Brazil - A Property Investor's Dream?

With a relatively stable political structure and an enviably healthy economy derived largely from foreign investment into residential real estate and oil reserves, the Latin American giant Brazil is, it seems, bucking the global downturn that is affecting many markets around the world and emerging something of an investors’ dream. In fact, it was named the world’s most significant emerging market in the respected Morgan Stanley’s Emerging Market Index just recently. Beleaguered global financial markets are looking at Brazil’s economy with admiration it seems.

“Brazil’s central bank believes that it has underestimated the strength of its economy and has moved its previous forecast of 4.5 per cent GDP growth for 2008 up to 4.8 per cent,” says Samantha Gore of uv10, a Brazil property specialist company based in Spain. “Having studied figures just released, which show Brazil’s current GDP to be £749 billion in 2007, up 5.4 per cent on 2006, the official number-crunchers decided that they’d been too cautious.

Brazil does seem to be resilient to the turbulence in the northern half of the Americas, a turbulence which has sent shockwaves across Europe. And, while the Spanish property market is currently down on its luck, Brazil has the very same to thank for making a major contribution to its current fortune.”

Its property market is still very much in its infancy, however. Prices are still well below the £80k mark in most areas and are expected to yield a good rate of capital growth over the next few years as current demand way outstrips supply.

Estimates suggest capital growth could be as much as 20 per cent year-on-year. Nearly eight million new homes are needed to cater for the country’s growing population, but while its cities like Sao Paulo and Rio de Janeiro may be home to the largest number of its residents, it is the north-east region that is seeing a surge in investment property.

Much of the current real estate development is focused on the Rio Grande do Norte region on the north-east coast, and more specifically around Natal, the region’s capital. The city is widely regarded as having some of the finest palm tree-lined beaches and lagoons in the world that stretch for 400 or more miles. The coastline is characterised by a chain of sand dunes, including the Genipabu and Tibau do Sul dunes that have bars and restaurants dotted along their length, and the bays of Pipa and Pirangi. Small resorts are springing up, although the whole area is still new in terms of real estate development.

Uv10 is currently marketing a number of developments in the north-east. Among them, the Quinta da Lagoa resort of 83 high-spec studio, townhouses and bungalows that the company says is ideal for rentals. Located in Tibau do Sul, near Natal, the development guarantees five per cent gross per annum for three years from delivery. “Judging by the figures from its sister resort, Pousada dos Girassois in Pipa, which enjoys 80 per cent occupancy per year, you could stand to make a lot more,” says Gore. “Girassois is one of the most successful developments in Pipa and the value of property for sale in Pipa has doubled in just two years.” Prices at Quinta da Lagoa start from around £45,200.

Around 80,000 new houses and apartments are earmarked for the north-eastern region, especially around Natal, to cater for the region’s growing population and the demand from foreigners for second residences. While this appears a large figure the area is vast however, and development is controlled by the government to protect the environment, adding to the area’s appeal as an investment hotspot. Combine this with the potential for some good rental returns from the region’s increasingly buoyant tourism sector that has seen significant investment in sports and leisure centres in recent years, and you have an area of Brazil that is becoming more and more appealing.

“The property market in Natal is in its relative infancy and the coastline is almost development-free; supply currently lags way below demand,” says Trevor Byrne, GEM Estates’ Brazil expert. “New development is springing up alongside sporting and leisure facilities but the authorities are paying great attention to the environment before granting licenses - aesthetics and stability are of greater importance to them than squeezing every last penny out of every last square metre.”

GEM Estates is currently offering spacious beachside apartments and villas in Tibau do Sul for as little as £75,200 and village apartments in nearby Maracajaú from £45,000. Its Lago Azul development in Tibau do Sul has a frontline beach position with ocean views. There are many on-site amenities, such as pools and tennis courts. So confident is the company in the project that it is offering all clients a seven per cent guaranteed rental return for three years from completion. The company also has Ma-Noa Park in the village of Maracajau, near Natal, which is famed for its on-site aqua park and extensive sports facilities, including a golf course and football pitch. Prices are low and capital growth expected to be high.

“Prices of property for sale in Natal are incredibly low right now but outside investment in infrastructure such as golf courses and a new airport will increase demand for property and inevitably trigger natural price hikes,” adds Byrne. “Being the closest part of Brazil to Europe, thus drastically cutting down flying times to between seven and nine hours from most European cities, Natal has phenomenal beaches, a permanent summer and with year-round rental potential suits both audiences - the pure investor and the holiday-home hunter.”

The whole area, which enjoys a glorious climate, has attracted government funding to protect the natural heritage as well as enhancing the tourist infrastructure. Development work is closely monitored so as not to detract from the area’s natural wonders. Its towns, villages and small resorts are connected by the coastal highway that winds its way through countryside overlooking the bays and dunes, while Natal’s Augusto Severo International Airport has regular flights to and from Europe. A brand new multimillion-pound airport is under construction and is due to be completed by 2010. It will be the largest airport in Latin America.

Further investment has come though the likes of international sports stars Rubens Barrichello, who is building a motor sports facility in the region, and David Beckham, the force behind a football academy in Natal. The project is timely for when Brazil hosts the 2014 World Cup. The region around Natal is also earmarked for several large golf courses. Projects such as these increase the region’s potential for tourism, and thereby rental income and capital growth on real estate investment significantly.

“The investment in the general infrastructure and tourism in the north-east of Brazil has been significant over the past few years, and is set to continue for the foreseeable future,” says Deanne DuKhan, portfolio strategist with specialist property company Experience International in London. The company is currently marketing a number of new high specification projects, including the Jacuma Beach Resort in Natal where prices start from just £63,700, the nearby luxury beachside resort of Praia Bonita, where studios and apartments start from £39,070 and the gated community of Pipa Paradise, which comprises 128 sizable apartments and villas that offer good value at prices from £61,899.

“The government is committed to developing the area and with the new airport just a couple of years away we feel that property in the Natal area and along this coastline of Brazil offer some of the most exciting investment opportunities we have seen in a long time.”