Financing Property in South America, Brazil

Without doubt Brazil is the regional powerhouse in South America, and economic experts have long been predicting that alongside China, India and Russia, Brazil will be a leading economy of the future.  Dr Mark Mobius, the renowned emerging markets fund manager with over US$37 billion under his control, has chosen Brazil as one of the best countries in the world with regard to investment potential.  And who are we to argue!

Currently classed as an emerging property market, Brazil saw property prices increasing 20% over the last 5 years up to the end of 2007, and it witnessed a 20% increase in 2008 alone in some areas.  A factor helping to push property prices up is a shortage of residential property, which makes buying property in Brazil an interesting option for investors.

In this article we look at financing property in South America, and in particular Brazil.  Therefore, if you’re an investor looking for a market with massive potential for profit and you want to know how to access it – this is the article for you!

Place the information about the returns already made in Brazil’s property market alongside the fact that there is major investment in Brazil from Portugese and Spanish property developers, as well as hotel and resort chains aimed at the European tourist market, and you can see the prospect of further property appreciation. 

Also, there are now more direct flights into Rio De Janeiro from the UK and Europe which should help real estate in Brazil buck the trend and continue to be a location for property investors during these turbulent times.  All good news for investors – but who is financing property purchases in South America and how can you get a piece of the Brazilian property pie?

Well, when it comes to financing property in South America, Brazil falls into the same category as many other regional countries, the mortgage market is underdeveloped and the purchase of property is generally a cash affair.  In 2005 there were about 50,000 mortgage applications processed against property in Brazil, and it is currently impossible for foreign buyers to arrange a mortgage with Brazilian banks to purchase local real estate. 

There are, however, one or two options available if you are not currently sat on a pile of cash.

If you’re looking for financing for a new or off plan property in South America - and in Brazil specifically, you may find that property developers are willing to offer payment installment plans on property purchases.  General payback terms are between 12 – 60 months, and interest rates are usually competitive and on a par to financing options outside of the country.

Another option to finance real estate in Brazil is to raise equity against your own home.  Whilst this is obviously going to be more difficult at the moment with the banking crisis clenching the cheeks of mortgage assessors worldwide, if you have enough equity in your house you may be able to raise enough capital to finance your property purchase in South America without having to sell your home.  After all, prices for property in Brazil are still cheap and affordable in relative terms.

With rental yields in some tourist areas of Brazil running at between 6% and 12% per annum, plus property appreciation of up to 20% per annum and property depreciation in the UK running at around 10% each year and expected to increase in 2009, now may be the time to consider organising financing for a property purchase in South America to offset the fall in the value of your British based assets?