Buying off-plan pre construction properties in Brazil can be attractive but carry a big risk

Off plan pre construction problems in Brazil.A recent article on a newspaper in Minas Gerais, tells the story of brazilians that take advantage of incentives to get discounts on off-plan properties. A brazilian couple acquired in 2010 an off-plan four bedrooms apartment in Buritis, a neighbordhood of Belo Horizonte. MG. Newlyweds, both looked forward to the delivery of the keys, scheduled for November 2012, and then postponed to August 2014. However, to date, only the foundation was made and the structure did not leave the ground. The construction is abandoned. Fences were damaged and hardware, looted.

“I paid R$ 200,000 and never saw the color of money. They made only the foundation and after that no worker came there. This only has a name:.. Default,” says the business administrator.

Like them, lawyers specializing in real estate estimate that there are at least two thousand families in Belo Horizonte currently in the same situation. They paid any price or a significant portion of the property to developers, invested the future and economies but saw their dream of home ownership turn into a nightmare.

A lawyer states that the current scenario is no more of construction delays, but of abandonment of several constructions. According to the expert, companies have mocked even real guarantees required by law.

But for lack of control mechanisms, or the protection of the appropriated assets, created in 2000 with the change in the Real Estate Act, prevented works were abandoned.

The rule provides that the developer create a unique CNPJ for each project, but membership is optional. If it were mandatory, in practice, all the investments and expenses related to certain building under construction would be handled in a specific account. This, in theory, bookstore buyer’s risk of being affected by the failure or difficulty of the company.

In other serious countries, the issue would have been solved in a few years but with the slow and problematic justice system of Brazil, you can count the case as lost and builders take advantage of that.

In a time when other currencies are valued against the Brazilian Real, several gringos fall for the ” low” price of the investments and enter agreements like this, even with small local builders but the headache later can be intense.

A few tips to avoid problems when buying off-plan properties.

1- Construction delay
The agreement allows construction companies to delay up to 180 days the delivery of the work. A lawyer says the delay must be justified. If it exceeds this period, the consumer can ask the courts compensation for material and moral damages. The compensation is usually 0.8% of the current property value per month of delay.

2 – Correction by the INCC
The correction by the National Civil Construction Index (INCC) is legal, but must be well explained to the consumer. The correction focuses on the outstanding balance, which increases the debt over the period. Ideally, the share should be higher to pay off more of the debt: about 1% of the property value per month. A very high debt balance may prevent funding.

3 – Broken benefits promises – Promessas de benefícios não cumpridas
New vehicles, custom cabinetry and discharge of condominium and property tax. Some builders offer several benefits, but in some cases, do not fulfill the promise after the contract is signed. In this case, the right way is to go to court. Keep all advertisement as evidence.

4 – Fee for reassignment of rights – Taxa de anuência ou cessão de direitos
A value charged from the buyer when he decides to sell the property to a third party before it gets ready and keys are delivered. To be able to sell the property, the consumer also needs a prior authorization of the builder. According to a lawyer, this charge is illegal because it is contrary to the Consumer Protection Code to reward a company that has done nothing to make the sale.

5 -Brokerage fee
Should be paid for the services provided by the realtor. In the case of a sales stand, the lawyer understands that are the builders who hire the brokers. It would be up to them to pay that fee, not the client.

6 – Intervention rate
It is charged to buyers who choose to finance with a different bank than the one that is funding the construction. The fee reaches 2% of the financed amount. It hurts the consumer’s right by taking away his freedom to choose.

7 – Technical and real estate advisory service fee (Sati) – Taxa de serviço de assessoria técnico-imobiliária (Sati)
Construction companies usually charge about 0.8% of the total value of the property in this service, to guide the consumer in administrative and legal issues. According to a lawyer, the error is in charging for a service that is not compulsory nor free, as the company lawyer will review the company’s own contract.

Will it fly with you?

With information from

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Joe Cloud
Dutch, American, Brazilian... lived there for 5 years and owns property in Brazil. Out of the country for a few years now and would like to go back, however current circumstances tell me it's not the right time.

Published by Joe Cloud

Dutch, American, Brazilian... lived there for 5 years and owns property in Brazil. Out of the country for a few years now and would like to go back, however current circumstances tell me it's not the right time.