Investing in Brazilian social housing Q: What is social housing in Brazil? Answer: It is the Brazilian equivalent of Singapores HDB (Housing and Development Board) housing. Basically, it is low-cost housing with some government support for buyers. The Brazilian government underwrites mortgages for lower-income families through the national banks. Mortgages are relatively new in Brazil. The banks will lend on very beneficial terms as long as the developer and its product satisfies certain criteria. Q: Why is it claimed to be such a good investment? A: Simply, demand significantly outweighs supply. There is a fast-emerging middle class in Brazil. According to the World Bank, Brazil is the worlds seventh largest economy with a gross domestic product (GDP) of US$2,223 billion in 2012. But aside from its strong macro-economic factors, there are micro issues such as the inability of Brazilian developers to generate construction finance through Brazilian banks, which can be slow with their approval processes. Developers who can raise money quickly and construct rapidly are able to make strong margins and deliver good returns. Investors effectively act as the bank but with increased security (as a result of our escrow system and currency isolation) and much less bureaucracy. Q: What are the credentials of the EcoHouse group in Brazil? A: EcoHouse has earned local, regional and national recognition in Brazil. On a local level, EcoHouse has garnered support from the Municipality of São Gonçalo do Amarante, among others. Q: Do investors in EcoHouses Brazilian venture get full ownership of the properties they buy? If not, can you briefly explain how the investment yields its promised return of 20 per cent? A: This is a real estate transaction and is not much different from other off-plan property purchases Singaporeans will be familiar with. But in contrast to a normal property transaction in which the investor would take ownership upon the completion of construction, under the terms of the EcoHouse transaction the Brazilian families will take ownership of the completed units and EcoHouse receives the purchase price from mortgage funds from the bank. This process gives investors the opportunity to exit with returns driven by strong demand. Despite the property title not being transferred to the investor, they are still fully secured by that property as a contingency during the investment and further protected by EcoHouses escrow facilities. Q: Is the return guaranteed? If so, how is the guarantee secured? A: No. We do not guarantee the return. Nobody should. Our investment provides a fixed rate of return, paid upon the completion and sale of the property. The contractual worst-case scenario due to our escrow facility is that the investor ends up with land and property in Brazil worth more than they have paid. Q: Given the attractiveness of the return, why is Eco House not able to find sufficient investors in Brazil itself for this investment? A: Investing in real estate for yield is not as entrenched in the cultural fabric of Brazil as it is elsewhere. We have sold a number of units to Brazilian investors, but in general, due to differences in banking systems, among other things, we find it simpler and can offer greater security to attract investment from foreign purchasers. Q: Why did EcoHouse decide to market this project in Singapore? Does it do so in other countries as well? A: In 2013, we achieved sales in over 50 countries. Singapore was important for us and has become a strong market. It so happened that our early success with partners was, to a large degree, to be found in Singapore. Since opening our offices in Singapore, we have also opened operations in Kuala Lumpur and Shanghai as more and more Asian investors become aware of the EcoHouse opportunity. Further, EcoHouse maintains an operational presence and continues to have sales in North America and throughout Europe. Q: The Brazilian real has been depreciating against the Singapore dollar. How does EcoHouse manage currency risks on behalf of Singapore investors? A: Singaporean investors invest in their local Singapore dollar currency and earn their returns in the same local currency. The currency risk is taken by us as the developer and EcoHouse mitigates that risk by forward buying or selling currency in bulk on a regular basis. This has the effect of isolating the company from large currency fluctuations over a one-year period Q: What are the other risks (not including political risks) of which a foreign investor in EcoHouse should be mindful when investing in these projects? A: Any real estate investment has a degree of risk. We do everything we can to reduce that risk as far as we possibly can. We have fully protected investors from currency risk and have provided full security against the underlying property asset. The escrow facility means that investor funds can only be drawn down by the developer for construction from the escrow agent on provision of authenticated invoices. One risk factor is the speed at which the Brazilian banks operate when processing mortgage paperwork for end-user families. Another is that bank strikes in Brazil have been common, which can slow things down further. The weather can also impact construction times with storms being quite widespread. We have also been building in an emerging part of Brazil deliberately. Having a construction workforce at the right time in the right place and with the right skills is not always straightforward in any market. We mitigate these risks very successfully by adding a clause in our contracts which provides for one per cent per month additional yield to the investor in the event of delays. As the situation in Brazil - and in social housing, in particular - is fairly unusual, we have found that many investors have assumed that our contracts are similar to others and do not necessarily understand the protection offered by these clauses. Q: What is the lock-in period of the investment? How long does an investor need to wait to receive his/her returns? A: The lock-in is 12 months, assuming on-time completion of units. Q: What has been the experience so far of foreign investors who have invested in EcoHouse developments in Brazil? Have they received their promised returns on time and in full? A: Our first fully completed development has seen all investors paid back in full and many individuals chose to repurchase property with EcoHouse. To date, there have not been any breaches of client contracts and EcoHouse intends to maintain that standard. Where there have been uncontrollable delays, EcoHouse has offered rewarding and innovative options leading to over 70 per cent of the clients that were met extending their investment. - See more at: ecohousegroup/press-Investing-in-Brazilian-social-housing.htm#sthash.rDWoCqyj.dpuf
Posted on: Wed, 26 Feb 2014 17:25:13 +0000