RITZ-G5`S INVESTOR`S GUIDE TO BRAZIL 2016

Transcription

RITZ-G5’S
INVESTOR’S GUIDE
TO BRAZIL
2016
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WELCOME
Over the last decade Brazil, ‘the sleeping giant’, has woken up to become one of the most attractive countries to
invest in amongst international property buyers much thanks to its economic and real estate boom.
Its macro-economic situation has become far more stable (with an average 10-year GDP growth of 3.6%) and
despite the current, temporary economic downturn, Brazil has progressed vastly in its economic and real estate
development during this time period.
Brazil has many significant attractions with regards to investment. It is a large commodity exporter; one of the top
global destinations for Foreign Direct Investment (FDI); rich in oil reserves and mineral deposits; with a booming
and expanding Middle Class; favourable government policy changes for property investors; housing shortage
across the country and the upcoming Summer Olympic Games in 2016.
For international property investors it is particularly important to recognise that Brazil’s young, expanding Middle
Class is pushing up property demand, thus, the housing shortage is likely to remain for some time ahead. This
creates business opportunities for real estate developers and investors in Brazil, not only to build high quality,
varied types of residential housing across Brazil but also to construct modern, high quality hotels, shopping
centres and offices.
We sincerely hope that you will enjoy reading our ‘Investor’s Guide to Brazil 2016’, exclusively from Ritz-G5. With
this publication, we wish to assist you in your research and due diligence process for property investment, helping
you to find out more about Brazil and its property market.
Nina Booty,
Research Analyst, Ritz-G5
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ABOUT BRAZIL
Brazil is Latin America’s largest country, covering nearly half of South America’s territory (47.3%). It comprises an
area of 8,547,403 km² (including 55,455 km² of water) making it the world’s 5th largest country (following Russia,
Canada, the United States and China). With a population of 201 million, Brazil is also the 5th largest country
measured by the size of the population (following China, India, United States, Indonesia). Brazil is Latin America’s
economic powerhouse and with GDP amounting to USD 2 trillion, Brazil is the largest economy in South America.
Brazil borders with all Latin America’s countries with the exception of Chile and Ecuador, and the official language
spoken is Portuguese. In terms of ethnicity, 48.4% of the population (92 million) are White, 43.8% (83 million)
describe themselves as Pardo (brown), 6.8% (13 million) are Black, 0.58% (1.1 million) are Asian and 0.28%
(536,000) are Amerindian (indigenous).
The most represented religion is Christianity of which 64.6% is a part of Roman Catholicism and 22.2% of
Christians belonging to Protestantism. The remaining 8% of the population declare ‘No religion’ whilst 3% fall into
‘Other’ religions and 2% are ‘Spiritual’.
Brazil is geopolitically divided into five regions by the Instituto Brasileiro de Geografia e Estatistica (IBGE)
and each region is composed of three or more states. The five regions are: North, Northeast, West Central,
Southeast and South. Within Brazilian Federation there are 26 states and one Federal District, which contains
the capital city, Brasília.
BRAZIL
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RITZ-G5 | INVESTORS’ GUIDE TO BRAZIL 2016
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THE REGIONS
North
The North is the largest geographical region in Brazil, with an area totalling 3,869,637.9 km² which corresponds
to nearly half of Brazilian territory (45.3%). However, the population is very sparse, only 15.8 million people live in
the North region, making it the lowest population density in the country (only 3.31 people/km²).
The cities in this region are isolated from each other and far apart. There are very few paved highways and the
main mode of transport used in the region is via rivers, whilst aeroplanes are commonly used to access small,
remote communities and sometimes even in the larger cities.
The economy of the North focuses on energy production, electronic manufacturing and tourism. GDP of this
region amounted to only USD 96.2 billion in 2008, making it the least affluent region in Brazil.
The North region has the biggest portion of the Brazilian Amazon. The largest river in the world, the Amazonas
River (6,868 km long) crosses the largest forest in the world, the Amazon Rainforest (the river flows through
states Amazonas and Para in North).
The states of Amazonas, Para, Acre, Amapá, Rondônia, Roraima and Tocantins comprise the North region. The
largest cities include: Manaus (1.4 million); Belém (1.3 million); Ananindeua (392,947); Porto Velho (314,525);
Macapá (282,745); Santarém (262,721); Rio Branco (252,885); Boa Vista (220,383) and Palmas (208,000).
The climate of this region is equatorial/tropical rainforest climate, characterised by the wet and hot weather
throughout the year (no winter or summer), where rainfall is both heavy and frequent.
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Northeast
The Northeast is the second most populated region in Brazil, with 53.5 million inhabitants (29% of Brazil’s
population) comprising a total of 9 states. The Northeast region’s geographical area is also great and measures
1,561,177 km², which corresponds to 18.3% of Brazil’s total area. The GDP volume of the Northeast was 273.1
billion USD in 2009, and according to these statistics it was the third largest in Brazil, after the Southeast and
South regions.
States that comprise the Northeast region are: Alagoas, Bahia, Ceará, Maranhão, Paraíba, Pernambuco, Piauí, Rio
Grande do Norte and Sergipe. The largest cities in the Northeast, with more than half a million inhabitants are:
Salvador (2.7 million), Fortaleza (2.4 million), Recife (1.5 million), São Luís (1 million), Maceió (932,608); Natal
(789,836); Teresina (714,583); João Pessoa (595,429) and Jaboatão dos Guararapes; (580,795).
The economy of the Northeast is focused primarily on tourism, cocoa, machinery manufacturing and textiles.
The Northeast region welcomes millions of tourists seeking its natural and cultural beauties. A sunny and hot
year-around climate, beautiful beaches and the hospitality of the North-eastern people are major features of this
region.
Looking back in history, Brazil was born in the Northeast region when the Portuguese landed in Bahia in the
1500s. Africans, native Brazilians and Portuguese made the city of Salvador the first capital of Brazil, which then
became a new colony.
Economically, for some time this region used to be the most
impoverished in Brazil however, the Northeast has been growing
above the national average in recent decades particularly since the
start of the 21st century, reducing the socio-economic distance
to other regions. The Northeast region’s GDP continues to
grow faster than the national average even now, despite the
Brazilian economic downturn. In particular the Northeast
GDP volume grew by 3% in 2014, outperforming
significantly Brazil’s GDP growth of 0.1% for the same
year , making it a highly attractive for real estate
development and investment. Moreover, the
Brazilian government has been investing heavily
in the Northeast region, endorsing new, large
infrastructure projects, which have facilitated
economic growth in this region.
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West Central
The West Central region of Brazil is geographically the second largest region (after North), with the area totalling
1,612,077 km². This corresponds to 18.9% of Brazilian territory, and the area is only slightly larger than the
Northeast.
The population of this region is small comparably, only 13.4 million inhabitants which results in a low population
density (7.2 people/km²). West Central region’s GDP amounts to USD174.3 billion, around 8.3% of Brazilian total
GDP.
The states of Goiás, Mato Grosso, Mato Grosso do Sul, Distrito Federal (Federal District) comprise West Central
district. The largest cities in this region are: Brasília, the capital of Brazil (2.6 million); Goiânia (1.3 million); Campo
Grande (796,252); Cuiabá (556,298); Aparecida de Goiânia (442,978) and Anápolis (334,613).
Brasília is the country’s 4th largest city and became the new capital in 1960. Brasília is a planned city as the capital
was moved from Rio de Janeiro to a more central location in the country.
Notable characteristics of this region include the fact that this is the
land of the original Brazilian countrymen and their culture. Most of
the land in the region is used for grazing instead of agriculture,
much owed to the low population density. Thus, this region
accounts for most of the Brazilian cattle industry. It is worth
mentioning that Central West is also the least industrialised
region in the country with focus mainly based on food
and meat processing. The economy of this region
is therefore concentrated primarily on livestock,
soybeans and tourism.
The climate in West Central Brazil varies across
the region. A Savannah climate is present in
the northeast and the east of the region
(hot, with little rainfall during winter),
Tropical in the east and in the west
of the region and Equatorial in the
north. Temperate climate is also
present in some places in the south
of this region.
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South
The South region is geographically the smallest, with an area measuring 577,214 km², which corresponds to
only 6.8% of Brazilian territory. The population of the South amounts to 25.8 million inhabitants, making it a very
densely populated region (43.5 people/km²).
The South region is economically affluent, its GDP volume is the second largest in Brazil (after the Southeast),
amounting to USD 313.8 billion (as at 2008). The economy of the South is mostly focussed on machinery and
automobile industries, textiles, tourism, energy production, information technology, orange, apple, and grapefruit.
The states of Paraná, Rio Grande do Sul, Santa Catarina comprise the South region.The largest cities in excess of
400,000 inhabitants include: Curitiba (1.8 million); Porto Alegre (1.4 million); Joinville (520,905); Londrina (511,278);
Caxias do Sul (441,332); and Florianopolis (427,298).
The climate of the South region varies. It is Subtropical by the coast (hot to moderately hot in the summer, mild
and very humid winters) and Temperate by the mountain range, the valleys and the highlands in the interior
(moderate temperatures in the summer and cold in the winter, with well distributed rainfalls). Snow is relatively
common, mainly in the highlands.
The South region is historically characterised by its high standard of living and includes some of the cities with the
highest HDI levels in the country, including their capitals (however, the region is not immune from poverty and
crime, albeit to smaller extent). The region is almost the newest in terms of urbanisation as it was populated by
European immigrants after World War I and II. European immigrants have added to the local culture, architecture,
cuisine and forms of agriculture in the region.
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Southeast
The most populated region in Brazil is the Southeast with 80.7 million people (38% of Brazil’s population), and it
has four states in total. In contrast to the large population size, the geographical area of the Southeast measures
around 927,286 km², which compared to other regions of Brazil ranks it as the second smallest region by area size
(after the South region). The Southeast is economically the most developed region with the largest GDP volume
in Brazil, amounting to USD803 billion. States that comprise the Southeast region are: Espírito Santo, Minas Gerais,
Rio de Janeiro and São Paulo.
São Paulo is the largest city in the Southeast region and whole of Brazil, with over 11 million inhabitants. It is the
business centre of Brazil and popular for business tourism (more so than leisure tourism). The city is home to
the São Paulo Stock Exchange and several of the tallest buildings in Brazil (including Mirante do Vale, Edifício Itália,
Banespa, North Tower and others). The GDP of São Paulo is actually the largest in the whole of Latin America
and the Southern Hemisphere.
Brazil’s second largest city, Rio de Janeiro, which has 6.5 million inhabitants, is also located in the Southeast region.
Rio de Janeiro is tourism-wise one of the most visited cities in the Southern Hemisphere and is known for its
stunning natural setting, Carnival, Samba, Bossa Nova, and Balneario beaches (which include Barra da Tijuca,
Copacabana, Ipanema, and Leblon).
In addition to the beaches, some of the most famous landmarks include the giant statue of Christ the Redeemer
atop Corcovado mountain, named one of the New Seven Wonders of the World; Sugarloaf Mountain with its
cable car; the Sambódromo, a permanent grandstand-lined parade avenue which is used during Carnival; and the
Maracanã Stadium, one of the world’s largest football stadiums. Rio de Janeiro will host the 2016 Summer Olympic
Games and 2016 Summer Paralympic Games which will be a first for both South America and a Portuguesespeaking nation to host these events.
Rio de Janiero
Christ the Redeemer
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Barra de Tijuca
São Paulo
20 REASONS TO INVEST IN BRAZIL
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1
Favourable, warm and sunny climate across several regions of Brazil and particularly in the Northeast.
2
Easy access to raw materials. Brazil is rich in oil and mineral resources (self-sufficient country in oil), which
makes overseas investors interested in Brazil.
3
Brazil has a large domestic market (201 million population) and a well-diversified economy making it less
vulnerable to international crisis.
4
According to EIU data, Brazil’s average GDP over the last 10 years amounted to 3.6%. This is a higher longterm growth average than in many other countries.
5
Brazil has an expanding mortgage market with plenty of scope for further growth.
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In terms of real estate, excellent capital appreciation over the recent decade has been noted with increasing
rental opportunities.
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Foreign investment is encouraged, buyers own 100% of land and property.
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Low cost of living when compared to many Western countries.
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The Brazilian real has depreciated significantly over the last 12 months, making it very attractive for overseas
investors to purchase property in Brazil (heavily discounted prices).
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Brazil is a country with a large and expanding Middle Class. Some 30 million people have ascended from
poverty to the middle class since the early 90s. The middle and upper classes now account for nearly 70%
of the Brazilian population.
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According to the size of its population and geographical area, Brazil is the fifth largest country in the world.
In terms of its economy, The World Bank currently ranks Brazil as the 8th largest economy in the world.
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Brazil’s population is young, the median age is 29.1 years according to IBGE.This is significantly younger than
in the West - the median age in North America is 37.2; in Europe is 40.1 whilst in Asia Pacific it is 32.8 years.
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Brazil held the FIFA World Cup in 2014 whilst Rio de Janeiro will be the host of the Summer Olympic
Games and Paralympic Games 2016.
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There were significant investments in Brazil’s infrastructure prior to the World Cup and Olympics, which
are still ongoing.This will vastly benefit the Brazilian economy and the property sector on a long-term basis.
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Brazil is considered as one of the future economic leaders alongside Russia, India and China (BRIC’s).
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Brazil has a strategic geographic position, allowing easy access to other South-American countries.
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Brazil is a beautiful country with fantastic scenery and stunning, world-class beaches.
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Brazil has a low political risk and stable democracy.
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Brazil is considered a low risk country in respect of War, Terrorism and Hurricanes (natural disasters).
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The Brazilian people as a nation are friendly, cheerful and inviting. Brazilian cities are vibrant, exciting, and host
a wide range of carnivals with music.
BRAZIL
A TOP GLOBAL INVESTMENT DESTINATION
Foreign Direct Investment
Foreign Direct Investment (FDI) is of enormous importance to Brazil as it supports the development of the
Brazilian economy (this in turn has a positive impact on its real estate market). The growth has been astonishing
as seen in the chart below (figure 1). If we compare growth between 2003 and 2014, Foreign Direct Investment
Inflows have increased from 10.1 billion USD to 62.5 billion; thus, an incredible 516% over the 11-year period.
Although the Foreign Direct Investment Inflows slipped by 2.3% in 2014 compared to 2013, the year-on-year FDI
decrease in Brazil is very minor and USD 62.5 billion is still an impressive volume of foreign investment for one
country. Also, it is worth noting according to United Nations Conference on Trade and Development (UNCTAD)
World Investment Report 2015, global FDI inflows overall fell in 2014 due to fragility of the global economy and
policy uncertainty for investors.
Foreign Direct Investment in Brazil
Figure 1.
Billions (USD)
70.0
60.0
50.0
40.0
30.0
18.1
20.0
10.0
10.1
1.9
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
0
Source: Economist Intelligence Unit, Santander Trade
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According to OECD statistics , Brazil is the largest recipient of FDI inflows in Latin America and the fourth largest
recipient in the world.The largest FDI recipients are: China (same as 2013), United States (same as 2013), United
Kingdom (five places up since 2013), Brazil (one place down since 2013) and Canada (one place down since
2013). The table of top ten global destinations for FDI inflow is shown below:
Table 1.
Country
1. China
2. US
3. United Kingdom
4. Brazil
5. Canada
6. Australia
7. Netherlands
8. Russia
9. Chile
10. Mexico
USD billion 2014
289,097
97,846
72,280
62,494
53,932
51,852
30,253
27,893
22,817
22,568
Source: OECD (2015)
According to UNCTAD and Santander Trade, Brazil is the fourth largest investor in emerging markets and
the largest investor in Latin America. The main investor countries in Brazil are the United States, Spain and
Belgium. The sectors attracting greatest foreign investment are finance, the beverage industry, oil and gas and
telecommunications.
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BRAZIL’S INVESTMENT IN INFRASTRUCTURE
In addition to Foreign Direct Investment Inflows to the Brazilian economy, it is also very important to consider
Brazil’s investment in its infrastructure development.
The Government of Brazil (in co-operation with the private sector), has already implemented a vast amount of
infrastructure projects prior to the 2014 FIFA World Cup. The total spending for the tournament amounted to
R$25.6 billion, which was spent between the stadiums and infrastructure projects (for example the new airport
opening in Natal, refurbishments and extension of several airports across Brazilian host cities, road improvements
etc.). Of this, the Brazilian Government financed 83.6% and the remainder, amounting to R$4.2 billion was funded
by the private sector.
In addition to this spending, with the coming Summer Olympic Games as
well as the need for Brazilian infrastructure improvements increasing, further
plans and infrastructure investments are on the horizon. Brazilian president
Dilma Rousseff has recently announced that the Government of Brazil
is planning to release an infrastructure package worth almost USD64
billion.The government will sell new concessions to the private sector,
aiming to strengthen partnership as well as confidence between
the two sectors.
Concessions will include 2,715 miles of highways, as well as
four large airports and a number of ports and railways. The
new round of concessions will also include the unfinished
parts of the North-South railways started some 30 years ago.
Furthermore, 29 state-owned port terminals will open to private
sector organisations in Santos, the country’s largest port as well as
in the state of Para, assisting to decongest Brazil’s busy ports.
The new infrastructure package also highlights previously agreed plans
with China to build a $40bn “bi-oceanic” railway that will connect Brazil
with the Pacific through Peru.The new road to Asia will allow easier access
between Brazil and China, thus reducing distance and costs. A feasibility study
signed by China with both Brazil and Peru will be completed by May 2016.
During the presentation of the new package, Brazil’s planning minister, Nelson Barbosa highlighted the growth
in the grain production market, which has doubled between 2000 and 2014. Nelson also noted that airport
passenger numbers grew 2.5 times over the same period whilst the number of vehicles on the roads almost
trebled, all of which is putting a huge strain on the country’s infrastructure.
Currently, the World Economic Forum ranks Brazil as 120th out of 144 countries for overall quality of infrastructure.
The new plan of concessions, equivalent to approximately 3.5 per cent of GDP, should help to greatly improve
Brazil’s ranking. If executed correctly, the plan should not only benefit Brazil’s private markets but also improve
the quality of everyday life for Brazilians. New roads and railways will provide easier access between locations,
whereas new airports will mean that domestic and international tourists can travel easier.
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NEW AIRLINE INVESTMENTS
IN NORTHEAST BRAZIL
Two airlines have recently announced that they will operate new direct flights between Northeast Brazil and
European destinations: Linea Aerea Meridiana Fly and LATAM Airlines Group, where the latter is the largest
airline in Latin America. The two new airlines, and in particular LATAM Airlines which will bring a vast number
of new flights from European destinations, will significantly boost tourism in the region. In turn, this will benefit
the property markets of Northeast Brazil, boosting the hotel market as well as the second home property
developments and investments.
The new Linea Aerea Meridiana Fly route flies between Milan, Italy and Rio Grande do Norte in Northeast Brazil.
The new route has opened up the Northeast region to property investors from Italy and neighbouring Southern
European countries. Previously, there was only one direct flight to Natal in Rio Grande do Norte from Europe,
operated by Portuguese TAP airlines out of Lisbon however the need to create more frequent flight routes from
Europe to Natal and Northeast Brazil has been present for some time.
With the opening of new international airport in Natal, ahead of the 2014 FIFA World Cup, the expansion of
airline routes and flights was made possible. The new airport, São Gonçalo do Amarante–Governador Aluízio
Alves International Airport opened in May 2014 and increased passenger capacity from 2.4 million (in the previous
Augusto Severo airport in Parnamirim) to 6.2 million passengers per annum.
The second and much larger airline planning to operate new flights in the region in the near future is LATAM
Airlines Group, the biggest airline in Latin America. LATAM is planning to create an international hub in the
Northeast of Brazil as it seeks to tap into demand for flights to Europe and compete with Portuguese rival TAP.
LATAM Airlines is currently considering three cities for its new international hub in Northeast of Brazil: Natal,
Fortaleza and Recife.
According to Claudia Sender, chief executive officer of LATAM’s Brazil unit,Tam, creating a hub in Natal, Fortaleza
or Recife would give passengers easier and more direct access across the Atlantic, rather than changing in the
southerly cities of São Paulo and Rio de Janeiro. It would also mean faster turnaround times which would cut costs
in half. In particular, from Natal the journey to Europe takes only around 7 hours, which is a significantly shorter
flight time than travelling via Rio or São Paulo.
Moreover, Sender estimates that an additional 1.5 million passengers will board LATAM’s new routes, which will
include 10 European destinations. Today, Tam flies to London, Paris, Frankfurt, Milan, Madrid and soon, Barcelona.
In addition, LATAM’s new initiative will also increase the number of domestic flights within Brazil, improving also
the connectivity between the Northeast, North and other parts of Brazil (currently national flights are focussed
on connectivity with the Southeast, South and Brasilia only). The location of the hub will be chosen by the end of
2015 and flights should begin by December 2016.
LATAM’s new international hub will naturally benefit the whole Northeast region and improve its connectivity
to Europe, regardless which city becomes the new hub. Nevertheless, it is important to note that Natal has
more competitive advantages to offer LATAM. Very importantly, Natal is geographically the closest city in Brazil
to Europe and Africa, resulting in the shortest flight times to these continents. Natal has also the newest, most
modern and largest airport of all competing cities, with the greatest capacity for aircraft runway extensions.
Tourism numbers are on the rise too with Natal the most visited destination by Brazilians. It receives 2.5 million
tourists per annum and has the largest hotel offer in the region according to ABIH (Associação Brasileira da
Indústria de Hotéis), with 47,000 hotels beds, of which 28,000 are in four and five-star hotels. In the international
rank, Natal is the second most visited destination by Brazilians, just after Florida.
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BRAZIL’S SPORTING LEGACY
FIFA World Cup 2014 and Summer Olympic & Paralympic Games 2016
South America’s first ever Summer Olympic Games will be held in Brazil in 2016. Having hosted successfully the
2014 FIFA World Cup last summer, there has been some international speculation about where Brazil now sits in
the international landscape and what does it have to offer now the trophy has been lifted and the football crowds
have dispersed.
With Rio de Janeiro set to host the Summer Olympic Games in less than six months’ time, the eyes of the world
will once again be focussing on Brazil with interest in investment prospects also high. For instance, China is investing
US$50 billion to improve the country’s infrastructure partly for the Olympics. The US$50 billion development
of the South America railway that China is planning will add a significant boost to the Brazilian economy overall.
In terms of tourism, Brazil expects a major boost with the staging of the Rio 2016 Olympic Games. According to
a report by the Brazilian Tourism Institute (EMBRATUR), Brazil expects to receive more than half a million foreign
tourists.
In 2014, the year of football World Cup, Brazil received 6.42 million tourists, representing an increase of 10.6%
over 2013. In fact, Brazil as a country surpassed the 6 million tourists mark for the first time.This increase of more
than 600,000 additional foreign tourists created a new, all-time record for international visitor arrivals in Brazil.
Between June and July 2014, when the football competition was
held, the country recorded 1.08 million tourist arrivals, a figure
that is three times the 350,000 foreign visitors the country
received during the same months in 2013. And in those two
months, foreign tourists spent a total of US$ 1.6 billion
(1.44 million euros) in the country, according to the
Brazilian Central Bank. This is an increase of almost
60% over the same period in 2013 which is an
astonishing result.
Standing out amongst the areas receiving the
most foreign tourists in 2014 compared to
the previous year are Rio de Janeiro, with
the arrival of 1.6 million foreigners, up by 32%;
Amazonas, with 50,000 non-resident visitors,
representing an increase of 52%; and the Federal
District, with 100,000 foreigners, an increase of
35%. According to the Ministry of Tourism, Argentina
remains the main source of foreign visitors, with 1.74
million visitors in 2014, followed by the United States at
656,000 visitors.
The Brazilian tourism authorities are now focusing intensively
on the Summer Olympic and Paralympic Games 2016 in Rio
de Janeiro. One of the main projects of the government is to
suspend the visa obligation between Brazil and the U.S. to increase
the number of United States’ visitors in 2016.
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THE BRAZILIAN REAL ESTATE MARKET
The Hotel Sector
During Q3 2015, Jones Lang LaSalle (JLL) released its latest Lodging Industry in Numbers Brazil 2015ⅹi annual
publication, which surveys 460 Brazilian hotels (the largest sample in the market), providing the audience with an
excellent insight into the Brazilian hospitality market changes during 2014.
Despite a fair share of challenges that the Brazilian economy is facing, the hospitality market in Brazil has reported
some positive results. Year-on-year data reveals that for the tenth year in a row, Brazil’s urban and condo hotels
posted positive RevPAR (Revenue per Available Room) growth, amounting to 1.4% for 2014. Although the rate
of growth was lower in 2014 than levels seen in previous years, tempered by the slow economic growth, the FIFA
World Cup had a positive impact on the country’s hotel markets and the growth rate remained on the positive
side.
The occupancy averaged 64.9% in 2014, a decrease of 1.5% compared to the previous year. However, the
decrease is still minor and the hotels remain on good occupancy levels (65%), showing a rather stable occupancy
rate since 2012 (figure 2). Average daily rates, on the other hand, increased 2.9% compared to 2013 levels;
however, somewhat below the inflation for the same period (5.9%). Although the economic issues are becoming
more apparent, Brazil’s hotel industry has been maintaining very solid results thus far. And with coming Olympics in
2016, the hotel industry will be boosted by the extra influx of international and domestic tourists in the summer
next year.
City Hotels Performance
Figure 2.
RezPar (R$)
RS
Average Daily Rate (R$)
Room Occupancy
80.0%
300
70.0%
250
60.0%
200
50.0%
40.0%
150
30.0%
100
20.0%
50
10.0%
0
0.0%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Source: JLL, Lodging Industry in Numbers Brazil 2015
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In terms of hotel supply, in 2014, there was a 3.1% increase in the number of rooms across the country, boosting the
supply of hotels in Brazil. Key hotel markets such as Belo Horizonte and Rio de Janeiro experienced even greater
supply increase than the national average. The rise in branded hotel rooms, of both national and international
hotels, was even more significant, growing by 7.9% in 2014. This is highly positive news for Brazilian hotel market,
where the existing hotel stock, although relatively large, is in need of updating to more quality branded hotels.
More high quality branded hotels are resulting in a more structured and competitive hotel market in Brazil.
According to the Brazilian Forum of Hotel Operators (FOHB) data, released by the Ministry of Tourism on 30th
March 2015, the hotel pipeline is very robust with future plans including the opening of 630 new hotels by 2020.
This means that the Brazilian hotel industry is planning to invest R$ 12.8 billion (US$ 3.9 billion) in the next
six years.ⅹii Moreover, with the new supply of branded hotels, there are currently no concerns of oversupply in
Brazilian hotel sector. JLL reported in January 2015 that Brazil’s number of quality hotel rooms per 1,000 residents
is just one-tenth of that in the U.S., leaving plenty of scope for further growth.ⅹiii
Meanwhile, JLL reported some highly positive results for resorts. In contrast to urban hotels, resorts saw continued
improvement in performance fundamentals, a trend which began in 2013. The segment has benefited from
depreciation of the Real since 2013, as it has become less expensive outlet for international tourists. Furthermore,
many Brazilians opted to holiday domestically instead of travelling abroad, boosting the domestic tourism, as the
depreciation of Real made holidays abroad more expensive. As a result, in 2014 revenue in the resort segment
increased by 33.4% and gross operating profit grew by 2.8% compared to the previous year.
Jones Lang LaSalle forecasts that due to slower economic growth, 2015’s annual results for hospitality sector (to
be reported in Q3 2016) may experience somewhat slower RevPar growth and occupancy rate compared to
2014. The rise of domestic tourism due to depreciation of real should however, continue to support the sector,
attracting more international tourists as well. Looking ahead, the expected spark to the country’s economic
recovery, and the staging of the Olympic Games in Rio de Janeiro, will most likely bring better prospects for hotel
performance in 2016.
In terms of top hotel chain brands ranking in Brazil, it is important to highlight that Jones Lang LaSalle ranks Accor
on the very top of the list for 2015, a position maintained for Accor over the last several years. Accor in Brazil has
currently 36,636 hotel rooms under management across 219 hotels, which is persuasively the largest number of
hotels and rooms in the country.
Thanks to the demand for good quality hotel brands and the top ranking of Accor hotel chain in the country,
Ritz-G5 is proud to present two hotel development projects, which will both be managed by Accor. Namely, the
four-star hotels: Mercure Natal and Piramide Natal which will both be managed by Accor upon opening. For more
information on how to invest in these projects, please refer to our Contact List page.
17
The Residential Sector
With regards to residential property market Latin America was ranked as the 2nd fastest growing global region
according to the Knight Frank Global Price Index in Q1 2015. In particular, South America achieved 5.1% yearon-year house price growth, which is above-average and profoundly faster than the Global House Price Index of
0.3% (figure 3).
Price growth by world region
Y-o-Y change to Q1 2015
Figure 3.
10.00%
8.20%
8.00%
5.10%
6.00%
4.40%
4.00%
3.40%
3.30%
2.60%
2.00%
0.30%
0.00%
-0.90%
-200%
MIDDLE
EAST
GLOBAL
AFRICA
EUROPE
ASIA
NORTH
AMAERICA
LATIN
AMERICA
AUSTRALASIA
RUSSIA/CIS
-2.30%
-4.00%
Source: Knight Frank, Global House Price Index Q1 2015
18
As a stand-out country within Latin America, Brazil has been ranked 20th globally, just one spot below the United
Kingdom, achieving 5.4% growth over the last 12 months (figure 4).ⅹiⅴ Coupled by the increased bank reserve
requirements towards housing, Brazilian construction and real estate sector’s future looks positive, despite the
current economic downturn.
Under the new resolution put forward by the Brazilian National Monetary Council, R$22.5 billion ($7.3 billion US
dollars) will be directed towards farm and housing credit. Banks will increase their reserve requirements on saving
deposits from 20% to 24.5%, which will be used for housing credit.These measures will help to direct a significant
part of economy’s size and volume towards the real estate sector therefore attracting an increase in the activity. ⅹⅴ
Top 30 fastest growing housing markets in the world
Figure 4.
20%
18%
16%
14%
12%
10%
8%
6%
4%
2%
SWITZERLAND
KAZAKHSTAN
THE NETHERLANDS
DENMARK
CZECH REPUBLIC
US
ISRAEL
MALTA
CANADA
RUSSIA
BRAZIL
UK
INDIA
INDONESIA
GERMANY
SOUTH AFRICA
AUSTRALIA
MALAYSIA
HUNGARY
JERSEY
SWEDEN
NORWAY
ICELAND
COLOMBIA
NEW ZEALAND
ESTONIA
LUXEMBOURG
IRELAND
TURKEY
HONG KONG
0%
Source: Knight Frank, Global House Price Index Q1 2015
19
HOUSE PRICE GROWTH
Brazil
According to the Fipe Zap Index (primary house price index in Brazil); the two cities with largest house price
increases in Brazil are Rio de Janeiro and São Paulo (figure 5). In Rio de Janeiro, house prices soared with a 266.4%
cumulative rise from January 2008 to August 2015. This equals 38.1% growth per annum, which is outstanding
house price growth over the 7-year period. Although the house price growth has become more stable over the
last six months due to the economic downturn, the year-on-year growth in Rio totalled 7.2% to August 2015.This
annual growth result is still excellent, clearly defying the wider economic picture currently present in Brazil.
São Paulo, not lagging far behind, recorded a total 224.3% increase from January 2008 to August 2015, which
equals an astonishing 32% house price growth per annum over this 7-year period. Moreover, there is an incredible
11.6% increase in house prices registered over the last 12 months. Most of the growth occurred prior to April/
May 2015, after which the prices started to stabilise.
House price growth in Rio & São Paulo
Figure 5.
300%
São Paulo
264.40%
Rio De Janeiro
250%
224.30%
200%
150%
100%
50%
AUG-15
Q2 2015
Q1 2015
Q3 2014
Q1 2014
Q3 2013
Q1 2013
Q3 2012
Q1 2012
Q3 2011
Q1 2011
Q3 2010
Q1 2010
Q3 2009
Q1 2009
Q3 2008
Q1 2008
0%
Source: Fipe Zap Index (Sept 2015)
20
Looking at the growth across the largest cities in Brazil, Fipe Zap Composite Index which includes the seven
largest cities (Belo Horizonte, Brasilia, Fortaleza, Recife, Rio de Janeiro, Salvador and São Paulo) shows that the
cumulative average house price growth across the largest cities has also been extraordinary.The total house price
growth between October 2010 and August 2015 amounted to 90.7%, which equals an average growth of 18.4%
per annum over the 5-year period (figure 6). Although the house price increase here shows a similar trend of
stabilising since April 2015, the year-on-year growth achieved across Brazilian largest cities was 6.5% to July 2015.
This is another excellent growth result for the housing sector.
House price growth across the largest cities
Figure 6.
100%
Fipe Zap Composite
90%
90.70%
80%
70%
60%
50%
40%
30%
20%
10%
AUG-15
Q2 2015
Q1 2015
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Q4 2012
Q3 2012
Q2 2012
Q1 2012
Q4 2011
Q3 2011
Q2 2011
Q1 2011
Q4 2010
Q3 2010
Q2 2010
0%
21
HOUSE PRICE GROWTH
Northeast Brazil and Natal
In the Northeast region, Brazilian house price index Fipe Zap ⅹⅴi measured that the three largest cities in the region,
Recife, Salvador and Fortaleza also recorded exceptional growth (figure 7).
Recife is leading with 102% growth between Q3 2010 and August 2015, which equals 20.4% growth per annum
over the 5-year period. Over the last 6 months, growth has stabilised here as well however annual growth remains
solid at 5.5% Y-o-Y to August 2015. Fortaleza recorded 83.3% growth between Q1 2010 and August 2015 whilst
Salvador recorded 46.5% between Q3 2010 to August 2015. Fortaleza witnessed an incredible 9.5% Y-o-Y house
price growth to August 2015 whilst Salvador recorded a strong 6.3% Y-o-Y price increase to August 2015.
The above reported results demonstrate continued impressive house price growth across Northeast cities in
Brazil, and although growth has stabilised in the last 6 months (slipping back somewhat in certain months), the
year-on-year data still shows prominent growth whilst latest couple of months show more positive movements.
This is a particularly positive result if we take into account the current economic downturn, where one would
normally expect more negative growth.
Residential property price growth in Northeast Brazil
Figure 7.
120%
Salvador
Fortaleza
Recife
102.00%
100%
83.30%
80%
60%
46.50%
40%
20%
AUG-15
Q2 2015
Q1 2015
Q4 2014
Q3 2014
Q2 2014
Q1 2014
Q4 2013
Q3 2013
Q2 2013
Q1 2013
Q4 2012
Q3 2012
Q2 2012
Q1 2012
Q4 2011
Q3 2011
Q2 2011
Q1 2011
Q4 2010
Q3 2010
Q2 2010
0%
22
In Natal, the house price data series is somewhat patchier and property research is still in development stages
ⅹⅴii
, however, there is sufficient data to allow us to gauge certain trends over time. In Petrópolis, Natal’s prime
residential area in which to live and work, the average house price in August 2015 was around R$4,352 per m².
This is a 3% increase in month-on-month house prices, whilst in June 2015 Fipe Zap recorded an extraordinary
14.8% increase in one month alone. However, it is important to notice that prior to this period, house prices in
Natal fell last year just after the presidential elections and due to the economic downturn (the average price in
Petrópolis in Q3 2014 was R$4,526 per m²). Nevertheless, we are now witnessing a house price recovery again
in H2 2015.
In Ponta Negra, Natal’s prime commercial and residential area surrounding the Ponta Negra beach, the average
house prices as at July 2015 stood at R$4,822 per m².There was a similar pattern of fall in prices last year and rise
in the summer 2015, e.g. the average house prices in this area fell from R$5,166 per m² in April 2014 to R$4,145
per m² in February 2015 during the 10 month period. Nevertheless, from February 2015 to July 2015, the house
prices bounced back strongly by 16% in only five months and currently stand at R$4,822 per m².
In Lagoa Nova, one of the most attractive, upmarket areas of Natal in South Zone of Natal (south of Tyrol and
Petropolis), a similar trend occurred. There was of fall and rise of house prices around the same time periods.
Lagoa Nova is a popular business district and commercial area as well as administrative centre of Natal.The house
prices in Lagoa Nova rose to R$4,364 per m² in February 2014, after which they dropped by 5% during the
17 months to July 2015, and stood at R$4,146 per m². Nevertheless, the prices in this area have seen an overall
excellent growth in less than 2 years, from R$3,221 per m² in September 2013 to R$4,146 per m² in July 2015,
totalling 29% increase in house prices over the last 22 months.
Looking some years back, the prices available for some of the most attractive areas of Natal have shown an
extraordinary growth. In particular, between September 2008 and August 2015 the house prices in Petropolis
have grown by a total of astonishing 273% (figure 8) whilst in Lagoa Nova the house price increase amounted to
incredible 146%.This is equivalent to an average of 39% growth per annum for Petropolis over the 7-year period
and 21% growth per annum for Lagoa Nova district. From a real estate investment point of view, such growth
results show a fantastic house price progress over this time period for Natal’s prime districts.
23
In terms of how Natal currently stands on average house prices compared to other cities in the Northeast region,
according to Ritz-G5 sales data, Natal stands as a very good investment value in comparison to other cities. The
average house price across Natal as a whole currently stands at R$ 3,470 per m², which is a better value than in
Recife R$4,888 per m², Fortaleza R$4,876 per m², Salvador R$ 4,277 per m², João Pessoa R$ 4,675 per m², Maceió
3,774 per m² and Sergipe R$ 3,927 per m². That also implies that there is a more potential for the future house
price growth in Natal relative to other large cities in the region.
Petropolis (Natal) house price growth
House price growth 2008 to 2015 = 273%
Figure 8.
6,000
5,000
R$ 4,352
R$ 3,684
4,000
3,000
2,000
R$ 1,167
1,000
0
SEPT
2008
NOV
2010
MAY
2011
NOV
2011
APR
2012
JUN
2015
AUG
2015
24
WHERE TO INVEST IN BRAZIL?
São Paulo and Natal rank as top destinatons
According to a recent business survey, Natal has been ranked the 5th best city to invest in real estate in Brazil
whilst the first four places were taken by selected municipalities of São Paulo. This is an extraordinary finding
particularly for Natal, considering that nearly all Brazilian municipalities were studied, out of which the 100 best
were shortlisted and ranked.
In the list published by a leading Brazilian fortnightly business magazine – Exame, based on the survey conducted
by consulting firm Prospecta Inteligência Imobiliária (Prospects Intelligence Real Estate), Natal was defined as a
great place for investment in all types of real estate (residential, hotel and commercial).
Rather than considering the valuation of real estate by taking into account the
average price per square metre, which only reflects sold property values,
the analysts chose to investigate the demand by tracing future trends. The
study used several variables for each municipality which measured per
capita income, education levels, employment, a number of operating
companies and the housing deficit in each of the cities.
Following the survey, the findings selected 100 municipalities
across Brazil which show the greatest potential for real estate
investment. Natal ranked the 5th best city in the whole
country whilst the other top 4 positions were dominated
by the selected municipalities of São Paulo (see table below).
Thus, in the Northeast region, Natal ranks in the top position,
well ahead of Maceió (8th) and João Pessoa (10th), which are the
following cities from the region.
These study findings have already drawn attention of the investor
groups onto the advantages of investing in Natal. ⅹviii Furthermore, RitzG5’s Brazilian Director of Marketing, Fernando Lessa, pointed out that
Natal is a city with great characteristics and attractiveness, and although it
does attract tourists and holidaymakers, it has a very strong migratory pull too.
This is because it offers a superior quality of life in Brazil; e.g. a faster and shorter commute to work, stunning
beaches which are easily accessible and a far better quality of housing found at much cheaper prices than in the
largest cities of the Southeast.
According to data collected by Prospecta Inteligência Imobiliária, Natal has experienced a large increase in
purchasing power of the average citizen.The average income of the economically active population (EAP) in Natal
has six times the minimum wage (nearly R$ 5,000). The increased purchasing power of the population nearly
always translates into the growing real estate demand and demand for prime assets.
25
In addition, the survey also revealed an interesting fact about Natal; of the top 5 best cities to invest in real estate
in Brazil, Natal has the largest housing deficit, standing at 34.18%.The other top four municipalities on the list have:
27.83% housing deficit in São Bernardo do Campo (1st place), 29.24% in Campo Grande (2nd place), 29.71% in
Santo André (3rd place), and 33.82% in Osasco (4th place).
Top 5 cities in Brazil to invest in real estate (2015)
Table 2.
Rank City
1.
São Bernardo do Campo
2.
Campo Grande (São Paulo)
3.
Santo André
4.
Osasco
5.
Natal
State in Brazil
Region
São Paulo
São Paulo
São Paulo
São Paulo
Rio Grande do Norte
Southeast
Southeast
Southeast
Southeast
Northeast
Source: Prospecta Inteligência Imobiliária, Exame Magazine, February 2015
Moreover, currently there is an excellent opportunity to buy property in Natal at heavily discounted prices for
overseas investors. In particular, Brazilian Real’s fall has resulted in a historic low against the US dollar, previously set
in 2003, 12 years ago. Real’s depreciation, in combination with the above mentioned factors, makes great timing
for overseas buyers to invest in Natal’s property.
26
WHY NOW IS THE TIME TO BUY IN BRAZIL
Fall of the Real
As mentioned earlier, currently there is an opportunity to buy in Brazil at highly discounted prices for overseas
investors with hard currencies such as the British pound, US dollar, Singaporean dollar, Euro and others. The real’s
depreciation, which is in fact currently at its historic low against the US dollar, trading at 3.90 to the dollar (figure
9), makes great timing for overseas buyers to invest in Brazilian property. Real estate in Brazil is now 66% cheaper
for investors using US currency than it was only one year ago (in 2014 Real traded at 2.35 to US dollar).
Exchange rate R$:US$
Figure 9.
4.50
3.90
4.00
3.50
3.08
3.00
2.35
2.50
1.67
2.00
1.50
1.00
0.50
Sept-15
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
0.00
Source: Economist Intelligence Unit, Santander Trade
27
In Practice
Let us explore this in a practical example of buying a property in Natal, Brazil.
An average house price in Natal is currently R$3,470 per m² ⅹix, which makes a 3-bedroom house of 95m² cost
only US$84,526 (in local currency R$329,650). Nevertheless, in 2012, based on currency difference alone, the
same house cost US$169,051 (in 2012, the real traded at 1.95 to US dollar). This means that the current saving
for an overseas investor using the US dollar is a remarkable US$84,526, based on the real’s depreciation since
2012 alone. It even means that overseas investors can now buy two properties of 95m² in Natal for the price of
one property in 2012 (transaction costs are not included), thanks to Real’s depreciation.
There is a widely held belief that the Brazilian Real is presently significantly undervalued. Considering Brazil is one
of the eight largest economies in the world, with strong long-term growth potential, the value of the Real will
almost certainly rise in the near future. In fact, if we assume a very realistic scenario that the Real will appreciate
once the Brazilian economy starts recovering, to an average 10-year value against the dollar, the profit gain will be
once more highly impressive.
According to EIU (Economist Intelligence Unit) exchange rate series from 2005 to 2015 (where we inserted
today’s value of Real as at 10th Sept 2015), the long-term average value of Real is 2.20 to US dollar. Hence,
the house in our above mentioned example can realistically appreciate in capital value achieving a price of
US$149,841 based on the currency appreciation alone. And we believe that this is achievable within only couple
of years’ time. Not to forget that this is a highly realistic prospect as the average 10-year value of the Real is a
credible assumption and that the Real was trading at 2.35 to the US dollar only in 2014.
Thus, with the depreciation of Brazilian currency currently occurring due to less than ideal economic and political
position in the country, one should not forget that this is only a temporary situation. In fact, savvy overseas
investors will see this as the perfect opportunity to purchase a tangible, property asset in emerging destination
that over medium to long-term, is only going one way, which is up!
28
HOW TO BUY PROPERTY IN BRAZIL?
The Legal Process
The most important piece of advice would be to hire a credible, qualified Lawyer to represent you and handle
your property purchase in Brazil. A credible and qualified Lawyer will check all the documentation needed for
your property purchase, and ensure that your purchase runs safely and smoothly.
Ritz-G5 conducted an interview with Fernando Lucena Jr, Partner Lawyer at Andre Elali Advogados, to obtain
important details on how to acquire a property in Brazil safely from the legal perspective. We present the
highlights below:
Prudence in investing in property is a key factor for success, and in Brazil it is no different. A foreign investor needs
to be careful to invest, especially in real estate, as several steps are needed up to become owner of a property.
The first one is certainly to hire a reliable law firm, to act in order to assure the investor that the property’s
documents are correct and it is able to be properly transferred. In such cases, it is common to prepare a due
diligence report regarding the land conditions, specifying the feasibility of the acquisition.
Brazilian law requires that to be object of an acquirement, a land cannot have pending taxes on real estate, the
seller must be regular with his/her taxes and there cannot be any blockages registered over the land so it prohibits
the transfer.
The buyer, in turn, if a citizen, must have a CPF - Taxpayer Registration for Individual - or CNPJ - National Register
of Legal Entities, if it is a company. It is the taxpayer document base, which can be obtained from the IRS (Receita
Federal) or the Brazilian embassies located in the purchaser’s domicile. Full details for obtaining CPF or CNPJ are
available on the website www.receita.fazenda.gov.br, since obtaining the CNPJ requirements vary according to the
company’s activity, with the purpose of investment.
For individuals, it is required to fill out the registration form, provide copies of essential documents and once
everything is complied, be issued with an 11 digit number, unique and exclusive to each person which will be the
same throughout life, the CPF.
With these documents in order, the property shall be valued for purposes of calculating the transfer tax and
other costs charged by the Notary Office, which will be responsible for drawing up the public title deed and its
registration, documents that formalize the essence of the transfer of ownership.
In case of the payment occurring by remittance from overseas to Brazil, it is essential that the investor does so
via the Brazilian Central Bank, following the international rules of compliance with identification of the business
purpose and mentioning the specific real estate transaction.
That is the typical way to become owner of a property, per direct investment, however, there are other forms of
real estate investment, such as rental property, buying shares of a Real Estate Investment Trust (REIT), guarantees,
insurances, etc. In these other cases, the regulation will vary according to each economic sector, but it will cross
somehow the basic rules outlined above.
29
RISKS ASSOCIATED AND HOW TO REDUCE THEM
As mentioned earlier, one of the main risks associated with purchasing a property internationally are potentially
higher transaction costs than in your home country. Transaction costs vary greatly depending on which foreign
market the buyer is investing in, and in some countries they can be very expensive. However, property transaction
costs in Brazil are as previously discussed, very moderate. According to Global Property Guide on Brazil, the buyer
pays around 6% to 8% of the property price when purchasing property while sellers pay on average 3% to 6%
(real estate agency fees).The moderate property transactions cost combined with the internationally cheaper and
good value beachfront property prices found in Natal and Brazil, certainly does encourage international property
investment.
Another area of concern for overseas investors is the currency volatility. Property buyers have to convert their
domestic currency into foreign one to purchase the property. On this matter, now is the best time to invest in
Brazil. This is because Brazilian real is at its 12-year lowest value against both British pound and US dollar. This
means that British, US and Singaporean investors (investors with a hard currency) can currently buy 66% more in
Brazilian property compared to just one year ago. As mentioned earlier, due to the heavily undervalued Brazilian
currency, now is the best time to purchase a property in Natal and Brazil as Brazilian real will most certainly
appreciate in the near future, after the economic downturn period is over.
Other risks include a higher liquidity risk. Depending on the property asset and its location, it can take longer
to sell the asset than in some well-established Western locations. By forming joint venture between previous
companies Ritz Property and G5, where the latter is a construction company with over three-decade experience
and knowledge of North-eastern property market in Brazil, liquidity risk is also mitigated by jointly choosing the
most attractive and up-and-coming locations in Natal.This is why Ritz-G5 invests in the prime areas of Natal such
as Petropolis and Ponta Negra as well as other property hotpots in Natal’s surrounding areas. For example, RitzG5’s Majestic Village project is located in Parnamirim, which is a property hotspot and the demand for housing in
this municipality has grown significantly over the recent years.
Another risk to mention is the transparency risk. Although the transparency risks are almost inherent in most of the
emerging markets, Ritz-G5’s way of working to mitigate the transparency type of risk is by establishing a research
team that works across UK and Brazil, and researches the Brazilian property markets in depth. Furthermore,
the transparency risk is also decreased as Ritz-G5 encourages investors to get independent legal advice, with
established firm André Elali Advogados (investors from the UK can also seek additional independent advice with
specialist firms such as Brazil Property Lawyers). André Elali Advogados are professional and skilled solicitors with
knowledge of Brazilian property law which decreases the transparency risk and assists the due diligence process.
Good solicitors decrease the transparency risks as they possess the knowledge of the Brazilian property market.
Moreover, Ritz-G5 maintains a solid network of local real estate contacts in Brazil in order to keep abreast with
Natal’s, Northeast’s and Brazilian property markets.
30
Furthermore, there is a development risk involved with some developments being significantly delayed or in
some cases, projects getting abandoned. Developer risk is significantly reduced by investing in a credible, sound
development company, with an excellent reputation and good track record.Thus, the best way to avoid this risk is
to look at the developer’s track record and their reputation. In this respect, the award-winning developer Ritz-G5
is a leading regional residential and commercial real estate developer with 30 years of property development
experience in Brazil. During the last 30 years, Ritz-G5 has completed 21 real estate projects thus far. Ritz-G5 is
also an AIPP accredited company, which means that it follows AIPP’s code of conduct within the international
property industry.
Finally but highly importantly, there is the legal risk, which means not employing a credible and qualified
Lawyer for your purchase or leaving it too late to seek for legal advice. The investor needs to use a credible,
legal representation from the very start of the buying process. Addressing the legal risks, Ritz-G5 employs André
Elali Advogados. With offices in Natal, Recife, João Pessoa and São Paulo, André Elali Advogados consists of
skilled professionals with extensive expertise in Brazilian Corporate Law, many of whom are recognised for
their academic achievements in and outside Brazil. Since its conception, the company has met the highest
professional standards with the formation of entrepreneurial methods of work. For more information on André
Elali Advogados please visit: http://andreelali.com.br/. We also warmly recommend our clients to read André
Elali Advogados recent publication ‘Legal Guide for Foreign Investors in Brazil’ found at the firm’s website (see
Publications at http://andreelali.com.br/ ).
And finally, one more aspect of buying property abroad worth mentioning is encountering the risk of natural
hazards. For instance, some parts of Britain suffered from severe flooding in 2007. Investors need to consider the
property location and the local climate. One needs to assess if the project location is prone to natural disasters.
Ritz-G5 has mitigated this risk by investing in Natal and Rio Grande do Norte in Brazil. Natal is known as the
City of the Sun due to over 300 days of sunshine each year with a similar climate across the Northeast region.
Hence, thanks to its typical tropical climate, the risk of natural disasters in Natal and Northeast of Brazil is very
small. Natal has a tropical climate that is wet and dry, with warm to hot temperatures and high relative humidity
all throughout the year. These conditions are relieved by a near absence of extreme temperatures and pleasant
trade winds blowing from the ocean.
In general, with regards to risk of natural disasters, for Brazil as a whole, although climate type varies across the
country, it is considered safe to invest across the vast majority of Brazil’s popular municipalities.
In conclusion, it is well-known fact that the emerging markets normally carry relatively higher risks, however, they
also carry higher returns and opportunity of capital appreciation given the right type of property investment with
the right developer.
31
WHAT CAN YOU INVEST IN?
About the Ritz-G5 Group
As mentioned earlier, one of the main risks associated with purchasing a property internationally are potentially
higher transaction costs than in your home country. Transaction costs vary greatly depending on which foreign
market the buyer is investing in, and in some countries they can be very expensive. However, property transaction
costs in Brazil are as previously discussed, very moderate. According to Global Property Guide on Brazil, the buyer
pays around 6% to 8% of the property price when purchasing property while sellers pay on average 3% to 6%
(real estate agency fees).The moderate property transactions cost combined with the internationally cheaper and
good value beachfront property prices found in Natal and Brazil, certainly does encourage international property
investment.
TRACK RECORD AND CURRENT INVESTMENT
OPPORTUNITIES
Palm Springs
Palm Springs is a recently completed project by Ritz-G5 and it is the first, flagship
project jointly developed by the group since Ritz Property and G5 merged together
and formed Ritz-G5 Group in December 2014.
From its humble beginnings as an Ostrich farm, Palm Springs has been
transformed into one of the most captivating and exclusive beachside
condominium developments in Natal. Nestled in a glorious 100-acre setting,
this development incorporates a 40% density build in its masterplan so
residents can enjoy lush landscaped surroundings and spectacular beach
and ocean views, as well as all the trappings of a modern tropical oasis;
natural springs, swimming pools, spa, hot tub, sauna, and football and beach
volleyball courts. Palm Springs offers direct access to the RN-60 – the main
highway linking Palm Springs to central Natal – providing residents with easy access
to the City as well as Natal’s new international Airport.
Since it was launched in 2012, Palm Springs has been a unique success story, attracting
much interest and endorsement from the Government and Ministers who have purchased
plots. The region is also hugely popular with celebrities and the wealthy, and following its
completion in January 2014, buyers have been able to start building their dream villa or townhouse here. Celebrating
the third anniversary of Ritz-G5 in Singapore on 12th August 2015, Singaporean clients who had invested in this projects
36 months earlier, have all received their first Exit Pay-out Cheques during the celebration event.
32
Majestic Village
Majestic Village is a sought-after, award-winning serviced land plot condominium
development set across 75 hectares in Parnamirim, one of the most up-and-coming
residential areas in Natal. It was designed to appeal to the domestic market and
Brazil’s middle and upper class population, which is over 90 million and rising.
Using an impressive build density of only 34%, Majestic Village will present a
condo neighbourhood set in beautifully landscaped gardens. The impressive
facilities will include a school, supermarket, kindergarten, clinics, swimming
pools, tennis courts and club, volleyball courts, football pitches, children’s
play area, gym, stunning feature river and club house. A central square will
provide a focal meeting point and will be surrounded by bustling cafés and
restaurants.
There will be 2,850 planned residential units in total, with a planned completion of
construction in Q2 2016. The sales and information centre at Majestic Village site is
now built and open and prices start from £22,000 for a 200m² plot.
Costa Azul
Inspired by the Atlantic Ocean, Costa Azul or ‘Blue Coast’ is a new, modern and luxurious
168 award-winning apartment development in Petrópolis, one of the most exclusive
and exciting districts in Natal to live, work and play. Its prime hill-top positioning
compliments its bold design statement, where residents can enjoy captivating beach
and Ocean views and first class amenities including a swimming pool, gym, private
bar and spa. With excellent commuter links into the city and its close proximity
to some of Brazil’s best beaches, Petropolis is quickly becoming the most
sought-after location for investors, purchasers and tenants.
Spread across three freestanding residential towers: Potengi, Atlantico and
Forte, the towers will contain apartments of two-bedrooms measuring 53m²
and 56m² and three-bedroom apartments measuring 96 m². Prices start from
£43,028 for a 53m² apartment and the completion of Costa Azul is expected at the
end of 2016.
33
Dunas De Muriu
Adjacent to the stunning, idyllic Muriu Beach, Dunas de Muriu is the new extension
to one of the most popular luxury beachside condominium developments in Natal
– Palm Springs (see above). This stylish and contemporary build of 236-luxury
apartments is inspired by the natural curves created by the surrounding, sweeping
sand dunes. Residents can enjoy spectacular beach and Atlantic Ocean views,
as well as all the trappings of a tropical oasis within Palm Springs, including
natural springs, a spa, swimming pool, hot tub, sauna, and beach and football
courts. Many domestic and international visitors make Muriu beach one
of the most visited in North East Brazil. With direct access to the RN-60 –
the main highway linking the development to central Natal – residents have
easy access to the City as well as Natal’s new international Airport.
The project consists of 5 apartment blocks and the 236-luxury apartments will
offer one-, two- and three- bedroom apartments where the prices start at £40,000
for one-bedroom apartment measuring 35m².The completion of this project is planned
for 2019.
Mecure Natal
Home to some of the most fashionable beaches and neighbourhoods in Natal,
Mercure Natal is a contemporary 252-suite, 4-star hotel located in the upmarket
district of Ponte Negra. Ponta Negra is a cosmopolitan metropolis that attracts
approximately 80% of the City’s tourist influx. This development occupies
the last available plot on the prestigious Via Costeira and offers excellent
amenities including a business centre, private swimming pool, 24-hour
concierge and an underground parking. At 43 metres above sea level,
300 metres from Ponta Negra beach and on a 30 degree elevation,
residents have stunning direct views towards the Atlantic Ocean and
a Brazilian landmark, the Morro do Careca, or Bald Man’s Hill. Mercure
Natal will be first new Accor hotel in the area, one of the biggest hotel
groups in the world with 3,500 hotels and 450,000 rooms spanning 92
countries.
This hotel is currently under construction and the completion is planned in 2017.
Prices start from £110,000 for a 24m² room.
34
Piramide Natal
In its private, secluded setting on the beach by Parque das Dunas, the Piramide Natal
hotel stands out as one of the most prominent and bespoke designed beachside
hotels in the area.This 4 star hotel has 315 guestrooms, a water park, five swimming
pools and a swim-up bar, a rooftop terrace, a fitness centre and spa tub, two
restaurants, 24hr concierge and a business centre with a capacity for 2,500 seats.
Sitting directly on the doorstep of the Atlantic Ocean just behind Parque das
Dunas, the Piramide Natal hotel is perfectly located for discovering the
surrounding areas and central Natal, via Via Costeira. Frontline location of
the hotel, enables each room to offer stunning Ocean views.
In the summer 2014, award-winning Brazilian developer Ritz-G5 purchased
the existing hotel and in 2015 Piramide Natal’s ambitious refurbishment plans
were announced by the new owners. After the 12-month redevelopment, the
hotel will be granted the prestigious title of Grand Mercure (first Grand Mercure
in Natal) and join the global Accor Group. Its doors are set to open in Q2 2016. The
Accor Hotels Group is one of the largest hotel groups in the world, currently operating
across 10 countries in Latin America with 244 hotels in this region.
SUMMARY AND OUTLOOK
Despite the economic and governmental issues currently in Brazil, albeit on a temporary basis, real estate
investment still presents a very real opportunity for those willing to consider the broader picture (medium to
long-term view). In fact, we strongly believe that now is a great time to invest in Brazilian property due to both
lower property prices and significantly undervalued Brazilian real, which for overseas property investors creates a
perfect and unique investment opportunity.
Brazil has enjoyed a long period of strong economic and real estate growth and despite the current, short-term
economy downturn, Brazilian economy maintains an attractive environment for international investment. Brazil
is one of the eight largest economies in the world and with its growing Middle Class and developing consumer
society, the country has a great potential for further growth.
There is significant interest in Brazil coming from overseas investors. In particular, over the last 11 years, foreign
direct investment (FDI) figures showed a dramatic surge amounting to a 516% increase in the period from 2003
to 2014, with FDI amounting to 62.4 billion USD in 2014.
Overseas buyers have realised the potential in the Brazilian property industry and it is now a highly attractive
prospect for foreign investment, enhancing its position as a competitive market. With Brazil’s large housing deficit
still very much present, there remains plenty of scope for further growth in the property sector over the coming
years.
We believe that the future of Brazil’s real estate landscape is a highly positive one, with it continuing to offer new
and exciting opportunities to investors around the world.
35
36
REFERENCES
i
http://www.propertyinbrazil.com
ii
https://en.wikipedia.org/wiki/Regions_of_Brazil
iii
UK Trade and Investment (UKTI) statistics, webinar on Northeast region 12th August 2015
iv
https://en.wikipedia.org/wiki/Regions_of_Brazil
v
https://en.wikipedia.org/wiki/S%C3%A3o_Paulo
vi
OECD, FDI in Figures, April 2015
https://en.santandertrade.com/establish-overseas/brazil/foreign-investment?actualiser_id_banque=oui&id_+
banque=44&memoriser_choix=memoriser&&actualiser_id_banque=oui&id_banque=44&memoriser_
choix=memoriser
André Elali, Research about Brazilian Economy September 2014
http://www.bloomberg.com/news/articles/2015-06-09/brazil-turns-to-61-billion-infrastructure-plan-to-spur-growth
vii
viii
ix
Promotional film made by Government of Rio Grande do Norte: https://www.youtube.com/watch?v=bI
sX8L36P0
x
Jones Lang LaSalle, Lodging Industry in Numbers Brazil 2015
http://www2.anba.com.br/noticia/21867270/tourism/brazilian-hotel-industry-will-invest-around-us-4-billion
until-2020/
xi
xii
Jones Lang LaSalle, Hotel Investment Outlook 2015
Knight Frank, Global House Price Index Q1 2015
http://www.propertysecrets.net/blogs/brazil_real_estate/tag-real_estate.html
http://www.zap.com.br/imoveis/fipe-zap-b/
All house prices in central Natal refer to prices of the apartments per m². Modern apartments in residential
towers with 24-hour security are more popular to buy and own in the central areas of Natal.
https://www.linkedin.com/pulse/5th-best-city-invest-brazilnatal-takes-top-spot-ne-brazil-mike-smith
Ritz-G5 sales data
Economist Intelligence Unit data; Santander Trade: https://en.santandertrade.com/
xiii
xiv
xv
xvi
xvii
xviii
xix
xx
37
UK OFFICE
Berkeley Square House,
Berkeley Square, Mayfair,
London, W1J 6BD,
United Kingdom
+44 207 183 7565
www.ritz-g5.com
38

RITZ-G5`S INVESTOR`S GUIDE TO BRAZIL 2016

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