Foreign Investment in Brazil Faces Future Regulation

The second home property boom along Brazil’s north eastern coast was dented last week as the Brazilian government made clear its intention to tighten restrictions on foreign land ownership in order to maintain domestic control over the country’s resources.

Foreign buyers have flocked to Brazil in recent months, keen to take advantage of massive infrastructural investment and skyrocketing tourist figures. In particular, fertile farm land and second homes along the Natal coast have been the top draws, with many buyers wriggling around Brazilian purchasing restrictions for foreign individuals and companies by using Brazilian firms as a front. This practice is set to be reigned in, according to Rolf Hackbart, president of Incra, the government agency in charge of land reform and property titles: “This is not a question of xenophobia, but every country needs to be the owner of its territory.” President Luiz Inacio Lula da Silva himself made a clear reference to the situation in May of this year: “We need to be careful not to allow people from other countries to buy all the land in Brazil to produce sugar cane.”

Foreign investment is clearly doing great things for Brazil’s economy and in particular coastal areas such as Natal and Bahia are experiencing the effects of this. The local town population of Luis Eduardo Magalhaes has grown from 18,000 registered inhabitants in 2000 to 44,000. There are more than 20 foreigners living and working in the area and if you include the people who are not residents, the number goes up to 50. The number of new cars on the streets are a clear indicator say locals of greater prosperity. Town Mayor Oziel Oliveira believes this progress to be nothing but positive. “In the last five years the value of the land in this area of production has gone up 300% and for us this has had a very important wider impact, he says. This was land that was practically all cerrado [savannah or grassland] which is now being occupied and has brought an economic benefit for us all.”

So pleased is the Mayor with the results of investment to date, that his next goal is to attract funds from the Chinese who, he hopes, will back the construction of a railway to the coast.

Stressing that the new measures would not affect foreigners who had already purchased land or property, Hackbart also underlined the importance of fair and reasonable foreign investment, bemoaning the reality of foreigners buying the ‘best’ land with cash and so driving prices up, subsequently increasing the government’s cost to redistribute land to the poor.

The new rules are likely to impose the same restrictions already existing for foreign companies purchasing land directly, who are currently allowed to buy 100 MEIs, a unit of land that varies hugely in size from one municipality to another, from 5 hectares (12.35 acres) in Salvador to 70 hectares (173 acres) in Amapa.