Wednesday, February 08, 2012
Dear Reader,
Our series of comparisons on second home locations continues today with Brazil taking on Costa Rica. Let’s get straight down to it…
Ease of Access. Costa Rica walks this one. It’s quick and easy to get to, with lots of direct flights to North America, and a choice of low-cost carriers. From Miami to San Jose takes as little as 2 hours 45 minutes and costs $410. To get to Fortaleza from Miami takes 2 stops, 12 hours and costs $867. North Americans also need a visa to enter Brazil.
Price. Both countries offer a wide range of property in different price brackets. Costa Rica doesn’t have the type of city boardwalk high rises you see in Brazil. Costa Rica’s pricing is generally lower than Brazil. But Brazil holds a trump card – developer financing.
Developer financing. Some developers offer financing in Costa Rica. Some local banks offer it too, but you need to pass a credit check and medical exam before you’re approved.
Bank financing in Brazil comes with very high interest rates. So most developers offer financing with low deposits and monthly payments of around 1%. And you won’t need to fill out a mountain of paperwork, or go through credit checks or medical exams to get this finance.
So with widely available and easy developer financing, Brazil wins this round.
Ease of Buying. Large numbers of North Americans live in Costa Rica or own property there. They’re an important buying group. Because of that, many real estate agents, developers and sales staff in Costa Rica speak English. You’ll see property websites in English, along with brochures, ads and sales materials.
Brazilians fuel the property market in Brazil. So it’s harder to find English-speaking sales staff, real estate agents, or developers. The same applies to sales brochures and websites.
You need a CPF (a tax ID number) to buy property in Brazil. It’s not difficult to get, but it adds an extra step in the buying process.
In Brazil, real estate agents must take a course and pass an exam to get their mandatory license from the governing body, CRECI. Foreigners can take the exam –in Portuguese, of course - if they want to get a license. In Costa Rica, real estate agents aren’t regulated or licensed. Anyone can set themselves up as a real estate agent.
Real estate agent commission rates in Costa Rica average 5%, paid by the seller. In Brazil, it’s an average of 5-6%, paid by the seller.
I’m declaring this round a draw. You’ll find it easier to find a real estate agent that speaks English in Costa Rica. But Brazil scores points for at least trying to protect you from rogue agents.
Residency. You won’t automatically get residency when you buy a property in Costa Rica or Brazil.
You can get residency in Costa Rica with pension income of $1000 a month. In Brazil, retirees need income of $2000 a month. Costa Rica jumps ahead in this category.
Construction Quality. Brazil wins this round. That’s because Brazil’s construction companies dwarf their rivals in Costa Rica. One “small” Brazilian developer had “only” built more than 80 high rise towers. You won’t find a developer with that kind of experience in Costa Rica. Developers generally get better with each project. Tower number 80 shouldn’t repeat any of the mistakes of previous projects. Instead, it should feature all the tricks and improvements the developer picked up on the way.
Property Rental. It’s relatively easy to find property managers who speak English in Costa Rica. That’s not the case in Brazil, unless you’re in a major city like Rio or Sao Paulo.
Brazil’s foreign tourist market lags behind Costa Rica’s. More than five million tourists visited Brazil in 2010. That looks great compared to Costa Rica’s 2.1 million tourists…until you consider that Brazil is more than 38 times larger than Costa Rica. Costa Rica brings in almost 1 tourist for every 2 residents. They launched their impressive tourist marketing machine in the 1980s, and it’s paid off. Brazil is playing catch up.
But Brazil’s domestic tourism market is huge and growing rapidly. That’s down to the millions of Brazilians joining the country’s middle class. They’re traveling more, flying more and taking more vacations.
Take Fortaleza on Brazil’s northeast coast. It’s the top domestic tourism destination in Brazil. But it’s got a shortage of decent hotel rooms and rental condos. The city hosts the World Cup in 2014. That will bring in hundreds of thousands of foreign visitors. Plus, Fortaleza’s booming economy means a strong local long-term rental market.
Your property in Brazil should get good occupancy rates, whether you opt for short or long term rentals.
So although finding an English-speaking rental manager is harder in Brazil, your potential income is better. So I’m declaring this category a draw.
Beaches. Brazil’s beaches are much nicer than those in Costa Rica, period. Plus Brazil boasts city beaches and boardwalks, which you won’t find in Costa Rica.
Holding Costs. I’ve split this into capital gains, annual property tax, and transaction costs. Remember, you may still have tax obligations in your home country.
Capital Gains: In Brazil you’ll pay 15%. In Costa Rica property developers pay capital gains on property, but individual home owners don’t.
Annual Property Tax: In Costa Rica, you pay 0.25% of the registered value with the municipality or the national registry (whichever is higher). There’s an additional “luxury tax” for properties valued at more than 100 million colones ($197,238), calculated on a sliding scale.
In Brazil, property tax averages 0.3-2%. For beachfront properties, you’ll pay more if a portion of your property falls within 33 meters of the high tide mark on the beach. That classes it as Naval Land. There’s an additional annual tax for Naval Land of 0.6%.
In both countries, you shouldn’t under-report the sale price of your home to reduce your property tax. Doing so could result in legal penalties.
Transaction costs: In Brazil, closing costs run around 5-7% of the purchase price. If your beachfront home includes Naval Land that figure can reach 10%-12%. In Costa Rica, closing costs run around 3.75%.
Zero capital gains tax and lower closing costs means that Costa Rica wins the holding costs round.
Overall Costa Rica beats Brazil. You’ll love Brazil’s stunning beaches and the sheer variety of properties for sale. But with its short travel time and low holding costs, it’s hard to beat Costa Rica as a location for a second home or a rental property.
Margaret Summerfield
P.S. One little corner of Costa Rica offers lake and volcano views, good eateries, and a welcoming expat group. It’s stunningly beautiful and easy to get to – and it’s seriously undervalued. You can buy a half-acre lake view lot here from just $19,000. You can visit this hidden gem on a three-day chill weekend trip that will help you explore this beautiful spot and some great property deals. For more details, click here.
Posted Under:
costa rica, brazil, developer financing, opportunities, real estate opportunities, caribbean
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