Exchange rate - Major risk

Discussion in 'Brazil Property' started by Azure, Mar 10, 2011.

  1. Azure

    Azure New Member

    Have investors considered the exchange rate risk of buying a property in Brazil? My view is that this could end up costing the buyer a lot of Money. What are your views on this aspect?

    The Brazilian governement admits the Real is hugely overvalued. For example the average rate with the £ over the last few years is around £1=3.4 reals. Current exchange rate is £1=2.7 reals.

    The Brazilian government says the real is too strong. So if it were to start going back to the average levels wouldn't our investment gains get wiped out? I.e once we sell in a few years we bring home far fewer £'s.

    Would be interested in your views here.
     
  2. penelopy

    penelopy New Member

    Azure,

    Great point! Whilst an overseas investor may think about investing in Brasil the reality is that unless the £ is much more favourable than it is at the moment you really will make a massive lost. It doesn`t appear to show the that £ is going to make gains for a while yet.The people that will make some profit (well not quite) as you need to deduct all your taxes payable in Brasil and possibly in the UK too are the people that are cashing in when bought at 4 real+ to the £.
    It will be interesting to here from recent property investors in Brasil what gains they have made clear after all deductions have been made.Providing they come from honest people!!
     
  3. growler

    growler New Member

    I bought two plots of land 3 years ago for R$59,000 which If I remember correctly, was around £17,000 + taxes/Deeds etc which cam in at around £1300.

    I sold them last month for R$107,500, after taxes/agents fee I was left with R$102,500 which is about £39,500. Quite happy with that.

    I bought a house at the same time, if I sold it for the same amount I paid in Reals, after agents fees etc I would have a profit of about £38,000.
     
  4. penelopy

    penelopy New Member

    Sounds as though you bought when the sterling was higher and property prices were cheaper so nice little profit!!

    Any others out there ??
     
  5. growler

    growler New Member

    Yes, the change in the exchange rate certainly did help. Maths was never my strong point but I guess after purchase taxes and sales taxes/agents fees I had a profit of about 65% in local currency but around 110% in the UK Pound.

    It does depend on what you are looking for and how much you want to spend.
    There are many plots of land available but the secret is to find ones which are in a good location. My plots had fantastic sea views (2 min walk to the beach) with lower ground in front so should be permanent. The problem is that beach front plots are harder to find and prices have gone up a lot, however, there are still profits to be made.
     
  6. frankburke8

    frankburke8 New Member

    Help

    Hello Growler,

    Just out curiosity where about did you buy the plots of land? How big were the plots of land Was there any facilites and amenities nearby? Could you also possibly pass on a recommended lawyer you used for the sale of these plots and also where you advertised and found buyers? If you would prefer to private email then that is ok?

    Sorry for asking so many questions but I have a plot by the beach in Bahia that I maybe looking to sell in the near future and any help and advice would be much appreciated. I also bought this 3 years ago.
     
  7. growler

    growler New Member

    Hi Frankeburke8, I bought the plots in Praia Bela in Paraiba. It is one of the most beautiful places I have seen and is about 30 minutes outside of Joao Pessoa. Apart from the beach bars/restaurants there are no amenities there yet but the town of Jacuma is only 12 minutes and this has everything you need inc banks, P.O., garages and many shops. The plots totalled 24m x 30m (720 m sq).

    I haven't found this to be a problem though because it is such a beautiful place and in 3 yrs has gone from about 10-20 visitors a day (even on holidays & w/e) to anything between 500 - 1,500 visitors a day.

    I think our gamble was a good one because whilst there were only a few houses there when we bought, there are now 2 new small condos, a larger 22-24 unit condo under construction, 2 Pousadas (B&B) and several more houses and a friend of the constructor of the larger condo is apparently considering building a hotel there too. We are now considering building a 3 house condo overlooking the beach/ocean on 2 plots we have there, always a risk but probably a good one bearing in mind the popularity of the area now and the views will be stunning.

    I don't know any Lawyers/agents in Bahia and I think you are better off using someone local, however, because of the number of people now visiting PB we put up a sign and this can certainly attract interest.

    If you go onto the Gringoes website and ask about Lawyers/agents in Bahia you will probably get some assistance because there are a number of people who live in that area.
     
    Last edited: Mar 13, 2011
  8. timatthebeach

    timatthebeach New Member

    whereabouts in bahia ? - i know a lawyer but only in a town where some friends live.
     
  9. Azure

    Azure New Member


    Those are superb returns. Although you made 65% profit buying and reselling would you not have made around 40% over three years by keeping the money in a Brazilian deposit account? That way you don't endure the risk and hassell of the buying and selling process?

    Secondly if over the next year or so the Real does depreciate and there is a slow down in price growth then we may as well keep our money in a Brazilian bank account? A few assumptions made I know but just trying to take into account the scenarios that may mean an investment today is not as fruitful as expected.

    For somebody like me who doesn't have the luxury of being on the ground and making contacts I get the feeling that reselling in relatively unexplored areas is going to be very very difficult. So maybe I'm better of avoiding the exchange rate risk and the rest and just earning 12% in a Brazilian bank account?
     
  10. Azure

    Azure New Member

    The point is if your returns on a bank account are as good as property investment then you wonder if it is worth finding a way around to get a bank account. Get residency temporarily perhaps and open a bank account? Is that possible? Rather do that and get 12% interest on deposits per year than 20% growth on property.

    Buying a property in Brazil in the above scenario sort of feels like the tail is wagging the dog!
     
  11. growler

    growler New Member

    I agree with the points made by Robh.

    Even if you do manage to open a bank account and even if you manage to get a good rate of interest, you still have the problem of actually getting your money out of Brazil. The banks are very big on paperwork (probably why the Rain Forests are depleting so much), and they will want to see all sorts of things.

    Remember, this is a society where you can't even buy a R$100 fan without giving your CPF number!
     
  12. growler

    growler New Member

    [/I]

    But i'm assuming you are legal? Azure was saying "what if he can get a bank acct on a temporary visa" ...whilst you can't normally do this it isn't impossible, but like I said, you then have the problemof getting the money out.

    Robh, just out of interest, who did you use to send money out of Brazil and are you talking of larger amounts?
     
  13. Azure

    Azure New Member

    Investing through a fund sounds palusible. Are there good fund providers that can be expected to perform well with a track history?

    At least this way you can sell your units in a fund quite quickly iinstead of being stuck with a property on a resort that not many people are interested in buying. A fund will also be diversified i.e. residential, commercial, development etc
     
  14. MDV

    MDV New Member

    As Forrest Gump told us all.............................this is about the most pointless thread I have ever read on here, overseas investment is JUST THAT, which implies a different currency, there are always going to be risks involved, and to suggest that rather than invest in a country you simply stow your money into their banks to gain a high rate of interest is nothing short of a
    Colonial Exploitational Attitude.
     
  15. Azure

    Azure New Member

    Well well, some of us actually need to carefully consider quite important factors that will affect our investment in a far away country even when something as irrelevant as exchange rates in particular markets are concerned. Expecially if there are statements by the Brazilian government reiterating that they want to see their currency devalued. If we were mere gmablers it probably wouldn't matter much but in many cases we're actullay investors trying to minimise risk.

    As to trying to earn higher interest is that such a bad thing? Since when has putting your money in a higher interest earning account been such a negative thing? Savers everywhere try and get higher interest.

    @MDV I wouldn't worry about a few of us here and there who look at exchange rates and opportunity cost there are plenty of people that will go in on the basis of market hype so you're safe.
     
    Last edited: Apr 8, 2011
  16. MDV

    MDV New Member

    As has been stated on this thread already, the currency problem and exchange rates are due to problems outwith Brazil................the R$ has not grown in value, others have merely lost value, and if you look at the average exchange rate £ v R$ over the last few years you will see that this reflects outside forces, as for the blanket statement that the Brazilian government want to devalue the currency, this is not accurate, some think it would be good for longterm growth, the majority do not agree,and it should be remembered that when introduced the R$ was valued and launched at 1 = 1 to the US $.
    Finally that I should be safe due to market hype is completly lost on me...........what has market hype and my safety or otherwise got to do with this.
     
  17. dwc

    dwc New Member

    Hello again Azure, do not consider the exchange rate...you are making a mistake when you take this way of thinking...There are always pros and cons no matter what you do in life....this is why people donot get ahead in life...by dwelling on a NEGATIVE and not getting anything done......who thought oil would go from 50 dollars to 150 dollars 2 years ago---who thought oil would go all the way back down to 60 dollars a barrel and who thought now oil would be back over 100....by the way oil is going to test 140 dollars this year and could climb higher...that is why I am also in oil.....you must HEDGE in life..and diversify...back to currency.........approx. 2 and one half years ago I watched the Real go from 2.40 to 1.56 against the dollar....then it went back up to 2.50 because the dollar was stronger....my bet the paid off ,forecasting the dollar to weaken and the real to strengthen and to return to 1.56 and break 1.56.......look today at what the rate is...1.56....imagine that.....my prediction is the real will continue to strengthen and may hit 1.20 to 1.35 against the dollar in the next 1 to 2 years....the american dollar will continue to weaken and Brazil may push bank rates even higher to fight inflation....this is good for Brazil because they are growing and will continue to grow. why do you let this dictate your life....big mistake.......why didN't you buy property 1 year ago or 2 years ago........you think you missed an opportunity but that is not the case.....First of all you donot buy land which is illiquid....and then try to sell it do to currency fluctuations......you trade currencies to do this....currency for currency and they are liquid.......I purchased BEACHFRONT for several reasons......I own beachfront in other parts of the world......I felt Brazil's beachfront was very much undervalued compared to the rest of the world...when you do your comparisons you must take into consideration..INFRASTRUCTURE....this is very important...you must also like the beaches or the land you are purchasing...it is good to feel passionate about the land you are buying....I bought in TAIBA because i wanted to live there also...Some people place there money into intangibles...investments they cannot use or enjoy.....like putting your money in a bank.....I would rather put my money into art or collectible cars that I can drive and enjoy and when I go to sell I still reap a profit.......My purchasing land in Taiba serves these purposes......You can buy a large piece of BEACHFRONT...build your beachouse on it and sell the remainder of land as it appreciates...you get to bake your cake and eat it too.......It might also be important to appreciate the Brazilian culture,people and there easy way of life unlike the hustle and bustle of U. K. or America....stress...huh......You need to ask yourself ...why...you want to buy land in Brazil.....if it is for the same reasons I did....then you should ........I served as a financial planner for years and managed large sums of money...trading stocks and currencies.....it is a good idea to diversify into land......always have 2 or MORE back up plans....brazil is much more solvent then ENGLAND or the UNITED STATES...they both have lots more problems then the common man thinks...you can build a home in BRAZIL very cheaply and not get raped by the tax man...a no brainer......I wish i knew your age......investors in their 2o's...30' ....40's have a TREMENDOUS opportunity to make alot of money......and that is because over time the POPULATION will grow in BRAzIL and thusly the MIDDLE CLASS...this is why markets grow over a period of time......it is not rocket science.......Unlike America ,Brazil practices protectionism.....meaning imports are highly taxes so the people buy indigenous goods ...and those goods are produced by Brazilians meaning they will continue to have JOBS......this is where America made there mistake and ultimately it will make CHINA a supreme powerhouse in the next 30 to 50 years MAX......This is why you need a back up plan or 2....or....3..I hope this helps you....donot dwell on what you may believe are negatives....bad carma....if you need any advice....there is no charge.......DWC
     
  18. Azure

    Azure New Member

    That's the whole point.

    It is and they have said so.

    Well you seem to be suggesting that investors shouldn't be thinking of something as irrelevant as future exchange rates. Those selling property shouldn't feel threatened as there are plenty of people that will put their money down based on what sales people say.
     
  19. Azure

    Azure New Member

    Hi All,

    Only me :)

    Thought I would reinvigorate this conversation after over a year. Anorak or Wot? But anyway just read an article reminding me of this thread. The Bazilian real has lost most value over the last 12 months amongst major currencies.

    Was £=2.6 reals in April 2011. Reached 3.3 in April 2012. Lost a qurater of it's value.

    Long and short of it is if you had purchased a property last year you would be looking at a loss of 25% effectively. Brazilian real expected to devalue further.
     
  20. pri_from_recife

    pri_from_recife New Member

    Put another way, now is a great time to buy!! Do you have any articles talking about the history of the real over the past year or so? I'd be interested in reading whatever you're reading...
     
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