LatinFinance - March/April 2013 - 46

Brazil real estate funds

A local affair
By Ben Miller

Brazilian real estate funds are maturing – but getting international
accounts involved is no easy task

hile other asset classes
in Brazil languish after
a disappointing year,
investment in Brazilian real estate
funds shows little sign of letting up
following record growth in 2012.
The market is poised for yet more
expansion as investors flock to the
sector, which offers the comfort of
regular income and a diversity of
projects in need of funding.
The real estate fund, or Fundo
de Investimento Imobiliário (FII),
nevertheless remains an asset for the
domestic retail market. Thanks to the
attractive tax exemptions, more than
87% of investors were individuals as
of October 2012, according to market
research firm Uqbar. Analysts say
broader institutional participation
could provide the spur for transforming
the asset class.
Brazil’s government scrapped
the IOF tax on FIIs in February, in a
bid to draw in more buyers. But, like
real estate trusts in many countries,
Brazilian FIIs must pay out 95% of
Rising high: the growth of a market
capital gains to shareholders – and
those dividends are still taxed.
“In the long-term there may be between 10% to 20% foreign
an inflation hedge, but international accounts must do a lot of
participation,” says José Diniz, director of real estate funds at
work to understand all aspects, including the tax implications, of
Rio Bravo Investments, which has managed several transactions. investing in FIIs. Their other option for real estate exposure is the
The level won’t match foreign participation in IPOs, he says.
stock play (BR Malls is often mentioned as a favorite).
That is largely because the funds are less liquid, and the upside is
smaller. Moreover, the large returns of recent years are unlikely to Marketing first
be sustained.
BTG Pactual priced what it billed as the first internationally
The IFIX index, which tracks the asset class, gained 35%
marketed Brazilian real estate investment trust (REIT) in
last year, according to BM&FBovespa, having gained 16.5% in
November. (FIIs are not strictly REITs and Brazilians prefer to call
2011, its first year. Returns for individual funds can vary sharply, them REIFs to reflect their status as a fund, not a trust.)
however.
The investment bank’s efforts to bring in more international
“Pulling this tax should improve investment in the real estate
investors paid off, with European and US accounts coming in
sector,” says Ed Kuczma, EM analyst at Van Eck, although the firm as well as domestic ones. The BTG Pactual Corporate Office
has yet to take a serious look at the FII class specifically.
Fund deal added $325 million-equivalent to what is expected
Foreigners can buy FIIs just as easily as Brazilian stocks, yet
ultimately to be a $1 billion operation. BTG, Bank of America
their investments to date have been small. Real estate offers
Merrill Lynch, Bradesco, Credit Suisse and Santander managed

46 LatinFinance

March/April 2013

LatinFinance - March/April 2013

Table of Contents for the Digital Edition of LatinFinance - March/April 2013