July 8, 2010
Dear Real Estate Trend Alert Member,
Long-time members know that I am bullish on Brazil—Fortaleza in particular. Today, there is a pocket of opportunity right in the heart of downtown. I’m talking about an area that has been neglected…but whose fortunes an ambitious plan is about to change.
Iracema Beach is immediately to the west of Fortaleza’s bustling boardwalk—the tourism, social, entertainment, and high-end real estate center of Fortaleza. Real estate prices have doubled here in the past three years.
Ocean view condos sell for up to $4,500 per meter. (That’s approximately $450,000 for a 1,000-square-foot condo.) Rentals here stay full and charge top dollar. This is where Brazilian millionaires and billionaires own condos; some as big as 5,000 square feet.
Today the boardwalk is fully built out. There is one remaining developable site on the corner at the eastern edge of the boardwalk. This is the site that’s just a couple of minutes walk from the Gran Marquise Hotel. You may have heard me refer to this site as the “swamp” project.
This project (like many others in the Fortaleza area) has been held up due to permitting delays. A complete staff change at City Hall has paralyzed the permitting process. Unfortunately this delay, and the way prices have been rising, means that prices here will likely be 8,500 reais ($4,800) per square meter at launch. That’s more than double the RETA price I discussed with the developer two years ago.
We Can Do a Lot Better Than That
Don’t worry. There’s a way we can get in on Fortaleza’s boardwalk at the ground floor. This ain’t a time machine…it’s a Path of Progress…
Iracema beach hosted 1.1 million revelers for the 2010 New Years party. Concerts and major beach volleyball tournaments are a regular fixture. But Visitors prefer to stay along the family-friendly and buzzing boardwalk. Now Iracema is getting a major facelift.
The result will be to extend the boardwalk to include Iracema Beach.
This project is part of the $5.6 billion investment in tourism and infrastructure in the lead up to the 2014 soccer world cup:
- $135 million will be spent on the new Aquarium (set to be the largest in South America)
- $30 million is being invested in a general upgrade of the area including the extension of the boardwalk
- $10 million is to be spent on the culture center renovation. (This is Fortaleza’s art and theater center)
For those of you that are familiar with Fortaleza or joined me on one of our member-only scouting trips: the boardwalk is to be extended from La Casa restaurant as far as the Aquarium.
This is all part of the same stretch. There’s no reason the boardwalk should stop at La Casa. With no more developable land, the boardwalk has to go some where. The old port and industrial installations means it can’t go east. (At least for another decade anyway and the major port functions are moved to Pecem.). It is extending along Iracema Beach.
Iracema’s dingy bars will be replaced with more family friendly amenities…three-star hotels with shiny new condo buildings and hotels. This area will of course also benefit from the $19 million that is being spent upgrading the boardwalk itself. Three years from now there will be no visible break from the boardwalk to Iracema beach and to the culture center.
Families on vacation will want to stay here…as will visiting executives. Yet, today prices are 22%-60% lower than along the boardwalk.
As Iracema becomes part of the boardwalk, its prices will catch up with boardwalk prices.
The Play
Jardins de Iracema is located in the heart of Iracema Beach. This area was rezoned last January bringing the maximum height down to 48 meters. This project was the last to be approved under old zoning laws. It is 72 meters high. The higher floors will always have unobstructed views.
Two-bedroom, 72-square-meter units start at 260,000 reais ($147,000). Make a 25% down payment and the developer will finance the balance over 100 months. The developer is giving a free furniture package (kitchen cabinets, both bathroom cabinets, both bedroom closets, and a bed and a desk for the guest bedroom. That’s a 6,000 reais ($3,400) value.
Prices for the one-bedroom Studio Iracema starts at 163,000 reais ($92,000). Payment terms are 10% down, 20% on completion (Dec, 2010) and the rest paid over 100 months.
This studio is the cheapest entry point you can find in Fortaleza. An ocean-view apartment for less than $100,000. Units will be delivered in six months.
My recommendation however is to go for the larger two-bedroom units. These units are perfect for the long-term rental market. This is where the young professionals who move to Fortaleza will want to live.
This is what my contact on the ground, Daniel Neves, discovered when he recently put his units on the rental market. He planned on offering these units as short-term rentals but the demand from long-term renters was so strong he switched course. Now he makes a hassle-free net yield of 8%. I expect he will enjoy capital appreciation. Prices could double between now and the 2014 World Cup. This is the area that will likely see the most capital appreciation in Fortaleza.
Here’s part of an e-mail Daniel sent me:
“What we discovered accidentally was that there is a new forming of strong demand for nicely furnished apartments to be rented in long term contracts for young professionals moving in to Fortaleza to take up new jobs or to expand their companies there. They don’t want to buy an apartment, nor rent an unfurnished one. They want to move into an ‘all inclusive’ apartment and worry only about their work.
“All these people belong to upper middle class. They are used to a very good level of life. So, they want to live in a furnished apartment, in good neighborhood, full of restaurants and bars and they want to be walking distance from the beach.
“They don’t mind paying more rent than average to live in a nice looking place because this is going to be their home for a few years and they want to impress new friends.”
Daniel and his team are standing by to send you a full information pack: daniel@investinfortaleza.com. This is a great deal in an area on the up. I strongly recommend this opportunity. I have already invested in this area. In fact, I bought four units in a project close by. I would buy here myself but having bought multiple condos in Fortaleza over the past couple of years I’m maxed out in this part of my portfolio for the moment.
News From Brazil Continues to Be Good
Meantime, strong and positive news continues to flow from Brazil and Fortaleza in particular.
Brazil last year became a middle class country and this year is expected to add 2.5 million jobs and grow by 5.5%. Credit and mortgage finance is opening up. Brazilians have a new confidence. My contacts on the ground tell me that today when they make some money they invest it in their business and country. It wasn’t always like this. In the past when someone got ahead they moved the money offshore.
Today Brazilians see that some of the best opportunities are in Brazil. As soon as people move into that middle class category they become consumers like us. That includes putting themselves in the market for a shiny new condo or a vacation in the sun.
Fortaleza is set to profit from Brazil’s new middle class and consumer boom. Fortaleza is where Brazil’s best beaches are. Fortaleza is Brazil’s #1 domestic tourism destination, hosting three million Brazilian tourists in 2008. We don’t have official numbers yet for 2009. I expect they will be extremely strong.
We do know about airport traffic. Feb. 2009 saw 678,682 passengers through Fortaleza´s airport. This year (Feb. 2010) saw the number surge to 912,670…an increase of 34%. The new cargo terminal helped Fortaleza’s cargo traffic grow 68% and become a regional leader.
This surge in visitors is exacerbating what’s already a chronic shortage of rentals. This is a good time to buy here. To find out more about the Iracema Beach deal, contact Daniel now: daniel@investinfortaleza.com.
Wishing you good real estate investing,
Ronan McMahon
P.S. I recommended a project in Fortaleza 19 months ago called Landscape. RETA members got in early at special prices and terms. If you bought in Jan. 2009, you’ve seen the value of your units increase by close on 40%. Since Jan. 2009 the monthly payments have only been 1%. This is good news. I expect we will see further price appreciation.
