Overview

With a strong performance, the Brazilian real estate market grew at levels of 15% or more in the year of 2022, despite the obstacles that hit most sectors of the economy.

2022 was a year marked by the rebound from the economic and health measures that had to be taken to halt the effects of the COVID-19 pandemic that devastated the entire world, causing shutdown, isolation and high inflation rates, with a great effect on the reduction of industrial production, arising from the shortage of inputs, caused by the high price of commodities and fuel.

Last year was also impaired by the outbreak of a war in Eastern Europe, further aggravating the global state of crisis, which today affects a large part of humanity and will continue to show its effects for an undetermined period.

Additionally, 2022 led governments around the world to review their economic goals and revaluate the next steps. At this point, Brazil changed interest rates that raised the national interest rate index “SELIC rate”, still below 6% per year, to the current 13.75% per year, stopping an inflationary trend that threatened the economy to enter a recession and, thus, reversed a crisis trend to a perspective of stability, based on agricultural production and commodities, encouraging the internal market and its production chains, including those in civil construction and the real estate market.

Even within a worrying picture, the real estate market raised the level of confidence by showing its capacity and strength, ending the year of 2022 with significant numbers in growth and profitability, breaking records of launches and sales throughout the real estate sector.

According to Abrainc (Association of Developers), in the first ten months of 2022 (from January to October), the number of new properties sold in Brazil increased by 11.9%, when compared to the same period of 2021.

In all, 133,891 units were sold from January to October last year, which corresponds to the best performance ever recorded for the sector in the same period since the creation of the statistical assessment, with comparative data from 2014.

Up to October of 2022, sales of medium and high-end properties continued to expand and grew 81%, with the sale of 38,943 units. And the growth in the luxury segment already represents 29.8% of all properties sold in Brazil.

Low-income properties, responsible for 70.2% of homes sold in Brazil, registered a total of 91,924 homes sold.

The balance of real estate financing with resources from the SBPE (Brazilian System of Saving and Loans) in the first 11 months of 2022 totals BRL181.9 billion, which represents 728,000 properties financed in this period.

With such expressive numbers and impressive results, the movement in the real estate market was really intense last year, but the trends for 2023 show that expectations are also very promising.

The expectation for the economic scenario is that interest rates for real estate financing remain stable and below two digits and that the SELIC rate continues to be effective in controlling inflation, so that it can safely guarantee access to credit and stimulate consumers’ purchasing interest.

In either case, although expectations are good, the real estate market must keep an eye on the high interest rates, which ends up making real estate financing more expensive and inducing the capitalised investor to be more conservative.

Expectations are high around the real estate market for the year of 2023, with many bets on the types and styles of properties that could be more attractive and sought after. New families that are forming tend to look for properties with more space, with enough footage for a home office or office and bigger leisure areas.

On the other hand, the business sector sees the resumption of business with the growth and recovery of the economy, motivating the change to large properties, such as sheds, rooms and larger corporate floors to meet administrative and employee needs. The purchase and leasing of commercial real estate should be based on more modern and spacious buildings to meet the productive and administrative needs of companies and accommodate employees who are back to face-to-face work.

Therefore, both in relation to residential and commercial properties, there are many expectations and possibilities for the generation of new businesses.

Below, recent legislative innovations of great importance are set out; these innovations will certainly keep impacting the real estate market in 2023 and beyond.

Minha Casa, Minha Vida

Minha Casa Minha Vida is a federal housing programme in Brazil, created in March of 2009, which subsidises/facilitates the acquisition of one’s own house or apartment, depending on the family’s income.

Recently, the federal government is considering increasing subsidies for the Program Minha Casa, Minha Vida, aiming to clear the down payment on the purchase of properties in the range that benefits the lowest income population.

The measure would be carried out through partnerships between state and municipal governments, which, together with federal subsidies, would cover the down payment for these properties.

In the assessment of members of the Palácio do Planalto (official workplace of the President of Brazil) and the Ministry of Cities, the down payment, which is at least 20% of the property price, has created barriers to this programme for the poorest population. The studies have already been concluded, but still need to be analysed by the Civil House, before being sent for President Luiz Inácio Lula da Silva’s approval.

Acquisition of Farmland by Foreign Capital

The national congress initiated two bills (Nos 2963/2019 and 2964/2022), which propose, in short, the removal of restrictions and impediments for Brazilian companies controlled by foreign capital to make investments in farmlands through acquisition or lease, except in the Legal Amazon, coastal and border areas, thus also respecting national security. The Bill would still maintain the restrictions on all foreign individuals or legal entities, and restrictions in the case of acquisition or lease by certain entities such as NGOs, foundations, sovereign funds, entities and companies controlled at any level by states, which will need to request prior authorisation from the National Security Council.

If approved, the Bill will be an important change which will certainly contribute to the desired rise in investment in the Brazilian economy and agribusiness, such as a possible occupation and use of rural areas by foreign investors in the energy and energy distribution sectors.

FIAGRO

Created by Law No 14,130/2021, the Investment Funds in Agro-Industrial Productive Chains (FIAGRO), allows investments aiming at agribusiness revenues.

The new fund allows national and foreign investors to invest in the sector through investments in agribusiness assets (such as credit titles or asset-backed security issued by companies in the agro-industrial production chains) or by purchasing properties, which may be leased or sold to producers.

On 20 July 2022, the new Law No 14,421 expanded the reach of credit titles, acting as a facilitator in rural production and marketing, such as credit titles for the financing of inputs, machinery and agricultural equipment, in addition to the industrialisation of agricultural products.

Among other material innovations, regarding the rural segregate estate, the new law speeds up the transfer of property, in an expropriation procedure, to the expropriator, even without the consent of the expropriated.

Legal Landmark on Guarantees

Currently awaiting discussion in the Senate, the Bill No 4,188/21 creates the specialised warranty management service, the goal of which is to make efficient the adoption of guarantees for granting credits and to contribute to the reduction of interest rates and the increase of competition, by reducing entry barriers in the sector.

The proposal reformulates the norms that regulate the transactions of taking loans in financial institutions and the assets given as guarantee in the event of non-payment of the amount due. The goal is to reduce creditors’ risks, helping to lower the cost of credit in Brazil.

The changes should give rise to more competition, lower interest rates and triple credit operations. The wording suggested has the potential to ensure ease of use and the possibility of a faster recovery, leading to a growth of credit supply and lower rates. More credit implies more consumption capacity.

Presented by the then Minister for Economics, Paulo Guedes, the Process of Bill proposes, as its main innovations:

• providing for the specialised warranty management service;
• the improvement of guarantee rules;
• the early redemption of fixed-income securities;
• the transfer of values from single and specific accounts to the Funding for Maintenance and Development of Basic Education and Valorization of Education Professionals (Fundo de Manutenção e Desenvolvimento da Educação Básica e de Valorização dos Profissionais da Educação – FUNDEB); and
• the exclusion of Caixa Econômica Federal (the federally controlled savings bank) monopoly in relation to civil liens.

Specialised warranty management service

The specialised warranty management service will be the responsibility of the warranty management institutions (Instituições Gestoras de Garantia - IGGs), which will be responsible for constituting, using, managing and sharing guarantees for credit operations between debtors and financial institutions.

These IGGs will be regulated by the National Monetary Council (CMN), while the Central Bank of Brazil will be responsible for supervising and authorising the activities of these companies, such as defining how much IGGs can borrow from financial institutions.

Improvement of guarantee rules

Provision that a single property will be given as collateral in more than one credit operation and, in the event of default, only a part of the asset, related to the amount due, will be blocked. The portion already paid off of a financed property may be given as collateral, which means that a property does not need to be fully paid off to be given as collateral in a credit operation. Also, this facilitates contracting new credits linked to the same real estate guarantee given in a fiduciary sale, even before the same creditor.

It provides for the possibility of extrajudicial enforcement of credit guaranteed by mortgage, regardless of contractual provision.

It provides for the possibility of enforcing guarantees subject to collective insolvency proceedings.

It provides for the creation of the guarantees agent, whose function will be to constitute, register, manage and enforce guarantees judicially.

It creates measures that will give more agility and efficiency to the real estate registry offices in the registration of real estate properties.

Early redemption of fixed-income securities

It provides for fixed-income securities to be used as an instrument to redevelop the market for bounded active operations, by regulating an early redemption of fixed-income securities.

Transfer of values from single and specific accounts to FUNDEB

The states and municipalities may use any financial institution to pay teachers and other education professionals, even if the resources come from the Funding for Maintenance and Development of Basic Education and Valorisation of Education Professionals (FUNDEB).

Caixa Econômica Federal Monopoly

Removal of restrictions on competition in the financial system, by the exclusion of Caixa Econômica Federal (the federally controlled savings bank) monopoly in relation to civil liens. The end of the monopoly, with the consequent and potential existence of new players in the civil collateral market, makes it possible, through competition, to reduce costs and fees for the use of this type of guarantees.

Remarks

Essentially, the main aspects of the new legal landmark on guarantees refer to making use of guarantees offered in a way that is more flexible compared to the current practice, in addition to breaking the monopoly of the civil liens, all with the goal of “making more efficient the use of guarantees for granting credits, as well as to contribute to more attractive interest rates and increasing competition”.       

Law No 14,382/2022 and the Upgrade of Public Registries

In order to modernise and simplify the procedures related to public records of legal acts and businesses, the Law No 14,382/2022 was published, which intends to virtualise the services of registry offices throughout Brazil, making them faster and more accessible, notably the Real Estate Registry, the Registry of Deeds and Documents, the Civil Registry of Legal Entities and the Civil Registry of Individuals.

The Law No 14,382/2022 also implements several relevant changes in real estate, affecting real estate developments and the urban ground division, with changes not only in the Public Registry Law (Law No 6,015/1973), but also in the Civil Code (Law No 10,406/2002), in the Urban Ground Division Law (Law No 6,766/1979), Real Estate Development and Building Condominium Law (Law No 4,591/64) and in Law No 13,097/2015, among others.

Electronic System of Public Registries (SERP)

It embodies the modernisation and virtualisation of registry acts in Brazil, centralising, on a single platform, the provision of electronic services by public registry offices, with data exchange between offices and users’ access to the most diverse certificates and information queries.

Performing interconnection between the notaries, the SERP (Sistema Eletrônico de Registros Públicos) must provide remote service to users and to the offices themselves, being used to receive and send documents, issue certificates and obtain information in electronic media.

Changes Relating to Real Estate Development

Adjustments to Law No 4,591/1964, such as the following.

• Extinction of segregate estate.
• Role and enforceability of documents to be presented by the developer.
• Deadline for:
1. analysis and/or registration of real estate development memorials;
2. appointment of a commission of representatives of the unit purchaser; and
3. start of encumbrance/sale of any unit, contracting a loan or start of works before the need to update documentation and certificates by the developer.
• Single registration act for registration of the real estate development memorial and condominium institution on the ideal fractions.
• Explicit developer’s obligation to register the construction related to the ideal fractions detailed in the real estate record file.
• Certificate clarifying civil or criminal lawsuit may be replaced by the history of the procedure.

Changes in the Public Registries Law

The Law No 14,382/2022 brought a series of adjustments to Law No 6,015/1973 (Public Registry Law), involving registries of real estate, titles and documents, individuals and legal entities.

Regarding the real estate field, the main changes involve:

• Real Estate Registry Offices, related to its deadlines, certificates, list of documents for annotation and registration, jurisdiction and issuance of real estate record file, scanning and fees; and
• Titles and Documents Registry Offices, with regard to the acts of optional registration, notarisation, registration by digitalisation and registration of new documents.

Changes in the Urban Ground Division Law

Law No 6,766/979 was also amended, mainly with regard to the certificates to be presented for the special registration of dismemberment and subdivision of real estate.

Changes in the Registry Offices Law

Law No 8,935/1994, which regulates Article 236 of the Federal Constitution (which deals with notarial and registry services), had its Article 30 amended, with minor changes, related to the possibility of payment of fees, costs and expenses electronically.

Changes in the Civil Code

The following changes to the Civil Code were made.

• application of the legal regime of real estate developments to the condominium of lots;
• the statute of limitations must observe the same limitation period of the original claim;
• revocation of the provision that prohibited the registration, on the same day, of two mortgages, or a mortgage and another right in rem over the same property, in favour of different people, when the deeds do not indicate the day and time of their issuance;
• possibility of legal entities to hold general meetings by electronic means;
• revocation of Empresa Individual de Responsabilidade Limitada (EIRELI) as a legal entity; and
• possibility of business activity with a virtual address being registered with the address of the individual businessman or one of the partners.

Changes to Law No 13,097/2015

Law No 13,097/2015 has undergone adjustments in aspects related to the effectiveness of legal transactions that have the purpose of establishing, transferring or modifying rights in rem over a certain property, in relation to previous legal acts having the same property as their object.

As well, the Law No 14,382/2022 changed the rules for legal transactions that constitute, transfer or modify rights in rem over a certain property, provided for in Law No 13,097/2015.

In fact, the Law No 14,382/2022 reinforced the principle of concentration, by virtue of which only situations duly registered or annotated in the real estate record file object of the transaction should be enforceable against the purchaser of the property, providing that the issuance of forensic certificates is not necessary to ensure the good faith and diligence of the purchaser.

Changes to the Landholding Regularisation Law

Finally, the Law No 14,382/2022 amends Article 76 of Law No 13,465/2017, with regard to the administrative procedure and registration acts arising from Urban Landholding Regularisation, so that the Electronic Real Estate Registration System (Sistema de Registro Eletrônico de Imóveis – SREI), responsible for the registration and annotation, must do so electronically.

Final Remarks

The Law No 14,382/2022 represents a legal framework for the modernisation and simplification of notarial procedures in the country, with the creation of a single and integrated electronic platform for the practice of notarial acts.

This law involves the implementation of various measures to promote and facilitate legal transactions, especially those of a real estate nature, involving transfer and constitution of rights in rem, real estate development, land subdivision, registration of titles and documents and even extinction of the corporate type “Limited Liability Individual Businessmen” (EIRELI), a corporate type that has no more practical relevance.

Therefore, in view of the aspects above and legal background changes that improve the Brazilian real estate market, the search for new business in the real estate sector has increased, with good opportunities for local and foreign investors, given also the fact that the local currency has depreciated in comparison to other strong currencies, making foreign investment even more attractive in the next growth cycle for the real estate market.