Piping-hot Pre-construction Deals on Brazil’s Northeast Coast

Take a look at the pre-construction deals I found near here.

Friday, May 23, 2008

Read more about real estate in Brazil in International Living Postcards —your daily escape

If you’ve been following International Living’s recent Postcards, you’ll know that I am bullish on the stretch of coastline along Brazil’s northeast coast. IL’s Editorial Director Len Galvin and I recently spent 10 days on a scouting trip on this stretch of coastline. This area (around Fortaleza) represents the best beachfront buy on the planet right now : beachfront lots for $30,000; second-tier ocean-view lots for $16,000; sea-view two-bedroom, two-bathroom condos from $83,000. You can even build your own luxury home with a pool on an ocean-view lot and still have change from $100,000.

The deals are incredible, but it’s the range of pre-construction terms available here that really got my attention. In most markets, pre-construction terms are pretty standard and rarely deviate greatly from project to project. In this part of Brazil, I found some projects that accepted as little as 0.5% down payment at contract…others offered generous pre-construction discounts for early-in buyers who put 100% down. This 0.5% rate is typically reserved for well-connected locals with the right access to Brazilian developers. On my recent trip, however, I was able to lock down condos with a down payment as low as 0.5%.

One developer I met with was offering a genuine discount of up to 30% for the first eight buyers who would buy and pay 100% of the purchase price upfront…before a sod was turned. So you could pay $70,000 for a condo that would sell for $100,000 today if construction was complete. You will be waiting up to a year for your unit to be delivered, and, of course, you are bearing some of the development risk. However, if the market sees an uplift of 20%, your $70,000 condo would be worth $120,000 when you take possession.
If you manage to get the 0.5% rate, you won’t enjoy the large pre-construction discounts that you would get if you put 100% down and the build period is typically longer. You would pay as little as $500 down on a $100,000 condo. Monthly payments over a three-year period would also be in the region of $500 with the balance due when your unit is handed over to you.

In most cases (but you do need to check), your contract will be assignable, which means that you can sell on your contract. As soon as a project sells out, which can be in a matter of hours, a market quickly emerges for the contract you have purchased. An immediate uplift in prices of 10% in this case would mean that you could sell on your contract for $10,000, netting you a 2,000% return in a matter of days. Of course, signing a sales contract with a view to following this strategy is highly speculative, but it’s happening today in Fortaleza, and people are using this method to generate fantastic returns.

Some developers are offering terms in between the two examples given above. For example, 30% down, 40% during the build period, and 30% on completion. Some of the European developers sell with 30% down and the balance on completion.

There’s something for every pocket and every appetite for risk along this stretch of coast.

Ronan McMahon
For International Living

Editor’s note: Ronan is the executive director of Pathfinder and has recently set up a service providing real estate enthusiasts with insider information on the property market. This is an invaluable service if you are interested in global investing. Ronan is planning a trip to Brazil in July and he is bringing his budding investors along. Find out more about this global real estate investing service.

Read related articles:

- The Inside Scoop on Brazil’s Bargain Real Estate

- The Best City Beachfront Deal Right Now

- Brazil Beachfront Webinar