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Buying a House or Property in Brazil

Brazilian real estate is a complex area, so before you get in contact with local realtors or real estate agents who have property for sale in Sao Paulo you may find it helpful to get to grips with what’s involved in purchasing property in Brazil.

In Brazil, only estate agents are authorised to participate in real estate transactions. The profession has been recognised and regulated by national legislation since the 1960s. Only the property owner and the estate agent can do business in this segment, within Brazilian territory.

The Regional Real Estate Brokers Councils (Conselhos Regionais de Corretores de Imóveis – CRECI) and the Federal Council of Real Estate Brokers (Conselho Federal de Corretores de Imóveis – COFECI) are the governing bodies that establish rules and standards of the profession.

Official estate agents carry a professional ID card obtained from CRECI. Clients must request to see this card whenever dealing with someone claiming to be an intermediary in real estate transactions. Cofeci-Crecis offers a free service to verify the ID number in their system.

Real Estate Investments

In Brazil, investing in real estate has historically been considered a reliable option for those looking for relatively low-risk investments. Real estate can be purchased for use by the owner, to provide a monthly income through rent, or to obtain profits after resale. Whatever the intention may be, historically the most profitable way to purchase real estate has been during the planning or building stages, with increases in value generally up to 50 percent after construction is finished.

People entitled to buy property in Brazil

All foreigners may acquire real estate in Brazil. There are no restrictions to these investments, both in terms of amounts invested or in the number of real estate units held. There are restrictions regarding real estate located in rural areas or on borders with other countries. In order to buy real estate in a rural areas, the purchaser will need to be a resident of Brazil. Foreigners may not purchase land on the seashore or within 150 Km of international borders without special governmental authorisation.
As long as a foreigner has the following documents they may purchase real estate in Brazil; they do not need Brazilian nationality or a permanent address in Brazil (except for rural property purchases).

  • A passport
  • An Individual Taxpayer’s number (Cadastro de Pessoa Física – CPF) issued by the Treasury Department, this document is mandatory for acquiring real estate; if the buyer is married they will need to supply the spouse’s CPF also. See AngloINFO INFOrmation page The CPF Number (Cadastro de Pessoa Física) in Brazil
  • Proof of solvency from the Brazilian Tax Office (Receita Federal) once the CPF number has been obtained. To obtain this document: Click here and enter the CPF number

A foreigner does not have to be in Brazil to buy real estate. They may give power of attorney (procuração) to a third party.

How to Buy Real Estate in Brazil

The first step is to find an estate agent for consultation. Agents can easily be found online and there are many real estate agency websites that have English-language services. Those wishing to purchase should stay aware in order to avoid problems such as fraudulent real estate transactions, nonexistent real estate offered for sale or real estate which is actually unavailable for purchase.

Price, negotiation and offer

The price of property in Brazil is determined by the cost-per-square-meter multiplied by the size of the property. Those unsure of the price quoted can use local newspaper classified advertisements as a reference point. There is a difference between the value of land and the built square meter value.
It is normal to negotiate price and payment conditions; usually discounts can be found if the money is paid up front in one payment.
Payment conditions are a flexible area in Brazilian property transactions and depend largely on what the seller is willing to accept, therefore there is no typical offer. For example, a buyer could offer to pay 25 percent initially then the remaining 75 percent in three payments every two months following the transfer of deeds.
Acceptance of an offer does not bind the parties, once an offer has been made and accepted, a buyer is responsible for checking the legality of the property.

Due diligence formalities

The legal status of the property will need to be verified. This is carried out by the estate agent or estate agency or by lawyers specialised in this area.
The certificate of title of the property can be obtained at the Real Estate Registry Office (Cartório de Registro de Imóveis) and shows all registered transactions related to the property over the prior 20 years. It takes approximately five business days to obtain the certificate; the cost varies from state to state.
Land that is not registered will need to have a deed for buyers to have ownership rights, this can only be enforced between the parties in a transaction. Things to check in the title are:

  • That the real estate was built legally
  • That the specifications were approved by the city hall
  • There are no imminent land dispossessions pending
  • If the owner/seller is appropriately registered to the property at the real estate registry office (that they actually own the property)
  • That there are no third-party or government debts associated with the property (for example taxes, fees or condominium maintenance payments)

If the property has not been constructed and the sale is based on the specifications alone, it is recommended that the potential buyer check the legal status of the construction company as well as approval papers issued by the appropriate agencies or institutions (City Hall, Regional Engineering and Architecture Council, Environmental Secretariat). The estate agent can supply all this information to the purchaser.
There is no title insurance in Brazil. However some foreign insurance companies can provide title insurance for Brazilian properties.

Purchase and sale agreements

Once the legal checks have been carried out, the purchase and sale agreement (contrato de compra e venda) must be guaranteed through payment of a portion of the total price.
This is called the sinal (earnest money) and is normally between 10 percent and 25 percent of the total property price. The sinal does not bind the parties but both parties are obliged to comply with the terms of the agreement.
The sinal payment generates a pre-contract receipt which explains the conditions for the transaction to become effective. This pre-contract states how the remainder of the payment should be paid and in case the deal is not completed, how money will be returned.
It is normal to have clauses which protect the buyer if the seller backs out. Payment is normally made in Brazilian currency in cash or by wire transfer.

Deposit and Contracts

In most cases, two weeks after the offer has been accepted, the legal checks have been carried out and the earnest money (sinal) has been paid, the public deed of sale and purchase or promise to sell and purchase can be signed by both seller and buyer, before a notary officer.
The deed then becomes binding between the parties.
The deed of sale and purchase should include:

  • The price of the real estate
  • Construction conditions (timelines, deadlines) if the property is a new build
  • Deadline for delivery of the real estate unit

At this point, this definitive purchase contract overrides the receipt that was given when the earnest money (sinal) was paid. The contract itself is now proof of all the payments made so far.
The purchase and sale indentures with the new owner’s name and signature will be submitted to the Real Estate Registry Notary’s Office (even if full payment will be made in the future). This now creates an obligation for the seller to transfer the title (as stipulated in the Brazilian civil code).
Any taxes due must be paid by both parties at this point.

Fees and Taxes

The following fees and taxes must be paid by the seller:

  • Real estate brokerage fees: normally 5 percent of the market value of the property (dictated by the agreement between the parties)
  • Urban and rural real estate brokerage fees: between 5 percent and 10 percent of the total property value
  • Real estate fees for properties in construction: between 5 percent and 8 percent

The buyer usually pays transfer-related costs which include:

  • ITBI (Imposto de Transmissão de Bens Imóveis). This transfer tax is a municipal tax on transfers of real estate and rights to real estate. The amount varies from city to city, the average cost is three percent of the market value of the property, but can be higher. It is paid to the City Hall (Prefeitura).
  • ITCMD (Imposto Sobre Transmissão Causa Mortis e Doação). State tax on transfers of goods on death-related inventories or donations of real estate. The amount varies from city to city, the average cost is four percent of the market value of the property, but can be higher. It is paid to the City Hall (Prefeitura).
  • Costs of executing and registering the deed (between R$700 and R$800, for real estate valued between R$100,000 and R$150,000). It is paid to the Real Estate Registration Notary’s Office.
  • Real Estate Accounting Tax is approximately R$800 for real estate valued between R$100,000 and R$150,000. It is paid to the Notary’s Office (responsible for authenticating the purchase papers)
  • Navy Alienation Fee. This fee is charged by the federal government for transactions involving real estate located on the coastline or up to 80 metres away from the coastline. It amounts to five percent of the total real estate value
  • Municipal Alienation Fee. Some City Halls also charge alienation fees for real estate located in certain municipal areas. This fee is, on average, two percent of the total real estate value.
  • Bank Fees. If the real estate is acquired through bank financing, the buyer must also be prepared to pay the fees charged by the financial institution, such as real estate evaluation taxes, administrative taxes, credit-opening taxes, real estate insurance and life insurance.

Mortgages and Financing the Purchase

Buyers that do not have all the cash to make a purchase have a number of alternatives available including financing the purchase through a financial institution or directly with the building company. The word for mortgage in Brazilian Portuguese is Hipoteca.
Only foreigners who are permanent residents and have a proven income salary can apply for mortgages in Brazil. The main real estate financing agency in Brazil is Caixa Economical Federal, a government-owned bank.
Private banks providing mortgages include: Bradesco, Santander, Banco Itaú and HSBC. There is a big variation in loan conditions on offer so it is suggested to compare offers. Not all banks offer financing for those who live abroad.

Direct financing by the building company

Building companies usually offer up to 60 months of financing during the construction phase. As it is a direct purchase there can be broader negotiation options and it is easier to set values and deadlines. The buyer can pay in any number of installments, often without interest rates.
Installments will be readjusted by the Civil Construction National Index (INCC). When construction is finished, the interest rates will be 12 percent per year, readjusted by the Market Prices General Index (IGPM).
As well as an initial installment of about 10 to 12 percent of the final real estate price, there are also intermediary installments, which will be much higher than monthly installments.

Source: http://saopaulo.angloinfo.com

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