Brazil developers seeking cash from investors for massive affordable housing projects

Written by Ray Clancy

Tuesday, 26 January 2010 09:16

Property investors can get a slice of the action in Brazil’s massive affordable housing programme with the option of buying into social projects.

Under the landmark 2009 policy ‘Minha Casa, Minha Vida’ (My House, My Life) the Brazilian Government has pledged to build one million affordable homes for low-income families by 2011 alone.

Fast construction techniques means potentially fast returns for investors but as an emerging market it is not always easy to buy into such opportunities. But some developers are now offering the chance for foreign individuals or groups to make bulk-investments into their social housing projects.

According to Samantha Gore, sales and marketing director for Brazil real estate specialist uv10, net profits could amount to 23% after four months which can then be reinvested twice more in one calendar year.

‘We’re collaborating with a 20-year established development company in Natal on a project called Bosque Verde located in a high employment area close to all major transport routes including the City’s Agusto Severo Airport,’ she explained.

It includes 1,534 family properties divided into 15 gated communities with a shopping mall, school, children’s playground, police post and health centre. ‘With huge demand and fast modular construction techniques, Bosque Verde will be built and turned around quickly and, by offering initial investment packages with discounts to bulk buyers, the developer is able to reinvest his capital early into the next opportunity,’ she said.

‘Bulk-investor discounts of up to 25% are offered with a four-month turnaround for buyers. A 120-unit purchase would deliver 23% ROI in that short window,’ she added.

She reckons that the chance of being left with 120 unsold units is virtually zero. ‘When Minha Casa, Minha Vida was launched in Natal in May 2009 massive queues formed and by 12 May they had 25,000 people signed-up for subsidized loans. So far only 600 housing units have been built in Natal under the scheme leaving a shortfall of over 24,000 approved buyers waiting for homes which offer decent living conditions,’ said Gore.

She also points out that Bosque Verde is close to busy factories offering employment, such as Ford and Coca Cola, and is expected to sell out instantaneously upon launch. ‘To date, no advertising has been done yet 700 families have registered for the project through word of mouth alone, awaiting the imminent launch. So high is demand that the developer will contractually guarantee that 90% of his units will be sold before even the first brick is laid,’ she added.

Already attracting a Government investment of 60 billion Reais (€23 billion) Minha Casa, Minha Vida has a double aim of shoring up Brazil’s construction industry alongside reducing the country’s current shortfall of seven million homes. A combination of cash grants, the removal of purchase taxes, discounted interest rates and guarantees to cover mortgage payments for up to three years in the event of job loss for Brazilians on the program, will help millions of low and medium income families to purchase their first home. Meanwhile, qualifying developers receive a subsidy and tax break for agreeing to market units at fixed competitive rates.

A bulk 120-unit purchase comes in at 6.75 million Reais (approximately € 2.6 million) with 23% ROI after four months taking into account the 25% discount given on purchase and costs of selling including taxation and agent’s commission. A 60-unit package is also available at 3.825 million Reais (approximately €1.47 million) which offers a 10% ROI after the four month build based on a 15% discount and costs. The investor can also repeat the process three times in one year giving an annual ROI of 69% or 30% respectively.