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INCC - National Index for Construction Costs?

Discussion in 'Brazil Property' started by fiona1, Nov 16, 2007.

  1. fiona1

    fiona1 New Member

    Im after some advice. All the Brazilian developers we work with, say that stage payments on their developments are linked to the INCC, a federal index, which requires the purchaser to pay approx 5% interest on top of their repayments. Our lawyer in Brazil confirmed this as well.

    As far as I can see, all agents selling Brazil off plan property in the UK/ Europe to foreigners dont mention this on their website or brochures.

    Does anyone know if non-Brazilian developers have to charge this inflation index on their developments as well?
  2. deedee1

    deedee1 New Member

    :)Hi all,

    I knoiw in my reservation agreement there is something similar within it!

    It says to allow 5-8% costs due to currency exchange rate fluctuations etc- Dont know if this is the same thing as what youve mentioned or not???

    Take care-D:)
  3. michaelbush

    michaelbush New Member

    As I understand in earlier years when inflation was higher, builders were allowed to make adjustments in their prices linked to inflation indices, during a build. I am not sure whether hey actually charge this now since inflation in Brasil is little different to European countries. the currency is strong as well. Guess everyone should check the contract and query if this clause still exists. This is not the same as warning to allow for currency fluctuations.
  4. robh

    robh Administrator Staff Member Premium Member

    Some do it and some don't is the short answer. Mainly the big traditional Brazilian developers who don't really market to europeans much. I don't agree with the practice but these developments are worth paying the extra money for in our opinion, so we sell them.
  5. fiona1

    fiona1 New Member

    Thanks for your responses.

    Has anyone bought in Brazil with the INCC in the contract? Or is it not mentioned in the contract at all?

    Also, deedee1, why should the price of your property in Brazil fluctuate with the exchange rate? If you purchased the property in Reais, the price shouldnt fluctuate, I would think.
  6. Janoulaki

    Janoulaki New Member

    Depends on your monthly payments and whether you have fixed the rate
  7. JMBroad

    JMBroad New Member

    I do believe several posts have been made with regards to the "fixing the rate" idea - conclusion was that you can NOT fix the exchange rate for the Brazilian Real, unlike many other currencies.

    However, it depends on the contract. Some developers offer the property to Europeans in Euros however put in that clause to cover fluctuations. Safest way is to make sure you know what you are paying in Reais.

    Other developers put the prices in Euros and they bite the bullet if there is a fluctuation, however quite a few of them have taken a bit of a hit lately and are hesitant to keep doing that.
  8. JMBroad

    JMBroad New Member

    Oh and with regards to what the OP question was, - what Rob said.
  9. carlos_1

    carlos_1 New Member

    curiously INCC is on average 0.5% per month which makes it roughly 6% a year.
    That's about the mortgage rate in North America.

    Is it something that can be negotiated/avoided or it's something that one would have to pay for an off plan property?

    Thanks for your replies

  10. michaelbush

    michaelbush New Member

    About the mortgage rate in the UK too.(6%) As I understand it, INCC was an inflation protection so builders were covered over the period of build for wage and material increases. Now that inflation is much lower in Brasil over the past few years, this practice should be stopped. I dont think it will be though. I am not certain, no doubt Ralph can answer, but if you pay the full price up front then you will not pay INCC since they have your money earning interest here, and that more than covers INCC. I would have thought the practice of increasing sales prices during the build is a simpler and easier understood method of working. It seems they want it all ways here!
  11. robh

    robh Administrator Staff Member Premium Member

    I will refer to my previous answer as I think it wraps it up pretty well:

    "Some do it and some don't is the short answer. Mainly the big traditional Brazilian developers who don't really market to europeans much. I don't agree with the practice but these developments are worth paying the extra money for in our opinion, so we sell them."

    I have tried to negotiate this off the contract with the big developers, I found hitting myself on the head with a brick more productive :).

  12. RalphJ

    RalphJ New Member

    Unfortunately in my experience it does work both ways here and the consumer is the one who always gets the short end. Investors should make certain that INCC is covered in their contract or doesn't appear at all.

    Unfortunately here in Brazil during the times of high inflation there were many protections that builders and nearly all businesses had built in to their payment plans, etc. In numerous industries they have used the fact of the weaker or weakening of the brazilian currency vs. the dollar to justify price increases. What is amazing is that I have NEVER seen these same industries reduce their prices when the brazilian currency strengthens vs. the dollar or eliminate or reduce standing protection methods vs. inflation when inflation is over the past several years for example.
  13. MikeC

    MikeC New Member

    INCC is a tax that developers receive on the construction bill so it makes no diference where teh developer is based as either way they receive the bill from the constructor. It may run at roughly .5% per month but it is also cummulative. The calulation is complex, if anyone wants it I have it. Some developers build it in to RRP but like all things it then has worst case passed onto the client. Better to have it transparent. Unlike FX rates being locked in soem negotiated contracts (which means that your BR contract doe snot cost you more when sending in your weaker USD), generally INCC is not negotiable. Fortunately inflation is low, stable and Brazil is strong at present.

    JOELINO New Member


    Hi Mike
    I have been trying to find out how the calculation works. I would love to have it. Thanks.
  15. MikeC

    MikeC New Member

    If anyone wants a copy of our "about INCC" doc please give me their email address and Il happily send it.
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