Property Purchase Process | Property Purchase Costs | Mortgage Finance

 

Introduction:
With its wealth of tourist attractions and massive growth potential, Brazil is an increasingly popular place for international investors to buy property.  The Brazilian market is very fast moving and in some cases it can be just days between signing a private purchase contract (the Brazilian equivalent of exchange of contracts in the UK) and completing on a sale.

However, Brazilian legal and tax concepts are very different to those in the UK and it’s essential you engage the services of a good English-speaking Brazilian lawyer qualified to advise on the international aspects of the investment.  Above all, you should to obtain sound, independent legal advice before you sign anything or part with any money to ensure your interests are protected.  Your lawyer should be bilingual to ensure that both advice and translations of contracts are accurate.

Before you even start to consider the financial and legal complexities of buying a house in Brazil, you should make sure you have the money to cover all potential costs.  Your first move should be to visit an accountant versed in overseas property purchases to discuss all potential costs with her.  It is worthwhile to obtain a tax report of the property in the first instance in order to ascertain the most tax efficient way to structure the purchase.  For example, there are reduced rates of income tax on repatriated rental income in Brazil if purchase your property through a company.

1. Finding the right place
The first step in the purchase process is to consider what kind of property you are looking for, what purpose will it serve and which areas you’re prepared to consider.  Other than price, a key question is the issue of how much work you are willing to undertake.  At one extreme, you could take on a renovation project requiring a lot of hard work, at the other end of the spectrum you could purchase a modern apartment in a serviced complex with all amenities on site.

Once you have an idea of the kind of place you’re looking for, you can start your search.  With the explosion of media specialising in property – magazines, websites, even TV channels now – it’s relatively easy to get a flavour of the kinds of property that are available in your chosen areas without leaving the comfort of your home.  However, ideally you should also visit your selected area and meet with estate agents who will show you round a selection of properties which match your criteria. 

It’s essential to use a good, accredited estate agent when you buy a property in Brazil.  In addition to helping you find a property to match your criteria, a good agent will make sure you pay a fair price and check out the legal fundamentals (for example, to confirm the vendor does in fact own the property and is entitled to sell it, to confirm there are no outstanding debts tied to the property, etc.).  The agent’s commission (either a percentage of the sale or rental value) will be determined by specific regional legislation from the Real Estate Agents’ Regional Councils (CREI).

Important things to check for when looking round properties include damp, subsidence, access and boundaries.  It’s useful to go in prepared with a checklist, then take notes and photos as you walk around.  It’s also always a good idea to talk to other British owners in the area, if any British have already bought in the area in which you’re planning to buy.

2. Organising legal representation
Once you have found a property you’re interested in, the next thing to organise is legal representation to ensure your interests are properly protected.  There are two legal professionals you will deal with:

• A public notary (escribão)
• Unlike traditional lawyers, Brazilian notaries are neutral government legal representatives who act as witnesses to and registrars of property transactions.  Under Brazilian law, only deeds of sale (escrituras) witnessed and authorized by a notary can be registered at the land registry.
• He or she will prepare all the appropriate paperwork and ensure this has been filled out correctly according to the wishes of both parties.  The notary also will conduct title searches and has a responsibility to make sure the appropriate property taxes are paid on time.
• Your estate agent will be able to put you in contact with the notaries they use regularly.
• A reputable English-speaking Brazilian solicitor
• It is essential to find an independent lawyer to represent your interests and offer impartial legal advice.  If an estate agent recommends a lawyer, always be aware that this lawyer may be working for the seller and therefore may not have your best interests at heart.  You will also need to seek advice on the international dimensions of the transaction and on the critical issue of UK taxation.
• If you are not intending to be in Brazil during the purchase process, you will need to grant power of attorney to your solicitor who will then act as your legal representative.  Your solicitor will then be able to obtain a CPF number for you and open a Brazilian bank account on your behalf.

3. Obtaining a CPF number
Before you can undertake any financial dealings in Brazil – such as opening a bank account or buying a property – you will first need to obtain an individual taxpayer identification number known as a CPF (Cadastro de Pessoa Fisica) from the Brazilian Internal Revenue Service (Secretaria da Receita Federal).  This applies equally to residents and non-residents alike and if you are buying as a married couple, your spouse will also have to apply for an individual CPF number.  The CPF is not necessary to reserve a Brazilian property or sign a purchase commitment, but it is mandatory at the time of signing the deed and transferring ownership into your name.

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.   This translation will then need to be taken to the Banco Do Brasil with your original birth certification and passport whereupon you will pay a small fee and be issued with a giro.  You will then take this giro to the Receita Federal who will issue you instantly with a temporary CPF number.  Your permanent CPF number will be issued and a permanent CPF card will be posted to you within two months to an address in Brazil.

You can also apply for the CPF online at the website of the Receita Federal or via your local Brazilian embassy.  You may find it easier to use a Brazilian lawyer to apply for the CPF on your behalf.

4. Making an offer
Now you are ready to start negotiating over price.  Many Brazilian vendors will assume foreign buyers are relatively ignorant of local prices so you should make sure you research the local market thoroughly to give you a sense of what you ought to be paying for the property.  If you identify alternative properties in advance that you would also be happy to buy, it will be easier to walk away from the deal if you don’t secure your minimum requirements, making your negotiating position stronger.  With off-plan purchases, however, the price is often fixed and dependent upon the current phase of construction.

Once you are happy with the price, a verbal offer will need to be made through the estate agent.  Your lawyer will oversee proceedings, including any deposit or reservation payments and the formal agreement of final purchase price. 

5. The survey
Although a survey is not a compulsory part of the purchase process in Brazil, a survey is nonetheless advisable for your own peace of mind as well as giving you an idea of what to budget for in terms of renovation and repairs.  A survey is particularly advisable if you are buying a property without a builder’s warranty.

Important things to check include:

• The plan of the land at the land registry and the plan of the building which should be included with the property details
• The land boundaries and whether there is any construction work planned on the land neighbouring the property
• Don’t just believe what it says on the plan or in the details.  Check for yourself, as any discrepancy could work to your advantage in any negotiations over price.

A full structural survey will usually cover all the main issues.

6. Organising finance
The underdeveloped state of Brazil’s mortgage market means that foreigners cannot yet obtain a mortgage locally.  Most foreign investors will purchase in cash, often through remortgaging in their home country. 

In some instances, if you are buying off-plan or new build, the developer may offer finance.

7. Signing a private contract
Once all the necessary legal checks have been completed satisfactorily, you will be ready to sign a private sales contract.  Before this stage you should have had the contract translated into English and ideally have English-speaking assistance on hand during the signing.  The contract is prepared by the selling broker and signed at the office of the broker.

The private sales contract details the finer points of exactly what you are purchasing, and includes all the fundamental information about the sale such as the purchase price, the list of fixtures and fittings included in the sale, and the completion date when the deeds will be signed and the property transferred into your name.

This agreement commits both buyer and vendor to complete the transaction and at this point the buyer must pay a deposit; make sure you do not pay too high a deposit at this stage.  If the buyer walks away from the deal subsequently, this deposit will be forfeited; if the vendor walks away, they are liable repay the buyer twice the value of the deposit in compensation.

8. Legal investigations
You should now instruct your solicitor (abogado) to undertake various essential legal investigations on the property to start the conveyancing process.  These checks will include:

• Applying for a certificate (issued by the Real Estate Registry Office (Cartorio de Registro de Imoveis)) called the Certidao de Onus reais (also called Certidao de Inteiro Teor) which will detail the property’s entire ownership history
• Through this document your lawyer can ascertain whether the vendor actually owns the property and has legal authority to sell it
• Your lawyer will also confirm whether there are any remaining charges or mortgages on the property, or any outstanding taxes or utility bills to be paid

It is obviously very important to ensure that any property you buy has a clear title.  

9. Completion
After all the legal paperwork has been completed, you will be ready to sign the deed of sale (escritura).  This is the moment of truth when ownership of the property passes from vendor to buyer. A registrar (escribao) from a Notary Public (cartorio de notas – a private legal company) must be present at this event to draft the document, then formally witness and register the transfer of ownership on behalf of the Brazilian government.

Both parties will need to provide passports or other proof of identity and unless you speak good Portuguese, the notary will insist that a translator is present to ensure you understand the full implications of the contract you are entering into.

Upon completion, the buyer must pay the balance of the purchase price, all professional fees, transfer taxes and notary fees.  Copies of the deeds are then sent to the local land registry and a legal copy of all documentation will be given to each party.  Your lawyer will assist you with transferring payment and ensure the property is registered in your name.

10. Registration of title
Once the deed of sale (escritura) has been signed, the property must be registered in your name at the local land registry.  Registration is essential to protect the purchaser against third party claims against the vendor.  This will be organised by your lawyer via the notary.  This finalises your ownership at the real estate registry and the tax office - you are now officially the owner of your Brazilian property!

N.B. Before you can register your property you will have to provide proof of payment of the property transfer tax (ITBI) in the case of resale properties and in case of an apartment a certificate of no tax arrears on the city property tax (IPTU) by the condominium.

Special situations and exceptions:

• If you are buying new-build or off-plan, the buying process may vary slightly according to the developer you are purchasing from so you will need to clarify the specific procedures in this instance.
• Some developers of new and off-plan developments allow you to pay in instalments over a 12 to 60 month period; this is normal practice for off-plan purchases, with the balance being paid on completion of construction.  You should bear in mind that paying in instalments over an extended period of time will pose an exchange rate risk if you don’t fix your exchange rate in advance.  In other words, if you don’t fix your exchange rate with your currency broker, you expose yourself to the risk that the Brazilian Real could appreciate against the currency in which you receive your income, making your property purchase more expensive (conversely, the Real could also depreciate making your property cheaper).
• Off-plan property: Buying property off-plan in Brazil is very common practice given the value for money such deals can offer.  However, with off-plan purchases, price is often fixed and dependent upon the current phase of construction with no room to negotiate
• Ocean-front property: If you are buying a property in an ocean-front location, the sale must be recorded with the appropriate Federal Bureau (which takes about a week) before being registered with the notary.

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