Real Estate Investing

The Advantages and Disadvantages of Investing in South American Real Estate

Brazilian coastline properties

Real estate enthusiasts can’t afford to ignore the South American property investment trend, since it is really a growing sector. Despite some common adversities of investing in real estate, like soaring fees and market risk, the industry is still considered one of the most profitable these days.  And with a few American PropTech companies accepting Bitcoin as payments for home purchases, the horizons of real estate investing have indeed widened in the country and the world.

Nevertheless, one cannot turn a blind eye to the many downfalls real estate investing holds out, especially when it comes to financing in the developing nations of South America.

Let me introduce myself. I am Ofir Bar, an angel investor in real estate and startup technologies. This article will explore the advantages and possible disadvantages of investing in South American properties, to help young and veteran investors as one make well-informed decisions.

Advantages of South American Realty Investing

Aerial view of a city in South America
  1. Demand for scenic beauty

South America has beautiful tropical beaches to lure foreign investors. With its warm weather enjoyed by the citizens all year round, the region seems more attractive for real estate investment, which means that property value is always on the rise. Current events such as global crises or even the pandemic will never affect the beautiful landscape.

  1. Rich culture with dynamic adventure activities

The country offers rich culture to outsiders and other adventure activities and experiences. This gives a different perspective of life that attracts not just tourists but excited investors too.

  1. Relatively economical lifestyle

Even though the region’s economy is majorly based on the people’s habits of overabundance, South America provides a relatively lower cost of living, reduced rents, and affordable medical facilities to foreign investors, making it a favorable country for real estate investment. And considering the fact that Forbes declared Brazil as the overall “champ for currency discounts,” it would be unwise for buyers to ignore investing here.

  1. Protection to foreign investors

One of the main reasons behind South American real estate investment’s expansion is because the countries provides the same protection to its foreign investors as their own citizens. This is an institutional approach to encourage foreign money into the real estate market, and investors should definitely take advantage of it.

Now that you know some of the merits of investing in the continent’s realty, let’s see the flip side of the coin.

Rio De Janeiro city center

Disadvantages of South American Realty Investing

  1. Complex legal processes

The legal processes for real estate investing in South America are rather complex, compelling investors to take careful notes of the sale’s legality and trustworthiness of the seller.  South American bureaucracy is notorious for being slow and complex.

Moreover, in many parts of a country like Brazil, processes like taxes and exchange controls are very confusing, especially when the government official sitting in front of you knows not a word in English, which can be overwhelming for foreign investors.

  1. Inconsistent tax laws

In South America, the tax laws change invariably based on the owner and their income, the property, etc., leading to significant fluctuations in the tax rate, right from 0.3% to 3.3%. It is hard to follow, and you always have the suspicion that someone is trying to cheat you, because it is not uncommon to fall into the hands of a crooked government official.

  1. Exorbitant transaction costs

South American real estate has transactional costs that generally include legal fees, brokerage fees, and appraisal costs. With every property sale, the buyer has to give a large sum of money to the government, leaving him stuck with a property of which 10% of the value (in the optimistic case) is already lost to transaction costs.

  1. Lower returns 

As per studies, returns on real estate investments in South America have been less than the inflation rate, making such expenditures known for offering lower returns. Thus, real estate investments pose an unresolved risk for the middle class.

Bottom Line

No investment is entirely beneficial or without any pitfalls, and one must be aware of both sides of the coin.

Addressing the gnawing dilemma of whether to rely more on the benefits or the drawbacks of investing in South American realty, I, Ofir Bar, like to advise novice investors not to get carried away and motivate them to weigh the upsides and downsides of property investment carefully.