buying real estate in Sao Paulo

Hi everyone,

I'm European and our housing market is currently in a huge bubble. It just doesn't seem interesting to me and fellow youngsters to take on a huge mortgage for an average house in Western Europe. Prices have doubled in 20 years and even though I have a masters degree I will not be able to afford the same house as my lower educated parents.

My girlfriend (future wife) is Brazilian and currently studies our language. We plan to live here, but instead of buying a property here I prefer to pay cheap rent and invest our savings into property in Sao Paulo.

I've seen very interesting apartments in Sao Paulo, for very affordable prices. But the ad always mentions IPTU and condominio on top of the buying price.

Because IPTU is a smaller number, I figured that's the one that has to be paid monthly. Condominio is usually much higher. But my girlfriend says that condominio is a monthly payment for staff working in the building etc.

For interesting apartments, condominio gets up to $500 (USD) per month and higher.
This makes the buying price completely irrelevant.

Can someone tell me why condominio is so high? How it is constructed and if there is a way around it?

Sadly in Brazil you need a security guard to protect your apartment block. This is unimaginable in my country

IPTU is the real estate tax paid to the local municipality.   It can be paid either annually or monthly; most people pay monthly, so it's shown that way.  There's usually a discount for paying annually.
"Condomínio" is the monthly condominium assessment, to pay for the shared charges of the building, including items like payroll and maintenance.  It's set by the homeowners' association by pro-rating the annual budget among the unitowners.  There's not much way for an individual owner to influence it, and the association will tie up your unit in legal proceedings for non-payment, particularly for an absentee owner.
Investing in Brazilian real estate means accepting not only market fluctuations, but currency fluctuations, and require hiring and paying someone local to manage the property. There are also sizeable transfer taxes at purchase.  It can be a good investment, but it's neither simple nor low risk.

Well explained abthree.

I’m not sure if this relates to sao paolo but there is also DARF - a navy tax for properties by the sea, although this is relatively low it’s something to factor in.

Also bare in mind that condominio fees are not necessarily fixed and can increase depending on additional works that are carried out to the condominio I.e. re-tiling the main entrance or any unexpected works. There is also a discount if your condominio fees are paid before the due date, however if you are late there are multos and juros which is a penalty and a daily interest added to your bill until the balance is cleared. This applies to most payments in Brazil such as Deso (water) and energisa (electric)

Although the property purchase prices can be cheaper you also have to factor in as abthree mentioned transfer taxes and registering the deed into your own name which is usually around 4% of what the property is valued at by the city.

Hope this helps, let us know how you get on

Ikex

abthree :

IPTU is the real estate tax paid to the local municipality.   It can be paid either annually or monthly; most people pay monthly, so it's shown that way.  There's usually a discount for paying annually.
"Condomínio" is the monthly condominium assessment, to pay for the shared charges of the building, including items like payroll and maintenance.  It's set by the homeowners' association by pro-rating the annual budget among the unitowners.  There's not much way for an individual owner to influence it, and the association will tie up your unit in legal proceedings for non-payment, particularly for an absentee owner.
Investing in Brazilian real estate means accepting not only market fluctuations, but currency fluctuations, and require hiring and paying someone local to manage the property. There are also sizeable transfer taxes at purchase.  It can be a good investment, but it's neither simple nor low risk.

My girlfriend is from São Paulo. She bought an apartment "a vista" for roughly 100 000 USD. No mortgage, which gives her complete financial freedom. There is no security guard, no staff for maintenance. No elevator but just stairs to get there. There is an "escritorio" though, a woman who is responsible for anything related to the building.
IPTU and condomínio are very low, making such properties interesting as investments. She said that renting it out could generate 2000 reais per month.

An apartment where I live easily costs $300 000, and barely generates more rent than that (depending on the exchange rate). Most people have to take on serious mortgages to pay off 1 property to live in, and will never generate any profit from other people renting their property.

Hiring a local to manage the property.. I think this is a struggle for a foreigner but my girlfriend is a local. Has many relatives living there.

Either way it's probably good for me to obtain the Brazilian nationality. If I work and make money in Europe, I can consider early retirement in Brazil

People,

Real Estate is still also in a bubble in Brazil. One of these days it can collapse depending on the economy and whose´s running the govt.

Rent is cheap and I´d rather keep my money invested in stocks for now. The closer you live to the beach, the more taxes you pay (I don´t think that will change); condominio in high rises depends on how many bedrooms you have and the area you live in. It can be from 250 reais to 2,000 reais or more depending on the "sindicato" who runs it. Brazilians earn little and an "area nobre" with a high condominio is not very conducive for investment. With this type of economy, I´d like to keep my money liquid - ready for a bail out to a new territory when "SHTF."

Don´t forget that aside from maintenance, you have to pay taxes to that real estate and if you rent, I hope you find a good tenant with a stable financial status!

I´ve invested early - decades ago when everything was cheap (in cruzeiros), but I´m on the lookout if things get bad especially with the on-going problems of socio-economic and geopolitics in Latin America with emphasis now with neighbor Venezuela.

robal

robal :

People,

Real Estate is still also in a bubble in Brazil. One of these days it can collapse depending on the economy and whose´s running the govt

In times of inflation, people look for a safe haven to invest their money. That safe haven is real estate and that is why the prices are booming.

But with the currency being as weak as it is today, I find investing in Brazil very interesting if you own foreign currency. 10 years ago 1 euro was 2.5 reais. Today it is 4.3

It allows me to buy a whole lot more. Sadly I'm not in a position to buy an apt yet, and I don't predict a bright future for the European Union 10 years from now

GringoLouco,

I understand your point that indeed real estate is a weapon against inflation.

But you have to understand that inflation is like a double edged sword. You see São
Paulo in the last 6years, had 200% increase in real estate prices and Rio 250%!
Why? Because the government lowered down interest rates - fueling real estate purchases and as a consequence more construction due to demand. Of course greed
sets in and speculators in frenzy buys frantically propelling prices to the stratosphere!

The bubble bursts when consumers no longer can afford real estate prices and stop purchasing. If any government tries to fight inflation and raises interest rates, consumers will be hindered to buy. This causes prices to fall. So if you bought during the buying frenzy with high prices, you could lose money.

A beach property in Santa Catarina (my neighbor) originally put his property up for sale
for R$1million and hasn´t been bought for 3 years now. He has come down to R$700,000 last year and still no buyer. I wonder if it´s that sign already, a housing market crash. I´ve seen a lot of repossessed properties at auction and they´re at least
30% cheaper. The only problem is that you might have to contend with the owner who refuses to leave even if ordered by the bank!

I´ve been waiting for real estate to crash (although I´m also an owner), and if that happens I´ll be ready to buy!

robal

GringoLouco,

I´m curious why you think the UE have no bright future in the next 10 years. Are you thinking of a possible dissolution of the European Union?

robal :

GringoLouco,

I understand your point that indeed real estate is a weapon against inflation.

But you have to understand that inflation is like a double edged sword. You see São
Paulo in the last 6years, had 200% increase in real estate prices and Rio 250%!
Why? Because the government lowered down interest rates - fueling real estate purchases and as a consequence more construction due to demand. Of course greed
sets in and speculators in frenzy buys frantically propelling prices to the stratosphere!

The bubble bursts when consumers no longer can afford real estate prices and stop purchasing. If any government tries to fight inflation and raises interest rates, consumers will be hindered to buy. This causes prices to fall. So if you bought during the buying frenzy with high prices, you could lose money.

A beach property in Santa Catarina (my neighbor) originally put his property up for sale
for R$1million and hasn´t been bought for 3 years now. He has come down to R$700,000 last year and still no buyer. I wonder if it´s that sign already, a housing market crash. I´ve seen a lot of repossessed properties at auction and they´re at least
30% cheaper. The only problem is that you might have to contend with the owner who refuses to leave even if ordered by the bank!

I´ve been waiting for real estate to crash, and if that happens I´ll be ready to buy!

robal

I live in Belgium. My parents bought 21 acres of land here, for roughly 20 000 euros in 1987 after I was born. We didn't have the euro then, but that's what it equates to. They then constructed the house, with a loan that they could pay off in 15 years. So it must have been a maximum of 170 000 euros full price. They did it this way so I could go to university when I turned 18.

Housing prices rose between 1987 and 2000 (arrival of the euro), but after the arrival of the euro things really exploded. Between 2000 and 2018, housing prices have doubled in Belgium and the price of land has gone up tenfold, by 1000%. Wages have increased, but not nearly at the same rate as the price increases. Our first house with an estimated value of 175k euros then, would now easily sell for 500 000 euros. Mainly because of the size of the land. And this is not even in a city.

Today the same piece of land would cost me 200 000 euros which is 900 000 reais, and there wouldn't be a house on it. The government plans to end all construction within 20 years to save our land. People now buy 4-5 acres instead of 20 acres because it is not affordable.

My parents were very lucky to get it all before the bubble. They deposited their other savings as deposits into 2 apartments. 1 in Belgium, and 1 in Spain. Both properties have a tenant who will pay off the mortgage within the next 7 years. In summary, my parents who invested about 250 000 euros in 3 properties will end up with at least 1 million euros worth of real estate, all because of the bubbles.

During my entire life, they said "If you educate yourself you can buy a house like ours". And banks told me that the average Belgian worker is allowed to spend 1 third of his salary on a mortgage. The average national salary is 1500 euros after all taxes. This includes free healthcare and free education.

This leaves 500 for the mortgage and 1000 to live off, but because of the bubble you can barely find mortgage plans for less than 1300 euros per month. With 500 euros per month, you can't buy anything. You can afford the cheapest rent but you'll never be the owner.

So what the bubble has created now, is a demand for young people to find a partner (dating sites are exploding) with who they can share the mortgage so one day they can become owners. Buying an apartment based on 1 salary is impossible for 90% of us.

I see people around me in very questionable relationships. Women making children with them as a life ensurance. 70% of those marriages end in divorce within 20 years, and in the 30% who stay together there are usually financial motives.

I'm lucky because I will inherit loads of money from my parents, but I'm not willing to take on a huge mortgage to buy very overpriced property.  I make more money than 95% of Belgians, but I'd rather rent a cheap place and save money than taking on a mortgage of an inflated bubble that I expect to burst one day.

Yes, Brazilian real estate is in a bubble too. But it's still a better option to buy real estate there compared to here.

Also with regards to real estate bubbles. This is going on in my country and in yours.
What happens, is that inflation and cheap loans make the middle class run to real estate.

But the middle class typically runs to more affordable housing. In Brazil but also in Europe. This causes the cheaper end of the housing market to become significantly more expensive.

Prices of more expensive properties also rise, but as you said earlier.. You can't expect someone to pay R$1000 000 for a property if the local job market does not allow such salaries. And I don't think that's gonna change in Brazil because good education is very expensive.

The more expensive houses in Belgium (500 000 euros and more) end up on the market for years, but there is no buyer for them. We simply have too many taxes for people to afford to pay 500 000 euros for a house.

And about the bubble in Brazil

A R$1000 000 property would cost 225 000 euros now. 4.3 reais per euro, which is a historically cheap rate.

If the bubble bursts but the real gets back to where it was 10 years ago, a R$600 000 property would cost 240 000 euros (2.5 reais per euro)

Regardless of the bubble, I think that now is a decent moment to invest.

robal :

GringoLouco,

I´m curious why you think the EU have no bright future in the next 10 years. Are you thinking of a possible dissolution of the European Union?

As you probably know, Great Britain has voted to leave the EU. They wish to control their own borders and I fully agree with them.

There is no Brexit deal. I am very curious to see what will happen to the value of the euro when Britain leaves. I expect the euro to crash.

For the longer term in Europe.. In a city like Antwerp we now have 50% foreigners. Culturally we don't match and they are not highly educated. Their unemployment rate is huge, meaning they rely on tax payer benefits and their numbers are only increasing. 75% of children in schools in Antwerp is a foreigner. The same is happening all over Western Europe. Belgium, Germany, France... The EU is a gang of unelected burocrats who are conspiring to kill us with immigration. I know 3 Belgian EU members to have history with bribes and corruption.

In addition, society is getting older and pension funds are under serious pressure. An increasing portion of society is reaching retirement age and only a small part of the working citizens have to finance their pensions. All of this while housing became completely unaffordable for young people.

To me, this whole burden is too much to take and the equation does not make sense.
We already see young people staying with their parents for more years than normal, to escape the overpriced housing market. Similar to Brazil, by the way.

When the whole house of cards comes down, I expect the government to increase inheritance taxes even more. I hope that I get my part before that happens, and I will flee from Eurabia (that's what it is becoming) to invest in Brazil

Summing it all up I tend to agree with your idea fleeing Belgium for Brazil. I didn´t know it was that bad.

Powerful Germany had much influence over the influx of so much migration to the UE. Angela Merkel is losing popularity and is principally blamed for said experiment. The parties to the right will soon be taking over and I´m not so sure if there won´t be an increased violence over Middle Easterners.

I´m sure Belgium is very concerned especially that terrorist attacks to France originated from Belgium.

I do wish you the very best of luck whatever endeavor you intend to engage in the future!

robal

I live in Ireland and prospects for the future here are not good either. Especially after Brexit. Housing is the biggest problem in Dublin and commuting areas right now because all big business concentrated only in that part of the country. We have our house up for sale but as it is in a rural area in the west(not very developed), it's going to take some time.
As I am a Brazilian/Irish citizen with a British husband, almost retired, we can't wait to sell the house and leave.

My 5 cents. 
Property Tax is IPTU. Getting a rate is based upon the Legal Property Value ( not fair market, legal )>
Condominium rates vary according to a number of factors, mostly derived from the cost of maintaining the building. The weighing factors that affect condo rates might be:

-How many units are within the building that share the cost of maintaining it. The more units a building houses, the lesser your rate might be.
-Bloated payroll, and employee obligations. Some Condo Associations in Sao Paulo have cut the doorman entirely by automating its function.
-A Third party management company is taking too much for manage your building, or it is mismanaging the building finances.  Same applies to the Sindico.
-Building maintenance has been negleted, and now there is a lot to catch up with it. You will know this once you skim through the monthly statement and see surcharges for " rateio"
-Also maintenance and rainy days funds might be depleted.  It's called Fundo de Reserva. 
-The rate of delinquency on the buidling within tenants ( not paying their fair share ).

For the sake of future unforeseen expenses, I would avoid new buildings with too many fancy ammenities, unless you have a superior build quality. 

Since most RE Developers have cut too many corners lately, I would look into older buildings on more established and up and coming neighborohoods. 

Still, you would need to do your homework on older buildings.  If you are Language Challenged, then you need to engage a Real Estate Brokers to do the fact finding it needs to be done.   

I usually do my engagement by talking to the doorman, the super, I stop tenants on their way out.  Flat out, sometimes in front of the prospective buyer.   

Also, by checking any legal proceedings against the building management might give you clues on what might be potentially compromising.

If buying in a new building, then reclameaqui.com.br is a good start to dig dirt on the builder, or any particular building. 

As many professional buyers do , and I dealt with those, specially Stateside, you want to check the basement, pipes, the type of stucco, what type of brick was employed in the construction.   Those are tell tales on whether the building is a clicking time bomb, or a sure thing.

Also, mostly at the lobby, or somewhere on ground level, there will be a Mural or Glass Cased Posting Board  where all the licenses and updates are posted.  Something such as Lightinig Protection,  a recent Pest Detetization Certificate.

You should also ready the elevator notices, and check the groundspkeeping.

Case in point.  I am working with a client in buying an entire building. Old as  the Mayflower.  Buyer went for a second visit.  I directed him to take photos of the basement and forward them to me.  AS soon as I had them, I told the buyer to spend the money and get an Structural Engineer to evaluate the Structure Integrity. 

Granted you won't go this far for a mere apartment, it goes without saying, that Buyer Beware and you owe to yourself due dilligence.

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