Brazil to improve transparency of real-estate funds’
Brazil's government has taken steps to improve the transparency and liquidity of real estate funds in order to attract more investment into the country.
The changes will make the funds simpler and clearer, which will make them appeal to more people and organisations.
Known as Breifs, the real estate funds have become more popular in recent years as a result of the country's property boom and the accompanying record growth.
In Sao Paulo alone real estate has risen in value by almost 25 per cent.
However, with houses now valued at around 5.5 times of the average salary – compared to 11 times in China – economists believe that there is still plenty of room for further growth.
"Worldwide property investors are now turning their attention to Brazil as it fast becomes a leader in the field of emerging markets," explained an expert from Brazilrealestatefunds.com.
"Returns on investment are considered to be excellent and investors are increasingly aware of the high growth potential that Brazil offers as a stable though fresh, new investment market."
The new regulations currently being set up by the Brazilian authorities would make the funds more transparent, as well as promote the progress of a secondary market for trading Breifs.
This means that any changes in the market value of properties will have to be reported by real estate vehicles.
Other proposed moves will also work to make tax regulation of Breifs less strict, something which will no doubt make them more attractive to investors.
Furthermore, Breifs are versatile and can be used to buy and rent commercial properties in and around developments as well as for financing, however, unlike real estate funds in some other countries, they cannot be used in conjunction with loans in order to increase the returns they generate.
According to the Wall Street Journal, the funds have more than quadrupled in the last six years to reach a total of R$10 billion (£3.7 billion) as a result of the huge growth in the property market.
However, Maximiliano Marques Rodrigues of Votorantim Wealth Management, told the source that the funds could grow much faster if more investors new of their existence.
"Investors like simplicity," he said. "If it's too complicated, people don't take notice."
The comments suggest that a change to the rules and transparency surrounding real estate funds could increase their popularity.
Brazil is already gaining popularity for investors, especially against the backdrop of sub par growth in the US and Europe, particularly institutional and corporate investors.
The California Public Employees' Retirement System (CalPERS) recently revealed that it made a huge profit on real estate funds in the country.
In early July the firm announced revenue of $160 million (£100 million) on Brazilian property investment and claimed at the time that the country continues to offer opportunities for the pension firm.
However, despite this well-publicised profit, foreign investors still only make up a total of three per cent of the Breif market, the Wall Street Journal reported.
The problem is thought to be both a lack of publicity surrounding the real estate funds and the inherent complexity.
"We don't get a lot of information, so investing would mean taking on a huge risk. And the Brazilian tax code is monstrous," Jason Valle US financial adviser at FMC Financial Group, told the news source.
Tax regulation is complicated and different levels of tax are paid on different securities, a situation unlikely to attract more foreign investors.
Those keen to invest in real estate funds are likely to seek out options where this high level of intricacy and tax is not applied.
Nevertheless, investments in the country continue to increase, with further swells likely as these proposals to simplify real estate funds go through.
As Tony Volpon, head of emerging markets research Americas for Nomura, told Reuters: "There's a new species in the forest which … didn't exist six months ago: the hardcore Brazil bear."