Tracey,
Nothing wrong with your maths at all;though conversely,imho,i believe that the theoretical underpinnings,projected growth rates and indeed your understanding of the taxation implications are not entirely accurate.
I have made a number of investments in N.E.Brazil and would like to firstly turn my attention to those aspects which are less susceptible to dispute and interpretation-namely the facts relating to taxation in the region.
There is incidentally a double taxation agreement in operation between Brazil and the U.K and it is unlikely the vast majority of people will pay in excess of 2% p.a.IPTU(local taxes) irrespective of the location of their property.
Rental income is taxed at 15%(with a min exemption of 1,500 Reais)up to 6,000 Uk sterling.
You were correct in that CGT is 15% ,though bear in mind that any improvements are fully deductible and that the rate drops to ZERO if the proceeds are reinvested in Brazil and not repatriated.There is also some political lobbying to reduce the rate to zero if the property is held for 5 years,though the best option at present if one wishes to sell prior to this period is to establish a Brazilian company and transfer title to the latter.This will also facilitate the opening of a bank account,not normally available to non resident foreigners, and a CGT rate of just over 6%.
Regarding your observation that there are no major hotel chains,may i be bold enough to suggest that the entire raison detre of investing in N.E. Brazil has somehow eluded you.Your research endeavours are admirable ,though by attempting to scrutinise the detail of every tree,i feel that perhaps you have lost sight of the shape and significance of the forest itself.
Brazil is an EMERGING destination.
By the time the major hotel chains are on board, by definition,the investment window boat will have been well and truly missed. Successful early investors analyse the fundamentals(all very strong in Brazil)and invariably buy
AHEAD of the curve.(having said that, there is The Serhs in Natal and both Holiday Inn and Ibis in Fortaleza)
N.E Brazil is primarily a capital appreciation play.If my investments have not at least doubled in 5 years time,i will be extremely disappointed.With growth rates of such magnitude,any rental income should be regarded as a bonus.It will certainly not materialise in any meaningful manner until greater critical mass occurs.(back to the early market aspect)In the intervening period,just be content to cover your management and maintenance outgoings.
Brazil vs Caribbean.
I would agree (in theory) that there is more land available in Brazil,though by the time the calculation includes ALL the Carribean islands, Spanish,Dutch,Portuguese and French enclaves, Dominican Republic etc,the Caribbean transforms into quite a large mass too and i would even venture to suggest that if we were to draw a comparison with N.E Brazil-the region best geared to accelerated growth-supply is restricted here by a whole range of factors; both natural and political.
To begin with, and in general terms, the only land/property worth contemplating is within an hour max from an International Airport,so basically, we have instantaneously narrowed the best growth potential to just a four hour drive of beachfront land -one hour North and South of Pinto Martins and the same for Augusto Severo/Sao Goncaelo.That is further reduced by inaccessibility,then compressed further by non buildable areas etc.
Finally, do not underestimate the strength and impact of the environmentalists in this context.Brazil is extremely environmentally/ecologically conscious.The stark reality of obtaining full planning permission is nothing short of a nightmare!-just ask Grupo Sanchez,Grupo Nicholas Matheus etc.
Before any construction can commence,permissions must be obtained from typically 6 or 7 different organisations(eg Ibama,Idema,local authority,Semace,)Allied to a culture of bureacracy,it is difficult to envisage a more effective mode of supply restriction!
Additionally,the effects of climatic change has transformed the majority of the Caribbean from an idyllic tropical retreat to a virtual danger zone with devastating hurricanes ripping in one after another in rapid succession.Nobody would relish the prospect of paying for buildings insurance here.Premiums have rocketed by 400% to 600% with even more extreme conditions widely predicted by meteorologists.
In sharp contrast,Brazil enjoys the same tropical climate but experiences no hurricanes.The climatic conditions simply do not exist for them to form.
The real clincher though is that an off plan,130m2,three bed detached villa set in a private landscaped garden,a three minute walk from the beach, complete with furniture,jacuzzietc and communal facilities would have cost me upwards of £250,000 in the Caribbean.
Last month,i bought this property in the Natal area for just over £58,000!
An exceptional deal admittedly, but still possible for anyone that has conducted sufficient research.(tip-do not buy through U.K. agents who basically market at "gringo" prices)
So there is plenty of room for growth from these low price points but one needs to have patience.Though at an instant equity gain of approx 30%,i would like to think i have made a very good start.
Trust at least some of the above is of use to you.
