to around 2% of the property's value.

Registration requires no less than 14 separate procedures. The process can be completed in about 47 days.

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LANDLORD AND TENANT

Last Updated: Nov 30, -0001

Brazil's landlord and tenant law is pro-landlord

Rents: The initial value of the rent can be freely agreed between the landlord and the tenant under Law 8.245/91, known as Lei do Inquilinato.

The landlord is generally protected by a guarantor i.e., a third person responsible for paying any unpaid rental debts of the tenant.

Tenant Eviction: Evicting non-paying tenants can be difficult, as the courts tend to be saturated. The duration of eviction suits varies by State.

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ECONOMIC GROWTH

Last Updated: Dec 21, 2009

Massive infra spending for Olympics, World Cup

The election of left-of-center Lula da Silva in 2002, a fomer union leader, brought fears that Brazil would embrace a socialist agenda, similar to other countries in the region.

Instead, he introduced a pragmatic approach that combines the free market with social support for the poor and workers - similar to a European social democracy.

His spending reforms led to a budget surplus and within the first two years of his term, lowered Brazil’s credit risk.

Sound economic management has led to falling inflation and foreign debt. After weak 1.15% growth in 2003, the economy grew by an average of 4.3% from 2004 to 2006 before growing by more than 5% in 2007 and 2008. This was in sharp contrast to the average annual growth of 1.7% from 1998 to 2002.

The government also launched Bolsa Familia, a family grant programme for poor families that has helped more than 44 million people. The minimum wage was also modestly raised, at above-inflation rates. The unemployment rate was successfully brought down to below 8% for most of 2008 from more than 12% in 2003.

Prospects for strong economic growth for the next decade soared after the announcement of hosting the Olympic Games in 2016.

Massive benefits from the games include an injection of US$51 billion until 2027 and the creation of 120,000 jobs annually until 2016, according to studies by Sao Paolo business schools for the Ministry of Sports. The government plans to provide $11 billion of investments.

Rio de Jainero promised "impeccable games" that will improve the city's infrastructure, security and environment, and generate 50,000 temporary jobs and 15,000 permanent ones.

Aside from the real estate industry, sectors to benefit clearly from the games include tourism, transport, and retail sectors. Hotels and airlines are expected to be among the biggest winners.

Long-term improvements in terms of peace and order and security are also expected. Massive relocation and reconstruction of favelas are also anticipated to provide long-terms benefits to residents of Sao Paolo and Rio de Jainero.