Daniela Quiros, Saturday, 4 January 2014
This article is part of a series of 8 articles about buying property in Brazil. The other articles in the series cover the following topics:
Mortgage Market in Brazil
Currently, the mortgage situation in Brazil is in transition. Until recently, laws and courts here were in favor of the borrower in case he goes
default on a mortgage; so, the banks could not repossess the property, and consequently, were reluctant to lend money. A few years ago, the law
changed allowing the banks to legally own the property until the mortgage is paid in full amount. Thus, a borrower is not in legal possession of a
house until he pays the full mortgage amount. The Brazilian mortgage market is said to be growing rather fast now, but currently it only makes 5.3%
the national GDP. The Brazilian government is investing large amounts of money into affordable home construction, encouraging banks to loan more
to domestic borrowers.
The Brazilian government forecasts the local mortgage markets growth to 600% by 2014, with increasing mortgage value to 12% of GDP. Consequently, the
real estate market will experience the increase in prices in the foreseeable future.
Currently, the mortgage market in Brazil is underdeveloped, especially when it comes to lending money to foreign borrowers. Nevertheless, both the
local government and the property market itself are pressuring the local banks to offer financing options to foreigners in need of mortgage to buy
property in Brazil. Even though acquiring off-plan property is common in Brazil, and foreigners residing in Brazil qualify for a mortgage,
international buyers have major difficulties obtaining a mortgage from Brazilian banks and financial institutions.
In theory, the
allows foreigners access to
financing options on their
real estate purchase, but in practice, it does not happen. The cases when it happens are really rare, for example, when a foreigner already has an
account with an international bank, such as HSBC and has an immaculate credit history. Other than that, foreign investors in need of a mortgage
to the seller financing.
Financing By the Construction Company
Construction companies offer lucrative conditions to foreign buyers, with up to 60 months of financing during the construction. Because this is a
direct purchase, you can negotiate better options, deadlines, and the number of installments. Sometimes, companies even agree to waive interest
Some of them do not require proof of financial solvency, or medical examination from the borrowers. Some construction companies even pay your travel
expenses and call it ‘examination tours’ for foreigners to come to Brazil and inspect the construction sites on offer. The Civil Construction
Index, INCC, adjusts the installments, and once the construction is finished, the 12% yearly rate is imposed on the payment plan, further adjusted by
Market Prices General Index, IGPM.
The first installment usually consists of about 10 to 12% of the purchase price; there may also be intermediary installments, which can be much
than the monthly installments.
Basics of Mortgages and Financing in Brazil
As a foreigner, you do have some options when acquiring property in Brazil, including borrowing money from a financial institution or directly from
the construction company, which is currently one of the easiest solutions to the problem. In Portuguese, the word for a mortgage is hipoteca
Currently, only residents with a permanent Brazilian residency and a proof of financial solvency qualify for mortgages in Brazil. The leading
financing institution in the real estate market of Brazil is Caixa Economical Federal
, a bank owned by the state.
Some of the private banks that offer mortgage options are Santander,
. The loan conditions vary different banks, and it is highly advisable to compare products on offer. Few banks
financing to foreign residents.
It should be noted that banks charge very high interest rates in real estate loans, irrespective of the financing solution you're going to use,
the mortgage options quite discouraging to foreigners.
The requirements for mortgage application vary with different financial institutions. For example, Bradesco
financing option can
offer to finance the real estate purchase with the appraised value not exceeding the maximum limits set by SFH of $750,000, and can only finance
$600,000. You also need to be the bank's customer with a good standing in the system, be at least 18 years old, provide proof of sufficient income,
and provide proof of not having any restrictions and limiting credits prior to application.
Here is a sample checklist for mortgage application:
- The buyer’s documents: passport, proof of marital status, proof of employment and financial solvency.
- The seller’s documents: if the seller is an individual, proof of his marital status, unless he's single; if the seller is a Corporation,
- Property documentation: certificate from the national registry containing property status and the negative lien status, certificates of taxes
clearance, cover sheet from the current year property tax booklet.
- Required forms: personal health statement, or DPS, business consultation signed by the bank representative.
- Additional documents: ID of the seller and tax identification card CPF , ID of the spouse and CPF, clearance certificate if the seller is a
According to Bloomberg's issue of 2012, Brazilian banks start competing in the expanding mortgage market offering better rates and longer repayment
terms. For example, the state-owned bank Caixa Economica Federal
, which has the lion's share of more than 70% of mortgage loans in
Brazil, and Madrid-based Santander
offer 35-year mortgages for the first time in Brazil's history. Caixa offers rates as low as
while state owned Banco do Brasil SA
offers rates as low as 7.9% for clients who have accounts with the bank and pay on time.
Brazilians are very cautious in taking on debt; so, a slowing economy makes the banks compete to change the national mentality and make the consumers
change their mind.
, Banco do Brasil
, the latter currently offers
better rates. Besides, Caixa is a bank with greater experience in loans and mortgages. In Brazil, home loans account for only 5.3% of GDP, compare
that to 81% in the US. Brazil's Central Bank lowered the Selic country’s benchmark rate to a 8.5% in August 2012. It was a major cut, and clearly the
mortgage market is experiencing evolution, and is deepening. State owned banks compete the most, with Banco do Brasil looking to expand its 3.6% of
mortgages in the overall share. Current government has cut taxes on consumer goods and increased the number of low-cost loans in
, a state-owned bank. The president Dilma Rousseff also ordered state banks to lower borrowing costs to encourage private
borrowers to apply for mortgages.
What are the possible consequences of a lender going default on a mortgage in Brazil?
Financial institutions retain full ownership of the property until the mortgage amount is paid out in full by the borrower. This is necessary means
imposed by the local government to encourage banks, both private and state-owned, to meet the growing demand for housing financing. As a result, the
foreclosure is unavoidable.
market has seen a major
increase in interest from foreign buyers; the analytics even call it an ‘invasion of foreign buyers.’ Even though off-plan is very popular and safe
because of consumer protection legislation, ever more foreigners demand financing options. Overall, the North-Eastern part of Brazil, one of the most
popular destinations for foreign buyers, is likely to experience a massive amount of government investments of more than $400 million from
construction acceleration program.