Brazil: Investment Potential 2007

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Carnival time?

A combination of a stable economy, falling interest rates and rising tourism are among the factors that are attracting investors in increasing numbers to the real estate market of Brazil. An online poll conducted earlier this year showed that overseas property investors rate Brazil as the second best country in which to invest over a five-year period, second only to Bulgaria.

Brazil has fast developed into a sound economy with a fiscal and political environment conducive to growth. Despite the country’s vastly improved economy, living costs in the country are still substantially lower than in the UK. It is anticipated that as the population becomes wealthier as a result of economic and tourism growth, demand for property will increase prices. Prices are still low enough currently, however, to provide excellent, aggressive investment returns with notable capital growth and relatively high yields.

"Property prices in some regions have risen by over 50% in the last two years alone"

These factors are expected to boost the mortgage market; up to this point borrowing to purchase a property has been rare in Brazil (22% of the population have a mortgage, against 70% in the USA and Europe, according to The Daily Telegraph), but the potential for demand is immense. Banks will respond to this by diversifying to offer more products, therefore boosting market growth and demand for property. Domestic demand is particularly strong outside of the big cities, as Brazilian parts of the country. Demand from the construction sector has also grown, as a result of tax breaks implemented by the government as part of their program to accelerate growth.

Foreign investment into real estate is actively encouraged in Brazil; foreigners can own 100% of land and property within the country, which is not always the case in emerging markets. This is viewed as a major contributory factor, alongside the favourable currency exchange rate for foreigner investment. This has enabled direct foreign investment into real estate in Brazil to soar. A staggering US$1.3 billion was invested by foreigners in 2006 alone.

The fact that Brazilian properties are still available at low prices, combined with a pro-active Government that is taking a long-term attitude to investment into infrastructure improvements and into tourism, will result in inherent rises in property prices, thereby creating a lucrative property market. Additionally, the market is still in its infancy and indicators to its future are highly positive, all aspects that make it a prime emerging market.

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