With the rapid rises in Brazil’s real estate market values over the last few years, land prices – particularly in the country´s urban areas – have naturally followed suit.  According to Professor João da Rocha Lima Jr. from the polytechnic university of São Paulo, proportionate values today in the state as a whole form between 30 and 35 percent of a project’s gross development value compared to 15 and 25 percent a short time ago.  Below we outline the content of a recent article in Brazil’s Exame magazine that focused on highlighting the key differences of purchasing land compared to property and how to avoid the pitfalls commonly encountered.

Sérgio Pereira, director of Vallor Urbano – a company that specialises in land banking and lot dividing for re-sale stated the following: ‘the opportunities to profit well from buying land are very apparent – particularly with the natural development of Brazilian urban areas’ going on to quote an example of a lot that was sold for R$ 18,000 in 2005 by the company that was recently resold for R$ 75,000.

However, it should be noted that great care should be undertaken when buying land in Brazil to avoid what is ubiquitously referred to as a golpe (a false transaction created around corrupt / illegal business practices).  The prominent risk is via the purchase of an irregular plot of land – such as in areas which are environmentally protected and not permitted for residential and/or commercial construction.  The article illustrates the case of the Billings, Guarapiranga and Cantareira mountainous regions of São Paulo – when in the 1970s, the government decided to ban construction due to environmental protection obligations.  Although many owners have since been able to negotiate their legal positions of property and land rights, their battles have been long and arduous.

A common tactic also used by land sellers / brokers is to offer plots of land that are significantly below market value – the prices of which are determined by the associated future development valuation.  The land is subsequently placed in the name of an association of residents and each are sold a fractional quota.  Yet – whilst happening on a regular basis throughout the country – this practice is completely irregular.

The recommended first step to buying Brazilian land is to request a matrícula individual do lote (individual registration of the lot) – which will show the origin of how the plot was formed; ensure that there are no encumbrances and will effectively guarantee that it is not irregular.  With this document, the buyer can avoid 95 percent of the problems that can often be discovered when purchasing Brazilian land.  It can be obtained at the local cartório (notary office) which has a legal obligation to furnish this information to those who are interested in purchasing.  Another suggestion is to contact the local prefecture (prefeiture) in order to verify any building restrictions which may be in place such as with height (such limitations may affect the future development value of the plot).  Providing this information is also a legal obligation on the part of the local authorities.  In addition to the necessary permits (alvarás) and licences (licenças), checks should be made to ensure that there are no issues related to surrounding infrastructure and utilities (water, gas, electricity, waste disposal, transport etc.).  The article also points to the importance of understanding issues related to construction and that it can take up to 2 years for a plot to be ready to be built on.

Some medium sized cities in São Paulo state which are showing interesting land related opportunities are also indicated such as Jundiaí, Indaiatuba, Sorocaba, Piracicaba, Ribeirão Preto and São José dos Campos.  It should also be noted that the possibility of parceling land purchasing is also becoming increasingly prevalent with interest rates of approximately 12 percent per year plus any inflation adjustments according to the General Index of Market Prices (Índice Geral de Preços do Mercado, IGP-M).

Ruban Selvanayagam www.brazilinvestmentguide.com