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Brazil: Brazil

Guide to the Risk and Opportunity Ratings

At the end of each country profile, we have given a risk rating and an opportunity rating. These ratings are a summary of our analysis indicating the levels of risk when investing in a market and the level of opportunity to profit from it.

The ratings themselves are simple. Both work on a scale of one to five. The opportunity rating is indicated by the $ symbol. A single $ equals a low opportunity whilst 5 of them ($ $ $ $ $) equals the highest opportunity ranking.

For risk we have used the * symbol. A ranking of * equals a low risk rating whilst * * * * * equals a high risk rating.

Introduction

The fifth-largest country in the world, Brazil borders every country in South America except for Ecuador and Chile and straddles four time zones. Thirty-five times the size of the United Kingdom, the country boasts a huge variety of landscapes, from the dense jungle of the Amazon rainforest, to the beautiful white beaches of the 7,250-kilometre coastline, to the mountains, valleys and waterfalls of the interior. Such diversity, along with the climate, the rich cultural life and the hospitality and passion of the Brazilian people, has made Brazil one of the biggest tourist destinations in the world, with something for everyone.

Historically, Brazil’s economic fortunes have been mixed. However, it is now keen to assure the world that it is a country on the way up. In 2002, whilst America was focusing on security and on a potential war against Iraq, Brazil became part of the BRIC alliance, signing a trade and cooperation agreement with Russia, India and China and securing an agreement to supply these countries with raw materials and natural resources. Following this, the country’s GDP grew by 5.3%, its fastest rate since 1996.

Since 2003, President Lula’s administration has steadied exchange rates and aided social stability, and today Brazil ranks as the 13th largest economy on the planet. Goldman Sachs has predicted that it will become the fifth largest by 2035, making it one of the most compelling equity investment cases among the world’s large countries.

Is this a good place to buy?

Brazil is classified as a developing country, a description that more often than not means poor, with inadequate infrastructure and sometimes corruption. It can however also signify an untapped country rich with natural resources – a definition which fits Brazil perfectly. Property and land prices, though rising, are still undervalued and have a lot of potential.

Aside from the tropical climate, spectacular and varied scenery, the culture of enjoyment and the year-round sunshine (giving an annual potential occupancy rate of around 30 weeks), there are a number of practical reasons to buy property here. Brazil is considered a low risk in terms of war, terrorism and natural disasters, and the economy is relatively stable.

Property can be purchased on a 100% freehold basis, and both property rights and title are secure whilst taxes remain low (property taxes stand at around 0.2% to 2% of the assessed value). For those wishing to buy land or property for use as a second home or for retirement, the cost of living here stands at around 20% of that of the UK, and the currency exchange rate is favourable. Retirees are entitled to instant residency from the age of 50, otherwise multiple-entry visas are available.

Investors in rental properties can expect returns of approximately 6-7% per annum, based on an average of 60% occupancy, and property prices are increasing by over 15% a year. Finally, the selling process is easy, with transfer of title a simple process.

Price history

Prices in Brazil have been relatively unstable over the past few years, and Brazil experienced a decrease in property prices after the devaluation of its currency in 1999. In the four years leading up to 2005, property which had been sold at R$150,000 (£38,000/$65,000) went down to less than R$100,000 (£25,000/$42,000). Prices are therefore cheap, with a more stable economy forming a stronger base for values to climb back to their previous levels. Prices for a detached villa start at around £12,000, although a significant premium will be added to property close to Rio. Prices are also higher in the popular regions of North-East Brazil.

Another factor behind these predictions is the recent success of the tourism sector. The modernisation of main airports and construction of high-standard hotels and resorts (many of them operated by international groups) have boosted tourism in the northeast, and the government is committed to fostering the tourism market. Daily flights are available from a large number of European cities, and a week’s holiday from the UK including flights and accommodation can currently be found for as little as £299. Capital appreciation in Ceará in the North, where the number of foreign tourists has increased by 26% since 2000, reached 20% in 2004, a figure matched in a number of towns in Brazil.

More pages

Page 1: Guide to the Risk and Opportunity Ratings
Page 2: Which type of property should you go for?
Page 3: Key risks and opportunities

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