Mistakes to avoid when investing in real estate in Latin America
Investing in real estate may seem simple enough. Considered one of the most profitable businesses for investors this is a market that tends to offer low risk and high rewards. Latin America is rich with opportunity right now. Relatively cheap land not only for properties but for harvest and cattle breeding presents valuable opportunities. Investors should get involved in the market, so that they receive higher margins in the future.
However, it becomes very different and more complicated when you decide to invest in a foreign country. Typically, laws, regulations, and rules pertaining to foreign investors differ from your home country, where you’ve probably invested before. To make the best decisions for your wallet and the market in general, there are a handful of tips and tricks to keep in mind when investing in real estate in Latin America.
Don’t Skip the Legal Processes
The legal processes surrounding real estate in Latin America can be rather complex. It’s important to take careful note of the legality of the sale, the trustworthiness of the seller, and the quality of the land. While conditions and safety in Latin America are improving, there are still cases where it’s better to be safe than sorry.
Moreover, in some countries, the taxes, exchange controls, and other bureaucratic processes add up very quickly and can be overwhelming. Countries like Colombia and Brazil, some of the most exciting and lucrative markets in Latin America, fall under this category. However, should you consult an experienced lawyer or professional, these problems can be easily avoided.
Review Taxes as a Real Estate Owner
Tax laws change depending upon the owner, the property, the income of the owner, and many other components. For example, foreign real estate owners in Colombia are taxed based on the valuation of the land by municipalities. The tax rate could range anywhere between 0.3% and 3.3%. The appraisal of the land considers the value of the land itself, location, and any buildings or real estate on the property. Comparatively speaking, on the lower end of the tax spectrum is Chile. Nationwide, a 1.2% property tax is applicable to urban real estate, 1% to rural spaces, and 0.98% on residential properties. Under certain circumstances, additional fees may be applicable to a property.
Chile, a consistently strong and reliable economic power in Latin America, also offers favorable real estate investment opportunities. The housing market saw significant increases in sales and listings in both 2017 and 2018. Moreover, possible new tax modernization bills could be coming to the country. The one proposed by President Piñera offers an accelerated tax depreciation system for fixed asset investment, like real estate. Additionally, extremely low-interest rates, 2.5% from the central bank, makes borrowing money easy, ultimately stimulating the economy and the real estate market.
Also making a name for itself in the investors’ world is Colombia. The government has focused efforts and funding on lower and middle-income areas, as well as the further development of cities such as Medellin and Bogota. Additionally, tax reforms and value-added percentages make investing and making a profit much easier for investors. An influx of investors has inspired construction and urbanization in Bogota. With further internal development of the capital, its infrastructure, and its economy, Bogota could become one of the most profitable cities in Latin America to invest in.
Visa Restrictions and Benefits
Visa and residency requirements differ depending on the country and can be quite confusing if you aren’t familiar with the terminology. It’s important to understand the various rules and regulations and how they could affect your investment.
Some countries have a relatively simple visa and residency requirements. For example, Chile has one of the most favorable permanent residency visas in South America. The first advantage of this visa is that there is no minimum required income to be eligible for it. To apply, you must submit your application to the Immigration Department of the Ministry of Foreign Affairs. Once approved, the permanent visa lasts for five years.
Buying property or housing can also lead to temporary and/or permanent residency visa rights in some Latin American countries. In Colombia, any real estate owned in the country worth at least USD 85,900 qualifies an investor for a temporary residency visa. Eligibility for a minimum of USD 159,300.
Mexico offers a similar opportunity for foreign investors, although it requires a higher investment. Should an investor own real estate valued at US$170,000 or more, they are eligible for a temporary residency visa which lasts up to four years. Smaller real estate markets like Ecuador and Panama offer visa options for property owners as well, but these differ slightly due to the market.
Ignore the Country’s Political Panorama
The political atmosphere in LATAM has been always an indicator for foreign investors looking to do business in the region. Before investing in one of the countries is good to be up to date about the latest news and dynamics from the governments. Why? In some of the cases, the government plans to promote foreign investment can benefit your business plans and make even easier that you enter the country.
For example, the first country offering a promising real estate future is Brazil. Bouncing back from past economic obstacles, the country saw major increases in real estate sales and declining mortgage rates in 2018. In 2019, it is continuing on the path of recovery and economic growth will gradually increase.
Many say that with Brazil’s previously unpredictable elections behind them, the country should be on the up now. Demand for real estate in São Paulo and Rio de Janeiro is already growing in response to positive economic and political conditions. One of the country’s largest land and real estate developers reported a 71.5% increase in property listings and a 38.5% increase in units sold in the last quarter of 2018. Priming Brazil’s future economic success is the central bank’s decision to keep interest rates at a record-low 6.5%. Domestic and/or foreign investors looking to loan now have practical and favorable conditions to do so.
Finally, Uruguay’s steady and reliable political and economic environment makes it another attractive location for investment. Although the value of the US dollar is rising compared to the Uruguayan peso, this makes buying real estate in Uruguay better for foreigners. Moreover, the industry is relatively untapped. Few foreigners have infiltrated the market as of late, which means there is great room for land development, house flipping, construction jobs, etc. Another attractive aspect of Uruguay is how stable its political climate is. This leaves little reason for doubt or skepticism when looking to invest in the country’s real estate market.
With a better understanding of the real estate market and the opportunities available in Latin America, it’s time to decide where exactly to invest your money. There are countries with lucrative real estate markets that are grabbing foreign investors’ eyes.
Overall, Latin America is proving to be an exciting, diverse, and profitable region to invest in. With different landscapes, dynamics and benefits the region is full of opportunities to invest in. Whether you want a retirement property near to the beach or land for crops, Latin America has worthwhile options for you. As inspired as you may be by these opportunities, it’s important to remember not to skip any steps throughout the investment process. Consulting with a lawyer and other back-office professionals about these issues is the best way to avoid any mistakes or misconceptions within the market.
Source: Craig Dempsey Co-Founder & Managing Director | Biz Latin Hub