The medium-sized Brazilian cities have the best investment opportunities for private equity funds specializing in real estate, according to experts. The strong growth potential of economies of these cities, often driven by multinational companies, is one of the factors that favor the real estate business.
“In the cities the average population growth is 44% higher than in large. The growth of GDP [Gross Domestic Product, which measures the wealth generated by the economy] is 61% higher per capita GDP is 83% higher, ” said Jon Toscano, president of Investment Trivelli.
Trivelli Investments prioritizes the allocation of their contributions to medium-sized cities – which are between 300,000 and 1 million inhabitants – in the interior of the States of Sao Paulo and Parana, the second Toscano.
“These sites concentrate 36% of Brazilian GDP,” he says. Among the counties selected by the managers are Sorocaba, Londrina, Maringa, Sao Carlos, Piracicaba and Campinas.
The executive says that inner cities are under-served and that their growth have been potentiated by multinationals. “Toyota, for example, is in Sorocaba, Hyundai in Piracicaba,” Toscano said during the meeting with Industry, Private Equity and Venture Capital, organized by the Brazilian Association of Private Equity & Venture Capital (ABVCAP) on Wednesday, in Sao Paulo.
Renato Garcia, CEO of RG Capital Salamanca, Salamanca Brazilian arm of the London Group, agrees with Toscano. “We seek efficient entrepreneurs and family businesses in non-obvious places, where nobody wants to go,” says Garcia.
The Salamanca Capital has made a recent investment in Natal (Rio Grande do Norte) in engineering and real estate agency Ecocil and, according to Garcia, the northeast region is attractive because it offers less competition.
Despite the attractiveness of small centers, they big cities still have great opportunities, according to experts. But given the high level of saturation, big cities are cities where prices are higher. “They are still good markets, but more expensive,” says Helmut Fladt, from the Homeland Investment.
In the case of Rio de Janeiro, Garcia added that there still exists a great potential for use in some regions due to the large expected liquidity for the next 5-6 years, partly due to the increasing demand because of World Cup 2014 the 2016 Olympics.
10% of the market
In volume, Toscano estimated that about 10% of invested capital through private equity funds to be directed to real estate.
To give an idea of what this means, in the accounts of Patrice Etlin, managing director of Advent International, the funds already picked up about $ 9 billion (about $ 14.3 billion) to invest in Brazil later this year.
Investing in real estate
Besides large funds managed by private equity firms, the Brazilian market has a choice of real estate funds that sell shares to individuals.
To Mordejai Goldenberg, executive vice president of real estate consultancy Cushman & Wakefield, the real estate investments are a good option to integrate portfolios who are planning retirement. “The funds have a great appeal to the individual,” he says.
The main advantage they offer over other types of investments is exemption from income tax on profits. If the investor doesn’t have 10% or more of the total units of the fund, they need not pay tax on gains.