Brazil’s Latest Real Estate Opportunity

Brazil is bursting with millionaires…and billionaires seem to be created by the month, as are thousands of new or expanded businesses.

If you’re a regular International Living reader, this will be no surprise to you. We’ve been discussing Brazil’s new middle-class status for a long time.

Today I’m going to share a way we can profit from this trend…and it’s probably not something you’re expecting.

You see, each of these businesses needs a physical space (retail or office) to carry out their trade. Demand for office space is rising. Rents are rising. And, there are already shortages…particularly in the north-east which is growing faster than the rest of the country.

Joao Pessoa is surrounded by miles of beautiful beaches, the weather’s warm and sunny year-round. Roughly 75 miles from Recife and 110 miles from Natal, the city is the third oldest in Brazil.

Today, this is where many Brazilians retire, vacation and buy second homes. In particular, the city is popular as a retirement destination for senior civil servants. They retire early from their government jobs. Active and healthy, they relocate here to start the next phase of their life.

That’s good news for the businesses of Joao Pessoa. As more of these wealthy young retirees move here, the city’s businesses have more customers. And there’s more demand for services—like dentists and cardiologists and financial planners.

There is a SERIOUS shortage of office space in the city and it’s only going to get worse.

Limited Supply + High Demand = Strong Yields

Joao Pessoa has three square miles of forest, providing a green backdrop to almost 25 miles of beach. The city’s protected forest limits development here. Cabo Branco is a prime residential area. This exclusive neighborhood borders the boardwalk. Cabo Branco sits between the ocean and the forest, on a thin triangle of land. You’ll find the city’s nicest restaurants and boardwalk kiosks here, and uncrowded stretches of beach.

Sitting just above Cabo Branco and on an elevated piece of land is the area of Altiplano, a high-end residential neighborhood with a mix of single family homes and luxury condos.

The municipality of Joao Pessoa recently relaxed planning regulations in Altiplano, and will now allow mixed commercial, resort and residential projects to develop here. A master plan calls for residential development to house 40,000 people. There are also plans for hotels, shopping malls, private schools and medical services.

Brazilians like to live near where they work and work near where they live. Office space in this location will be in hot demand. And this will be a seriously high-end area. Condo towers under construction in this neighborhood come with price tags of 600,000 reais ($382,000) and up to 5 million reais ($3.2 million)…and amenities that include private bowling alleys, multiple swimming pools, and high-tech gyms.

A new luxury office tower is set be launched by a Swiss developer in the heart of Altiplano very soon. This group already has two upscale towers under construction in this neighborhood. This is a mixed use building, including shopping, leisure, 38 stories of residential and 45 offices. Construction and finishes will be top end. That’s nowhere near enough office space though. The developer knows this. Once these are released they will barely make a dint in the under-supply.

Office suites in the new building will be launched soon with prices starting from just under $100,000. Connected insiders like the developer’s family, friends, business partners (and members of Real Estate Trend Alert) can reserve units now.

That means you could get in before the local launch. Plus, there’s a discount of 5% for those that reserve the first 15 units.

My contact on the ground knows all about the office shortage. He has been searching for new office space for himself for the past few months. Decent offices in good locations are snapped up within days of becoming available. Renting an office is a competitive business…if you are the tenant, that is.

Yields will be be strong. A unit that would set you back 5,000 reais per square meter in this building could rent today for 50 reais per square meter/month. That’s a gross 1% per month. But, it could be higher by the time you take delivery of your unit.

How the Numbers Stack Up

Let’s walk through some hypothetical numbers:

Today’s current comp for rentals at this level (high-end) in the market is 50 reais per square meter/month. Over the four-year build period, if rents were to rise by 10% each year, your unit would rent for 73.20 reais per square meter/month. That’s 878.4 reais per year.

The purchase costs including discount is running at 5,000 reais per square meter. Figure on another 10% to cover your other costs (legal, title, taxes)…including a visit.

That gives a gross rental yield of a shade under 16%.

You will have expenses, like a rental manager.

It seems possible…maybe even likely…that rents will rise at this rate. But even without these rises this is a strong deal that offers income with the prospect of capital appreciation.

The entry point here is just under $100,000. You can lock this unit down with $20,000 when you sign your contract and monthly payments of $1,000 for five years. The other 20% is due when you take possession of your unit.

You can access the full details of this opportunity in the members-only section of the Real Estate Trend Alert website. To learn more about RETA and to join, go here.

Editor’s Note: Ronan McMahon is a director of Pathfinder (IL’s preferred real estate advertiser), and he comes across hundreds of property property deals every year.