Monday, April 06, 2009
Dear Reader,
Last July I recommended a project in Brazil called Beach Class. To remind you, Beach Class is located a block off the beach and 50 meters from Fortaleza’s boardwalk.
Headquartered in Recife, the developer (Moura Dubeux) is one of the biggest construction companies in North East Brazil. This company has a strong reputation in the country: 26 years experience, 80 projects completed, and 33 projects (including Beach Class) under construction. These guys have a track record of delivering quality.
Beach Class is a brand…not just a single project. Four Beach Class developments in the city of Recife target the executive market. The fifth Beach Class project in the Recife area is at Porto de Galinhas. This is one of the world’s most famous beaches. Beach Class Suites in Recife are perfect for short-term rental. Year-round occupancy is 86%. The average nightly rate is BRL240 ($100). Having allowed for inflation prices rose here by 50% during the build period. Buyers did well. They enjoyed capital appreciation during the build period with strong rental demand on completion.
The Beach Class project in Fortaleza is known as Beach Class Colonial. These units will be seriously high-spec. Amenities resemble that of a five-star hotel, and include swimming pool, a gym, sauna, crèche, game room, movie room, and a business center. Remember, Beach Class is a brand and Moura Dubeux will ensure consistent standards across their Beach Class projects.
I recommended the smaller (56-square-meter) units, as a rental play, given the high rental yields in this market right now—up to 15% a year for units like Beach Class. But if you don’t want to hold your unit, the resale market is strong, too.
When the project was officially launched in August 2008, buyers paid 15% more than those who bought pre-launch.
Today’s Opportunity
Around the launch time the developer did a deal to sell 80 units to a European group. This group also opted for the smaller units I recommended. This deal fell through. The reasons were not related to the quality of the project.
These units are back on the market. If you missed out first time around you have a second chance. Available units start at BRL219, 000 ($92,000). Prices range from BRL3, 727 to BRL4, 400 ($1,560 to $1,850) per square meter. The payment terms are 2% down and monthly payments of 2% during the build period.
The pace at which the market is moving in Fortaleza makes this a good deal today. I still consider it a buying opportunity. The site has been cleared and construction starts next month. Prices are set to rise by an additional 5% on April 1.
Since July 2008 prices in Fortaleza have risen to new highs. Prices for water-facing units in another development, Landscape, sold for BRL7, 000 ($2,940) per square meter. Units with no views or limited views ranged from BRL4, 200 to BRL5, 500 ($1,760 to $2,300) per square meter. This project is sold out. The next project in the boardwalk area will see pricing in the region of BRL7, 000 ($2,940) per square meter. This project is a block back from the boardwalk. Views however will be unobstructed as there will only be a park between this building and the boardwalk.
How You Can Benefit From the Vacation Rental Trend
The short-term rental market has strengthened at an astonishing pace. According to official reports tourism numbers grew by 16.8% in Fortaleza last year. This year Fortaleza will see further growth. Short-term rentals have been running at pretty much 100% occupancy since early December. Fortaleza’s hotels were running at 97% occupancy in January and during February’s carnival. Demand for short-term rentals from business travelers continues to grow. The location of, and amenities in, Beach Class make them perfect for short-term rental. The end of the boardwalk (Iracema Beach) where Beach Class is situated is seeing some major upgrades including the construction of the largest Aquarium in Latin America.
When I first recommended Beach Class $1 bought you BRL1.7. Today $1 buys you BRL2.3. I see this as a temporary situation. Brazil has the fundamentals (food, energy, water and manufacturing) that bode well for a strong currency in the medium term. I have taken this opportunity to buy cheap reais and make advance payments to the developer…or you can open a real denominated CD.
The site has been cleared and work on construction is slated to begin next month. Completion is expected in May 2011. If you are chasing a short-term rental yield this is the best deal on the market in Fortaleza today. There is still potential for substantial capital appreciation. E-mail (JavaScript must be enabled to view this email address) for floor plans and a list of available units. Remember, prices will rise by another 5% on April 1.
Wishing you good real estate investing,
Ronan McMahon
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Posted Under:
brazil, rental yield, appreciation potential
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