Real estate is one of the more complicated investments you can do in Brazil. In this article we will be looking at how to perform a real estate transaction and how to find high-value real estate prospects.
Brazil has a lot of real estate to offer, everything from beachfront resorts to metropolitan flats. Professional investors will also often look at farmland and rural areas.
Location and Price
Over the last 10 years, hundreds of thousands of foreigners have invested in property in Brazil. The highest concentration of foreign real estate investors have been in the North-East and South-East of Brazil.
Investors that bought real estate in the North-East have seen a dramatic devaluation of their properties. Many of the projects were developed at low cost, but sold at American or European price levels by international realtors. Although the North-East of Brazil can offer beautiful landscapes, the reality is that the real price level for real estate in the North-East of Brazil is much lower than those in America and Europe as well as the South-East of Brazil.
The story has been very different for investors that bought real estate in the South-East of Brazil. The area is densely populated and the appreciation of real estate in this region has increased massively over the last 10 years.
Today you will find the most expensive real estate in Rio de Janeiro, a city that combines both access to the beach and a metropolitan touch making it a highly desired city for foreign investors looking to buy real estate for personal use. However São Paulo is still ranked as one of the most attractive cities for real estate investments in the world and the most stable market in Brazil.
Real Estate Secure Investment
Buying real estate in the urban areas of Brazil is a relatively secure investment. Brazil has a safe and organised property registration system and a well-developed real estate market. However, there are some precautions and provisions to be taken so the deal will run smoothly.
According to Brazilian law any foreign citizen can acquire urban property in Brazil. When it comes to rural areas, there are some limitations that we will discuss at the end of this article.
An Independent Legal Advisor is Required
The most obvious support is the inspection of documents and due-diligence on the property deeds. Unfortunately it is all too common to see foreigners being defrauded by unscrupulous sellers and realtors in Brazil. The most common cases include seller’s negotiating real estate they do not legally control, as well as selling real estate with outstanding debts.
It is also important to be advised on how to register the investment correctly in Brazil. There are no taxes on retrieving a foreign investments from Brazil to abroad but this requires correct registration of the investment at the time that the real estate is bought.
And of course, it is also necessary to verify that the selected lawyer is legitimate. This can be done online with a service named Cadastro Nacional dos Advogadosprovided by the Brazilian Bar Association known as Ordem dos Advogados do Brasil. The service is unfortunately not available in English but you can search for lawyers based on name or OAB number. You are then able to verify the status of their license as well as see their photo.
When selecting a legal advisor you are not required to have a realtor involved in the transaction. From a buyer's side the realtor’s role is mostly related to advice about market offerings and price negotiations.
It is important to remember that realtors from a seller’s perspective, do not normally have exclusivity on the real estate. This often causes them to be defensive regarding both the address of the real estate, as well as the permission for the prospective buyer to take photos of the real estate.
As for the realtors’ registration it’s almost the same process of consulting as the lawyers. However there is no central database so it is necessary to consult the CRECI website for the state where the realtor is located.
Responsibilities of the Realtor and Legal Advisor
During the process of acquiring a property in Brazil, the lawyer and the realtor will verify that:
- The real estate is properly regularised with the government bodies
- The seller really owns the property they are selling
- The seller is allowed to sell this property
- The real estate is not on mortgage or have any other responsibility
- The contract is according to Brazilian property law
The lawyer that is acting on your behalf will also give support on the process of payment and transfer of funds and monitor the transfer of the real estate to its new owner’s name.
Lawyers normally charge between 1% to 2% of the real-estate value for their services.
Documents Required from Investment
When buying real estate as a foreigner in Brazil there are two different sets of requirements in terms of documentation.
The first and often most challenging requirement is from the bank that will be responsible for clearing the payment. Real estate sellers often do not accept direct payments from abroad, therefore it is required to have a Brazilian bank account in addition to necessary documentation to register the investment in Brazil.
In the articles "How to open a bank account in Brazil" and "Registration of Foreign Investment in Brazil" we provide an extensive look at the processes for opening a bank account as well as registering the investment.
Purchasing a real estate in Brazil does not qualify for an investor visa to Brazil as a real estate transaction performed by a foreign is not registered as a direct foreign investment with the Brazilian Central Bank. To buy a real estate and obtain an investor visa in Brazil it is required to first establish a company in Brazil. A registered investment should then be performed into the company and subsequently the company is used as the legal party in the real estate transaction.
Do not underestimate the time and complexity related to this step in the process. Getting the correct banking structure setup can take several months.
One tip is to contract a currency exchange bank and cash management bank separately. The currency exchange bank that clears the investment into the country take on some risks related to money laundry responsibility. Evaluating risk is a core skill for the currency exchange bank and they will normally provide faster responses and more detailed answers related to documentation requirements than a general purpose cash management bank would be able to do.
Documents Required for Purchase of Real Estate
For a foreigner to buy a property in Brazil the documentation requirements are relatively simple:
- Brazilian Taxpayer card known as CPF
- Sworn translation of passport
- Registration at the national Public Registry of Deeds and Documents
If the transaction is related to rural property, the foreign buyer must also present an identification card from Registro Nacional de Estrangeiros known as RNE. This identification card is only issued to foreigners with a permanent Brazilian visa.
Taxes and Fees for Real Estate Transactions
For real estate transactions in Brazil the following types of taxes and fees need to be paid:
- Imposto Sobre Transmissão de Bens Móveis known as ITBI
- Real Estate Register Fee
- Escritura Pública de Compra e Venda which is a Public Deed Fee
- Imposto Sobre Operações Financeiras known as IOF
Since management of real estate transactions are decentralised, the taxes and fees will vary from city to city. The only exception is IOF which is a Federal tax charged on the transaction of money to Brazil.
We have made a series of articles outlining the costs in different Brazilian cities:
- Taxes and fees for buying real estate in São Paulo
- Taxes and fees for buying real estate in Rio de Janeiro
- Taxes and fees for buying real estate in Brasília
- Taxes and fees for buying real estate in Salvador
- Taxes and fees for buying real estate in Fortaleza
Some properties also have to pay a contribution named Laudêmio. It is typical for beachfront or other properties located near water to be subject to this charge due to historic reasons. The payment is managed by the Registry of the Federal Heritage, in Portuguese known as Secretaria do Patrimônio da União and a significant amount of the contribution is directed to the Catholic Church.
If the real estate is subject to Laudêmio, the rates range from 2% to 5% of the declared value of the transaction.
Purchase and Use of Rural Real Estate by Foreigners
When it comes to the purchase of rural land by foreigners the laws differentiates the process for individuals and legal entities. The restrictions imposed on foreigners is intended to defend the integrity of the Brazilian territory and national security.
The National Institute for Agrarian Reform better known as INCRA estimates that around 0.51% of Brazilian territory is owned by foreigners. Their estimates are based on 34.371 rural properties and 4.3 million hectares of land owned by foreigners. Other institutes suggest that foreign participation in the ownership of Brazilian land is much higher, especially in some Amazon states like the Amazonas, Pará and Mato Grosso.
Rural property acquired by foreign individuals
Only foreigners with Brazilian residence visas can acquire rural property. The law does not specify if the residency is permanent or temporary, only proof of residence in the country. So foreigners that do not legally live in Brazil simply cannot buy rural properties in the country.
Foreigners that live legally in the country can normally purchase rural real estate in Brazil with the following conditions:
- Purchase of more than 1 property will only be allowed if authorised by the National Institute for Agrarian Reform
- The transaction does not exceed the percentage limits of land to foreigners properties in the Brazilian municipality. The foreign ownership is limited to 25% of the total rural municipality area and 10% of the rural municipality area owned by citizens from a single country
- The area to be purchased is not located along the Brazilian national border
Rural property acquired by foreign legal entities
Foreign companies authorised to operate in Brazil can only acquire rural properties if they develop agricultural projects in the country, industrial livestock or colonisation, and such projects must be approved by the Ministry of Agriculture or the Ministry of Industry and Trade depending on the matter.
As for the area limits imposed, the foreign legal entity may only acquire rural property if the transaction does not exceed 25% of the total rural municipality area owned by foreigners and not exceed 10% of the rural municipality area that can be owned by citizens or companies from a single country.