Maracajau - Porto Dos Corais

The Porto Dos Corais development site in Maracajau as at April 2007.

Although the aim of this trip was to get a general 'feel' for North East Brazil I made a conscious effort to have a look at a development that is being heavily advertised on the web. The development, Porto Dos Corais, is being marketed by several agents to UK investors. I understand that the development mainly consists of one, two and three bedroom apartments. I met a representative of the developer, Hans Leistedt, at the site. There was very little to see as work hadn't really started, the area had just been fenced and cleared. There was some basic accommodation for building labourers but no actual work going on when I visited. There is no doubt that the development is in a beautiful spot with a lovely beach just metres away and fantastic sea views. The site is far enough out of Maracajau to be peaceful but near enough for convenience.

Hans was very helpful and informative and answered all of my questions in detail. I discovered that the developer is using a Brazilian limited liability company called Brazil Homes Empreendimentos Imobiliários LTDA and is registered in Brazil with the tax payer number (CNPJ) 07.447.622/0001-01. The construction company is called Consol Construções LTDA. In the UK it is normal practice to use a limited liability company to undertake a development as the owners of the company (the shareholders) and the people that run it (the directors) can walk away if anything goes wrong. It is also normal practice to form a separate limited company for each individual development so that the risk on each project is ring-fenced. This means that if a project fails the shareholders and directors cannot be made personally liable for the company's debts or legal obligations. Limited companies in the UK are no big deal - anyone can buy a ready formed company over the phone for less than £40. The privilege of limited liability is much abused in the UK, however it could be different in Brazil. I understand that there is some form of bank guarantee on this project, however my experience of guarantees in the UK has taught me to consider the following:

1) How watertight is the wording of the guarantee? In the UK it must be spot on otherwise it will be challenged by clever lawyers. A vaguely worded guarantee or a 'letter of comfort' is unlikley to be enforceable.

2) What exactly is the bank guaranteeing? That the project will be completed within budget and on time? That investors won't end up out of pocket?

3) Is the bank backing the developer or the construction company or both?

4) What specific event or chain of events trigger the honouring of the guarantee? For example , must the company enter into formal insolvency procedings before the guarantee is honoured?

5) Does the guarantor have good standing? I am thinking here about BCCI.

Hans said that the developer had a lot of experience in property development, however, I understood that it is his first business venture alone - he was previously an employee of large construction companies. Hans can be contacted on +55 84 3642 1477. There is information about the progress of the development available at Brazil Homes. Right next door to this site is a very impressive completed development. The houses are of solid construction with a good finish, there is a beautiful swimming pool with 'swim up bar', landscaped grounds, a security guard, a manager - in fact, it had everything except tourists!:


The exterior of the walled development and the 'swim up' bar

I am beginning to think that NE Brazil is a long term investment and the spoils will be capital appreciation rather than rental income. The developer of Porto Dos Corais estimates that the maintenance charges are likely to be in the region of 50 - 100 euros per month. There is also apparently an annual real estate tax of 0.6% plus buildings & contents insurance, utility bills and possibly some form of public liability insurance if the property is to be let. I am conscious that any investment I make in property will cost me at least £1,000 per year to maintain and that I may not have any rental income to offset it for a few years.