Ceara, North East Brazil investments

Private equity sees Brazil fund raising at $15 bln

* Private equity could raise $15 bln by mid-2011

* Last year, $5 bln was raised by buyout funds

* Activity gains traction, helped by strong growth.

RIO DE JANEIRO, (Reuters) - Brazil-based private equity and venture capital funds could raise up to $15 billion from investors by mid-2011, as a growing economy and increased risk taking fuel demand for investments, an industry executive said on Tuesday.

Last year, buyout and entrepreneurial investment firms raised about $5 billion. In the 12 months ending in June or July 2011, the amount could triple as local pension funds and foreign institutional investors funnel more money into Brazil, said Sidney Chameh, president of the Brazilian Private Equity and Venture Capital Association (ABVCAP.)

Chameh's remarks come a day after Advent International, the U.S. private equity firm, raised the largest ever Latin American buyout fund. The firm, led by Brazilian financier Patrice Etlin, raised $1.65 billion after 17 months of efforts.

"We are coming from a rough ride in markets and now that in general investors, who became more selective throughout the crisis, see Brazil as a safe haven, the obvious result should be massive fund-raising," Chameh said at the ABVCAP annual summit.

More than 40 million Brazilians entered the ranks of the middle class in the past six years and another 40 million should join by 2015, said Fernando Borges, the head of Brazil's business for the Carlyle Group, said in an interview on Tuesday.

That, coupled with huge government spending on infrastructure and a boom in agriculture and mining is helping propel growth, which could reach 6 percent this year after a 0.2 percent contraction in 2009, analysts said.

"Growth is the key. That's why we are so optimistic in terms of the fund-raising issue," said Chameh, a partner with Sao Paulo-based private equity firm DGF Investimentos.

Chameh said the industry is currently working on a plan to implement a self-regulation code. No timetable for the code was unveiled.

(Reporting by Guillermo Parra-Bernal; editing by Andre Grenon)

Petroleo Brasileiro SA,

 Brazil’s state-controlled oil producer, raised as much as $70 billion in the world’s largest share sale as investors bet on its plans to double output within a decade by tapping offshore fields.

Petrobras, based in Rio de Janeiro, sold 2.4 billion common shares for 29.65 reais each and priced 1.87 billion preferred stock at 26.30 reais apiece. The company sold 115 billion reais ($67 billion) of shares and banks have an option to buy another 5 billion reais, according to a statement sent late yesterday.

Petrobras is spending about $224 billion over the next five years to boost production to 5.38 million barrels a day by tapping deposits trapped under a layer of salt beneath the ocean floor. The share sale was priced at a 2 percent discount to yesterday’s close, suggesting investors are backing Petrobras’s plans to overtake industry rivals such as Chevron Corp.

“Many of the other global majors are being challenged because their reserves are being depleted,” said Ron Holt, chief executive officer of Hansberger Global Investors Inc. in Fort Lauderdale, Florida, which manages $8 billion. “If you look at the potential capital expenditures that the company has planned for the next several years, that is a very significant potential exploration project for them.”

The company is tapping demand for emerging-market assets to develop deposits including Tupi, the largest discovery in the Americas in three decades. The field, and the nearby Libra deposit in the so-called presalt region off the Brazilian coast, may each contain as many as 8 billion barrels of oil.

Exxon, Apple, PetroChina

After the sale Petrobras jumped to the fourth-biggest company in the world, behind Exxon Mobil Corp., Apple Inc. and PetroChina Co., data compiled by Bloomberg shows. Petrobras has a market value of $214 billion, more than companies including Microsoft Corp. and Wal-Mart Stores Inc.

“Given Petrobras’s superior asset base and growth profile versus global oils, we believe the stock should trade at a premium relative to peers,” Bank of America analyst Frank McGann said in a note to clients.

Petrobras has slumped 28 percent this year on concern the sale will cut earnings and boost state interference. After the share sale, investors will focus on Petrobras’s exploration program to exploit the discoveries, said Mirela Rappaport, who helps manage about $100 million at Investport in Sao Paulo.

Brazil will add the most oil production of any country outside of the Organization of Petroleum Exporting Countries, or OPEC, over the next 25 years and surpass Venezuela and Mexico to become the second-largest producer in the Americas, behind the United States, the EIA said in its International Energy Outlook.

Production Targets

Petrobras has doubled output in the past 10 years and will surpass Exxon’s current production by 2015 if it meets targets set in its current business plan.

Petrobras plans to boost production 7.8 percent this year, while Exxon is targeting an increase of 3 percent to 4 percent this year. Chevron plans to increase 1 percent a year for the next five years.

Still, Petrobras has missed production targets in the past and extracting oil from deep waters “could be slower and more expensive than anticipated,” McGann said. “Risks are oil prices, project execution, and politics.”

The company’s preferred shares fell 50 centavos, or 1.9 percent, to 26.30 reais at 5:07 p.m. in Sao Paulo trading, while the common stock dropped 2 percent to 29.65 reais.

As part of the share sale, Petrobras issued about $42.5 billion of stock to Brazil’s government in exchange for the rights to develop 5 billion barrels of oil reserves. The sale includes an over-allotment option by underwriters to sell 188 million shares, or about $3 billion, over the next 30 days.

Increased Control

The sale may signal President Luiz Inacio Lula da Silva is paving the way for greater control over the Brazilian economy before the likely election of his chosen successor Dilma Rousseff next month.

“It wasn’t in Frankfurt, it wasn’t in New York, it was in our Sao Paulo exchange that we carried out the biggest capitalization in the history of capitalism,” Lula said at an event in Sao Paulo today.

Production at Shell, based in The Hague, was about 3.15 million barrels a day in 2009, down from 3.25 million a year earlier, according to its annual report. Exxon’s output was about 3.93 million barrels in 2009, up from 3.92 million a year earlier.

Prior to the sale, Petrobras was valued at 8.03 times its estimated earnings for this year, according to data compiled by Bloomberg. That compares with 10.6 times for Beijing-based PetroChina Co., Asia’s biggest company by market value, and 10.8 times Irving, Texas-based Exxon, the world’s largest company by market capitalization, the data showed.

Government Stake

A total of 18 equity offerings were completed this year by Brazilian companies before Petrobras’ sale, raising $12.4 billion, data compiled by Bloomberg show. The shares have gained 20 percent, on average.

The government increased its stake in the company to 48 percent from 40 percent after the share sale, Finance Minister Guido Mantega said at an event in Sao Paulo today. That includes minority stakes held by state-owned banks.

Before the sale, the government controlled the company through 55.6 percent of voting shares. Petrobras didn’t disclose the government’s voting stake after the offering.

Lula is tightening the state’s grip on the domestic oil industry after Tupi was discovered in 2007, the largest find in the Western Hemisphere since Mexico’s Cantarell in 1976. He says Brazil is relying on the country’s oil wealth to help raise the nation’s 192 million residents out of poverty.

IPO Shortfalls

Brazilian companies have struggled to raise as much as they sought in initial public offerings this year amid speculation higher interest rates and swelling budget deficits in Europe would slow the global economic recovery. Renova Energia SA, a Brazilian developer of wind and hydroelectric power, raised 150 million reais, a fifth of what it had initially planned.

OSX Brasil SA, billionaire Eike Batista’s shipbuilding company, raised 2.45 billion reais in March in Brazil’s biggest IPO this year. That was about 7.5 billion reais less than the company originally sought.

Investors may be more interested in other Brazilian companies after the Petrobras share sale, Will Landers, who oversees about $8 billion in Latin American stocks at BlackRock Inc., said in an e-mailed response to questions.

“The fact that Petrobras was able to raise the largest equity offering ever done in the world, 10 days before a presidential election shows how far this market has come,” Landers wrote. “Removing this huge overhang from the market has to be seen as positive.” 

 A related video from this article you may find at: http://www.bloomberg.com/video/63211690/ 

Brazil and UK Trade and Investment Discussion_Part 3.mp4

Brazil and UK Trade and Investment Discussion_Part 2.mp4

Brazil and UK Trade and Investment Discussion_Part 2.mp4

Brazil and UK Trade and Investment Discussion_Part 1.mp4

RULES

RULES OF THE GAME
 
1. You need a Brazilian ID called a CPF.
2. To get a CPF* you need a birth certificate translated into Portuguese by a certified.translator and legalized by the Brazilian consulate in your home country.
*(But about this you also have others alternatives, if you want to learn more check on this blog about CPF).

3. You make a trip to Banco Do Brasil with your passport and your birth certificate to formally apply for a CPF and pay a small fee.
4. The next day you go to the Receita Federal to receive your assigned CPF number.
5. Your CPF card is mailed to an address in Brazil within two months.               (That's right, you need a Brazilian address.)
6. It’s best to use a trustworthy broker. Not only will the a good broker help you find a property, but he or she will make sure the price is fair, as well as make certain that the property is owned by the seller, and that there are no debts on it.
7.The contract is prepared by the selling broker and contains:
  -  All information of the seller
  -  All information of the buyer
  -  Location and specifications of the real estate
  -  The conditions of payment(s)
8. The contract is signed at the office of the broker.
9. You pay a down payment (usually about 10,000 Reais or $3,500 usd).

This can be negotiable for sure; It will depend of the kind of agreement between you and the broker.

10. When payment has been made, your broker will arrange the registration of the property into your name via a cartorio (similar to a notary).
11. The cost for the property transfer is approximately 4%-5% of the purchase price.
12. Payment can be made all at once or in installments of 12, 24, 36 or 48 months¹, but interest rates can be as high as 35%. If you opt to pay in installments, there is also a currency risk. In other words, if the value of the Brazilian Real goes down, your real estate becomes cheaper, and vice versa².

1-Before the any payment ask for your Broker, how  can you make the payment for the place that you  are buying, because, off course, you cannot do a financing by some bank, and the payment,  will depends from the person or company which going to selling for you.

2-Nowadays the risk of investments in Brazil almost disappeared, in relation of price, the Brazilian currency are keeping itself strong, and the prices of properties are going rise even more every day, the risk nowadays is just to find a good place to starts your investments.

13. There is a 1% "import" tax on transfer of funds from abroad.

14. Only after registration, you are the legal owner.
15. There is an annual property tax of approximately 0.6% per year of the assessed value.
16. You will need to hire a care-taker to live on the property when you are not there.
17. Visas: Foreigners are allowed 3 month visas, or 180 days total per year in Brazil. If you want to apply for a permanent visa, one of the following conditions must be met:                    You are married to a Brazilian.

Brazil-Taxes

 

Brazil V.A.T. and Other Taxes

 

Brazil V.A.T

average state V.A.T. rate in Brazil (ICMS) is 17%.
In Sao Paulo the standard rate is 18%, while in Rio de Janeiro the rate is 19%.
The average federal V.A.T. rate is 20%.
Rates of inter-state supplies within Brazil are 7%-25%. The 7% rate relates to basic food products etc.
Certain products are exempt from VAT, e.g. books, newspapers. fruit and vegetables.
Exports are exempt from VAT.

Brazil Real Estate Taxes

Brazil Real Estate Transfer Tax
The tax is imposed on the buyer of real estate.
The tax rates are 2%-6% of the sale value.

Brazil Real Estate Property Tax
 
The annual tax is imposed by the local authority, the rates change from city to city.
The rates are 0.3%-1% of the market value.
Brazil Rural Property Tax
 
The annual tax is imposed on rural property.
The tax rates are 0.03%-20% depending on the location and use of the property. 

Brazil Income Taxes

Last partial update, February 2010

Individual Income Tax: Brazil's individual income tax rates for 2010 are progressive, from 7.5% to 27.5%.

Personal annual tax rates 2010 (BRL)

Income (BRL)	%
1-17,208	-
17,209-25,800	7.5
25,801-34,392	15
34,393-42,984	22.5
over 42,984	27.5

Note: Nonresidents pay a flat 27.5% tax on income earned in Brazil

Corporate Tax:  
Brazil's corporate tax rate for 2010 is 34%.The tax consists of a basic tax of 15%. There is also a surtax of 10% for annual income of over BRL 240,000, about $ 110,000. Additonal 9% are added for social contribution on net profits.
 
Capital Gains: Capital gains of companies are added to the regular income.
Individuals: Pay 15% tax on capital gains, dividend income from local companies is tax exempt.

Residence

A foreign company is resident if incorporated in Brazil.
An individual is resident when holding a permanent visa, or a temporary visa with an employment agreement, or even without an employment agreement, when staying in Brazil for more than 183 days within 12 months.

Brazil Tax Deductions

• Losses are carried forward indefinitely. In future years only 30% of the current year taxable income can be set off against the loss.
• Depreciation is deducted using the straight line method. Companies working in 2 shifts can claim 150% of the standard rates, while companies working in 3 shifts are entitled to 200% of the standard rates.
• Companies involved in development of technical research can use accelerated depreciation for tax purpose.
• There is no company consolidation for tax purpose.
• Thin capitalisation rules relating to interest expenses are in effect in Brazil from 1.1.2010.

Brazil Personal Credits and Deductions

For Brazilian residents, the first annual income of BRL 17,208 is tax exempt.
There is a standard monthly deduction for each dependant.
Education expenses are deductible, up to a limit.
Deductions are also permitted for social security payments by an employee, payments to private Brazilian pension plans, up tp a limit, and for alimony payments.

Deduction of Tax at Source

In Brazil tax is deducted at source from the following payments to non residents:
Dividend- 0%.
Interest- 15%/25%.
Royalties- 15%.
Services -15%.

Social Security

The contributions by the employer and the employee are subject to to ceiling defined by law.

Employer: 37.3% of the gross salary, 28.8% social security and 8.5% for severance fund.
Employee: 7.65%-11% of the gross salary. The employee's payment, which is capped, is based on a "contribution salary table", provided by the government.

Real Estate

Real Estate Mogul Sam Zell in Brazil

By Sarah de Sainte Croix, Contributing Reporter

RIO DE JANEIRO – International property guru and U.S. billionaire investor Sam Zell announced in June last year that Brazil is “the number one country for investments” worldwide. At the time he was looking for partners to develop the activities of his Equity International real estate investment company in Brazil’s blossoming market. Since then he has put his money where his mouth is and invested widely in all areas of Brazil’s property market and added a fifth Brazilian property interest to his portfolio.

Sam Zell speaking at the Knowledge at Wharton Real Estate Forum, image recreation.

Equity International is a major stakeholder in both Gafisa, Brazil’s leading home-building company, and Construtora Tenda S.A., which focuses exclusively on the affordable and entry level sector.

Within the commercial sector Zell has shares in BRACOR (who lease corporate properties to high-end national and multinational companies,) and BR Malls which own shopping malls throughout Brazil’s major cities. In December last year he added Brazilian Finance and Real Estate (BFRE) to his portfolio, whose products range from personal mortgages to securitization and asset management.

According to Equity International, “The housing industry is one of Brazil’s most compelling sectors, underpinned by an unmet demand of eight to ten million homes, centered in the affordable and middle-income markets.”

In addition to this, Brazil’s booming economy is creating more and more jobs and raising the income levels and financial expectations of Brazil’s growing middle class. “This shortfall has upward pressure generated by a youthful population and a household formation rate exceeding the production of homes by a fragmented industry.”

In addition to this, the government’s ‘Minha Casa, Minha Vida’ program, which last month announced an extension to the program to make mortgage financing available for the affordable sector over the coming years, is propelling growth at the lower end of the market.

According to Equity International’s website, the increasing availability of finance from both Brazilian and international banks, the Federal government through Caixa Economica Federal (CEF), and now BFRE’s ‘Brazilian Mortgages’ initiative (Brazil’s first independent mortgage company), “(The) extraordinary consumer demand and a fragmented and poorly managed builder community have created an outstanding opportunity for Gafisa.”

But it will be some time before Brazilians adopt a system of securitization on anywhere near the scale of the U.S. In an interview with Bloomberg News, Garry Garrabrant, CEO of Equity International and chairman of Gafisa, estimated that it will take at least twenty years, “There’s not really a borrowing culture in Brazil that will change. Many of our homes sold at Gafisa are sold on an unlevered (ED. i.e. cash) basis and so people are, I’d say, slow to accept.”

While the U.S. and the rest of the developed world still reel from the after-effects of an over-zealous borrowing culture, Brazil forges ahead and prospers. But borrowing and economic growth seem to go hand in hand, and in the near future Brazil’s masses could well find themselves locked into a leveraged home owning system, with all the profits and pitfalls which that entails.

Land for Sale in Brazil.

How to Make a Solids Land Investment in Brazil

Things to consider when buying land in Brazil

Background: Land investors discover Brazil in early 2000

In the early years of the 2000 millennium, the Brazilian economy was still a question mark, and was perceived by many as a risky country for real estate investments. In these years, a majority of property investors focused on other markets. Many European markets were witnessing a real estate boom rarely seen before in history, and countries like Spain, Portugal and France saw a very large influx of foreign buyers looking for  holiday homes in the sun. Along with the growing popularity, cost of coastal land in these countries increased rapidly as well, and many savvy developers started looking at new areas for land banking investments where they could invest part of their profits.

One of these new areas that caught the interest of property developers was Brazil, and especially the coastline in northeastern Brazil. In those times, foreign developers perceived cost of land in Brazil as very low, and an increasing numbers of foreign developers started to invest in large pieces of Brazilian coastal land for land banking purposes. Many applied for building permissions for beach and golf resorts on the acquired land, and even though some did so with the intention of actually developing future beach resorts, this was mainly done in order to add value to the land.

This "first investment wave" consisting of mainly land banking investors, usually happens in the very early stages when a destination is perceived as having future real estate potential. Brazil has long been seen as a promising future market for holiday home buyers, and the lank banking phase usually takes place long before the actual end user market starts to invest in properties in the area.

In recent years, a "second wave" of land speculation has been taking place, where foreign owned groups have acquired land parcels in mostly deserted areas along the coastline in northeastern Brazil. Typically the land developer splits the land in smaller lots of around 500m2 and markets these for prices that seem appealing to novice land investors with little know-how of Brazil. However, investors are advised to learn about the real market fundamentals before making any investment decisions. 

Demand drivers for land in Brazil

Moving on from speculative land banking, most end users buy land in Brazil either for residential living or holiday home purposes. In each scenario the demand driver is the end-user market that has a real need and desire for a property in the area.  

There have been several very successful residential plot projects from large developers in Brazil. In these projects the land developer typically sources large land parcels in the outskirts of the state capital, puts in infrastructure and facilities, and then their clients can build villas themselves on the plot. Prices of these plots are usually around 400-1000m2 in such developments, and are often sold for over 50 000 -100 000 Euros. These projects are often sold out long before the first houses have been built. The primary reason these projects sell out so quickly is that they fulfill a "real" demand, as the Brazilian population wants to live in an area that offers excellent infrastructure with easy and quick access to the city.

The second type of end-user who buys land in Brazil does so for building a property for holiday purposes. In this scenario, the end-user is interested in an area that offers a good holiday experience. This often means that the area, in addition to having beautiful beaches and nature, also needs to have infrastructure and amenities in place, like shops, bars and restaurants —otherwise the area will not be appealing to holiday buyers. The primary reason plots sell in these areas is that they fulfill a "real" holiday demand, as Brazilians and foreigners alike, want to have a property in this type of location.

Not all areas fulfill the holiday demand criteria

By studying the coastline along the coastline in northeastern Brazil a bit closer, it quickly becomes apparent that not many coastal areas actually fulfill this real holiday buyer criteria. Many areas in the northeast of Brazil are extremely undeveloped, and offer very little if any, infrastructure. In these areas, it could take well over 10-15 years before progress eventually comes their way, and they actually start to offer some kind of end user real estate demand.

Buying a piece of land in such an area is similar to gambling, as there are too many uncertainties, and it could well be that the area remains deserted for a very long time.

Some areas, though, have taken a different route, and have developed into popular holiday coastal villages with nice infrastructure. 

Among the most famous ones in northeast Brazil, are areas like, Cumbuco, Canoa Quebrada,  Jericoacoara,  Mundaú, Taíba, Flexeiras, Barra Nova, Tatajuba, Parajuru, Iguape, Porto das Dunas, Praia do Fututo,Pecém, Morro Branco, Praia das Fontes, Praia da Redonda, and  many others on Ceará and other states as, Praia da Pipa, Porto de Galinhas, Arraial D'ajuda, Trancoso and Itacaré.

Don't focus only on cost of land - Think about the potential sales price of a finished property on the land

One of the biggest mistakes many foreign land investors make is that they only look at the price of the land. In order to illustrate this point, let’s look at a very simplified example of two different scenarios:

1. An investors buys a 500m2 plot in a deserted beachfront location for 19 900 Euros. He then decides to build a villa of 200m2 on the plot, for a total cost of 500 Euros/m2. Total build price comes out at 100 000 Euros, and including the price of the land, the total amount invested is 119 900 Euros.
2. The investor buys a 500m2 plot in an area with an existing tourist market for 50 000 Euros. The plot is not beachfront, but it enjoys a nice setting and is close to the beach. He then builds the same villa of 200m2 for 500 Euros/m2, and the total investment comes out at 150 000 Euros.

Many novice land investors will think the first scenario is a better land investment. The fact is, however, that cheap land tends to be in deserted locations with very little interest from a tourist point of view. The area is probably not very popular, and it is likely that the investor’s house has no appeal to any end-user buyer. In this scenario, the likely outcome is that investor will not be able to sell the house, or the plot, because there is no demand. In this scenario, even though the 500m2 might be bought for 9000 Euros, it still would not be a good investment.

The second scenario is completely different. A 200m2 house in a desirable location will always attract end-user clients, both for sales and rental purposes. Properties in highly desirable locations do not need to be beachfront either, as the area will offer many other attractions. The investor could probably sell the house for a decent profit, as the end-user market sees value in the property because of its location in a highly desirable area.

This is obviously a very simplified example, but it does clearly illustrate the importance of location. Unfortunately many novice land investors tend to only focus on a low purchase price for the land, and they forget about real investment fundamentals.

Summary:

When buying land in Brazil for investment purposes, it is very important to first ask yourself what makes the piece of land attractive for future buyers. Secondly, it is important to understand why a client would buy the land from you at a higher price than you initially paid.

It is easy to be lured by the cheap land prices being marketed by opportunistic land developers, but this can lead to you making the wrong investment decision. Land investing in Brazil can be very profitable, but instead of searching for cheap land, it is wiser to look for good value in an already popular area with existing end-user demand. Buying Brazilian land in a good and popular area, will assure that you have an exit strategy for your land investment in Brazil.

By Alexander W.