Suffice it to say we expect highly favorable economic trends to continue, if not accelerate, on into Brazil’s foreseeable future. It goes way beyond World Cup Football Championships, to be held here in 2014, and the Olympics in 2016. That´s all nice and well. But There is also the fact that Brazil has quietly slipped into tenth place ranking of Gross Domestic Product, now nipping at the heels of Uk, France, Germany, and the like, with an output more than USD$ 2,025 Trillion. Not trifling, not very third world.
Brazil is self sufficient in EVERYTHING. Food, Water, and Energy. Brazil has surpassed, since 2006, the United States, as “Breadbasket to the World.” This according to then-secretary of State Colin Powell who said that on an official visit here.
Brazil is self sufficient in petroleum, not counting the enormous new offshore fields called “Pre-Sal” to be brought online shortly. So if you want any of these products, you will have to sell your “home” currency in amounts sufficient to finance the purchase of Brazilian Real in the proper amount. In other words, there continues to be buying interest in Brazilian Real for this reason, among others.
Properties in Brazil, naturally, are transacted, bought, sold, paid for, etc., in Brazilian money, the Real, symbol BRL. In August 2005 the forex rate was BRL$ 4,3915. That is, we could exchange one pound Sterling, symbol GBP, for R$ 4,39 Real. Today the rate is R$ 2,7413 GBP. That is a difference of 60% in five years from August 2005 to today, August 2010.
Suppose that I purchased a property for BRL$ 100,000 on August 19 2005, with the exchange then at BRL $ 4,3915 to the pound. My outlay in Sterling would have been £ 22,771,26.
And now, five years later, to the day, with the exchange rate now at BRL $ 2,7413 my property is worth only the same BRL $100,000. In disgust, I call my estate agent, let’s suppose, and order him to sell this albatross TODAY! Luckily, a buyer just happens to walk in that very moment and pays cash.
I gather up my BRL $ 100,000 back and fly off to UK in a huff, only to find on my arrival that the nice young lady at the forex booth pays me £ 36,479 for my BRL $ 100,000.
I went in with £ 22, 771.26 and came away with £ 36,479- and four cents- in this example. So I come away clean with a profit of £ 13, 709. And that because my investment did not work out!
You get the point. Please excuse the heavy-handedness, but we want to drive home the importance of this aspect of buying real property in emerging markets. You are acquiring assets denominated in another currency.
We feel that the economic outlook for Brazil is brighter and more favorable than any other, and will continue to be far into the foreseeable future. As these economic trends continue into the foreseeable future and you may have to suffer though more silly stories with surprise “happy” endings.
Of course it gets much more serious and studious. The historical exchange rates are exactly those quoted. And a transparent, visible transaction is a high-profile publicly reported purchase, then and now.
In August,
Today a comparable project is being offered at R$ 8,000 per square meter, and selling well. So there is our transaction: Buy August 19, 2005 and sell August 19, 2010. Buy at BRL $ 4,500 and Sell at BRL $ 8,000. The transaction would have produced a profit of BRL $
That would give the hypothetical investor a profit of BRL $3,500 on an investment of BRL $ $4,500, or 78%, roughly 15% per annum. Not too shabby, but that´s not the whole story.
Had this investor been British, and some certainly were, his or her cost would have been Sterling £ 1,024.70. Five years later our hero would have sold, yielding sales proceeds of £ 2,918.32 and a gross profit of £1,893.61 or 185%. Obviously, that is far better than the return on the real property alone.
Of course, this can work against the investor as well, but we are comfortable that Brazil has nothing on the horizon but blue skies and clear sailing ahead and one of the worlds fastest growing economies-if not The fastest.
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