WHY BUYING YOUR BRAZILIAN PRE CONSTRUCTION HOME IS A SUCKER'S PLOY

Enumerating some first hand accounts on anedoctal basis, for all of you non believers ( this can  be fun, for your first time seekers, and amusing too old salts out there ) . So read at your leisure, hang on to it, and do not call me to correct my spelling or grammar ( I've reviewed it enough for what is worth ) ......

1.There is no quitclaim deed when you buy a new pre construction  unit in a new real estate  development.

All you sign off is a promise to buy a unit at later date. This is as close and as bad as the non legit "contrato de gaveta" with a legit twist. "Contratos de Gaveta" are promissory notes you sign off to acquire something at a latter date, while you make payments on a lay-a-way fashion. If the builder goes under, the seller dies, you are left holding the bag, no apartment, no account of monies paid, no legal recourse. You are left in limbo!!!

2.Why pre-payments do exist.

They were  originally borne out of necessity. They came in vogue during the 60's  and this practice increased in adoption amongst developers-sellers could build their projects without capital reserves, and buyers could afford to purchase their homes on a piecemeal basis. So it became a compromise solution that worked for the Brazilian home buyng reality for some time and still persists nowadays.

3.How prepayments are made

Usually parsed into various form of payments, sometimes to be negotiated between the seller ( Developer ), and buyer ( you ).

Compounded monthly installments parsed through usually a period of three years (it takes two years, under normal circumstances, plus another year to clear the land from the larger sales showroom. ). Atop of that, there are added quarterly, bi-annually, and yearly lump sum payments. 

Bottom line, the Developer-builder wants his 25-40% up front so that they stash OPM ( read other people's money ) and build his lucrative project on your dime. In a way, you are bankrolling the Developer and, given most of them are private entities, there is no transparency as for their finances. 

4.There are plenty scandals on funds malfeseance, in far and recent past.

Proof is no the pudding...  Just Read /google about Encol and Esser building companies. And then, if there is time, how Gafisa ( a publicy held company )  almost fleeced the late Sam Zell (Chicago Real Estate Mogul ) out of his partnership. The most startling fact in Encol and Esser, is that from then on now, Consumer Friendly Rules of Real Estate Development were incorporated, and yet, they blatantly failed to protect the consumer. 

At the time home buyers were fleeced by Encol ( there were no consumer protection measures enacted then ), most had sunk money into their portfolio or properties under construction.

In the specific case of Esser ( who i personally participated in negotiations to represennt a client buying a commercial office floor plate, not being aware of their financial dire straights ), consumer proctections were in place, and still , they manage to swindle the funds guarantor ( Ourinvest ), indirectly damaging consumers through unfinished building projects ( Barra Funda, Rua Augusta ).

5.On rare occasions, Developers would simply take your money, build and run.

Broken covenants, lack of  follow up work. They run out of funds due to building  construction mismanagement, incurr into heavy cost overruns,  and you were left  shit out of luck.  You might take title and delivery, but you will deal, alone, with fixing shoddy construction work the builder/developer left behind.

6.Recent  changes in consumer's protection laws demanded and  mandated that builders/developers had to have capital reserves to have the project go ahead approved.

So a Bank Letter of Credit, a Bank Guarantee on the project's continuity, or a Securitizing Guarantee  would be necessary, unless the builder/developer had their own cash reserves to meet the minium necessary.   Only that some developers going bad  starting to default on Securtizers and Banks altogether, despite protections put into place. Your promise to land an apartment on a lay-a-way payment plan is gone out of the window. .

7.Cost overruns.

Plenty unexperienced builders, and experienced builders too joined the fray, on the riches of high gross profit margins. A lot of soured projects fell on cost overruns.  A lot of short cuts on delivered quality.  Even if your "Memorial de Compra"  ( an outlined of what is to be delivered as promise ) says you are getting common areas finished with this and that,

You are still not covered for poorly engineered structures ( such as the ones in Florida ). And your bought unit still has shody work done in it.  For as long as there are your sink, bathroom, tiling, and painted walls, nothing else is guaranteed.

8.Those Glossy Brochures. Ohh, those brochures.  They look appealing, tantalizing, and they induce  you to a personal state of bliss.  Yet, they have ZERO LEGAL VALUE. No Recourse. They are, well, promises.  In reality, what you see and what you get are not always quite the same. Specially within the realm of the unit itself. See next.

9.Delivered quality..   I've seen my fair share of, this in newly delivered buildings, within newly delivered units,  with cracked walls, duplex staircases that land right in the middle of the parlor ( cutting off valuable space ), out of kilt/alignment  walls, seepages, loose aluminum window frames.   

10.Building codes.

Unit standard codes, and common area codes are often changing, and with that, you will deal with a lot of stuff that defies commnon sense on time tested building do's and do nots.   With that, citing latest trends, you get

a.Itsy bitsy bedrooms ( including master suites ) that can barely fit a built in  closet, let alone some wardrobe. Sorry, your bedrooom footage went out to make up  the footage towards the Gourmet Balcony.

b.Studio apartment units separated themmselves by dry wall ( Hello??? you are supposed to be getting a mortar and brick wall, not this short cut separating wall ).

c.You are getting short changed on cost cutting from the builders ( poorly made window frames, "oh this is Brazil, you don't need a wheather strip tight winddow frame dear" ).

d. Always that useless tiny sized granite countertop, which you know for sure you will be pulling it off, unless there is,  this is a rental, and you do not care about who will live there ), so you install a lame Mickey Mouse standing kitchen cabinet underneath.

e.Uneven concrete base floor . In the day and age of laser aligned flooring, this is a slap in the face of consumers. Warehouse builds get this, you surely won't.  This forces you to spend more money to align your choice of flooring even. 

And never mind hardwood floors, unless you  plan to have your expensive solid wood plankk floor replaced in a short few years.  There is a REASON WHY YOU SEE SO MANY TILED BEDROOMS AND PARLORS, SPECIALLY AMONGST RENTAL UNITS ( YEEEEHHHWWWW ). It ain't Brazilian Climate does not demand wood ( a lame excuse, btw ).

f.Uneven walls.  I have astute buyers who take level bar , and tape measure before signing off on their final nod of approval , before taking delivery on unit.With a beck in call builder's engineer on site to demand for adjustments and corrections. Most of you can't effectively communicate in Portuguese, and there are no English Speaking Staffers to catter you, so this becomes a daunting task. 

g. Your choice of neighbor. Pre construction units do not afford you this luxury. There is not such thing as tenancy make up, or demographics.  Neighbor from hell is next door, your bad luck.  Creepy Wayne, the chiild molester, and Dhoroty the nosy neighbor , are in next door , well too bad..  You can't simply knock doors too meet and greet the Joneses with a pie so you can seize it up the next door Joneses. You stuck with those neighbhors. 

7. About Reputable Builders.

This  claim comes as is total nonsense. There aren't Reputable Builders out there.  There are stable builders, who deliver on a consistent quality basis , and by doing so, they are rewarded by their unit's  asking price.   They usually do not give an inch on negotiating the purchase price. At best, they maneuver the pre  payment plan to fit your spending budget.   You are not getting discounts, unless it is a REO or Fire Sale ( both are same, if you do not know what is REO, dial and ask ).   

8.More about reputable builders....   

They DO NOT SHOWCASE SALES SHOWROOMS!!!!!!    The real good ones have it so good,they simply go back to their loyal client base and notify they have a new project on the block.  Solid builders/ developers do not spen that much in Market or Sales. Locals know where is the good buys, You, an expat, therefore an outsider ( YEs I  may  sound condescending and patronizing, mea culpa, but you remani an outsider ), you know diddle squat. Be content with it.  You need help in separating the wheat from the chaffee. 

So do not go knocking on construction sites and showrooms alone, with an intention the buy!!!! You certainly can visit show rooms, to get a fair idea of what's new out there, valuations, pricing sheets. 

I am sure, at least amongst Americans, you are familiarized with the concept of Gimmicks and C'mon downs. In Brazil, specially amongst large serial building developers, this bag of trickery is used ad nauseum.   Here are a few tell tales....

a. The sales person bears the title, alongside their name , of "consultant or Consultor" in their printed business cards. Fancy title, nonetheless. He/she is not consulting with you to get what you want. They are product pushers, no less.  You are not getting consultancy help at all.

b.The Coffee Bar. C'mon down for a cup of free gourmet coffee.  This is old, and is just an excuse to fleece you.  I get this all of the time, and myself being a Licensed Broker ( in my case, the help them move their inventory, which avoid to at all expenses ). . They want you through the door.

c.Good looking hostesses. Good looking sales girls. This is nothing short of a lure. Eye candy. This work with guilble Brazilian male buyers.  Smart Brazilian Women Buyers do not fall into this trap, and are not willing to accept this, unless the better half beau is bankrolling the purchase!

d.Clowns, free food, baloons, booze, refreshments.Again, nothing screams c'mon down more than this. You see this by a showroom, run away as farther as you can!

e.Ohhhh the mock showroom unit looked so nice.  I have plenty accounts of people who bought something based on what they saw on the showroom. Then you have those wardrobes you could not pass through the door jamb! "Owww it was so nice in the showroomm, we did not see this coming!!!!"

f. The dead ringer I.  This was very common third party sellers moved units for the developer, not so obvious now. Aside from all the hoopla on a new development launch, eye candy women greeters, there are scores of "so called brokers" on the turn, scounced out in the back tent , and out of sight.  By the hundreds at times.  YOU WILL NEVER EVER GET YOUR CHOICE OF A LICENSED BROKER .  Experienced brokers, like myself btw, call this type of environment.... THE ACQUARIUM. You and your anxious sellers, all in the same fish bowl.

g..The dead ringer II Usually you will be greeted by  some poor shmuck, who btw can't speak English, who is there to get the pre-sale and recite the developer's chant ( about the project, the company behind, bla,bla,bla. ). All but uselless  information being fed to entice you to a on the spot buy

9.THE BONUS, WHAT IT IS IN THE PAID PRICE.

I have extensively discoursed on this subject in a previous post. So you will need to search this forum for my version of , "if you want to see how sausages are made in the saugage factory" about unit pricing. Go parse.

There are two important key phrases that define a NEW UNIT X OLD UNIT pricing. It's called REPLACEMENT COST ( THE NEW ONE ) X COMPARATIVE COST ( THE OLD ONE ). In Americanese, Comparative Cost, also known in the trade as Comps, is what the market bears, minus haggling, for what you are about to buy. 

The REPLACEMENT COST IS WHAT I RECOMMEND YOU TO READ EXTENSIVELY, AND TRY TO SORT ANY SENSE TO IT. For a short answer, and for argument's sake, based upon data I hold ( all in data sheets, btw ) , let me say, you are overpaynig for it, unless you need/ want something very specific old units won't cut.

What REPLACEMENT COST REALLY MEANS..it's used in Commercial Real Estatte Buyers as a valuation yardstick measure.  It means, how much it would cost to build a smiliar structure, in any given location, if there were no other options left to deliver residential or commercial condo units .

And in doing so, the builder / developer will Factor on the projected unit sales price,  land acquisition costs, Air Rights Costs, Construction Costs,, Licenses, Built in Profit Margins, Sales Costs. 

You are paying for all of the above,  As a retail buyer, your ability to negotiate your acquisition price is none.  And let me tell you one more thing....

Gone are the days an off the ground project would be sold within a month or week ( another white lie used consciously and unconsciously by on site showroom real estate salespeople ).

Developer's  / Builders are factoring their target sales to reach 30-40% of their built units in any given project to turn a project into the black ( paid for,. profit included ). So the remainder 60-70%  of unsold inventory is to be either rented too meet ongogin expenses on their hol;dings ( condo, taxes ), or as future cash inflows.

Once a 3-10 year window expire, the unsold units are converted back to the company partners, as a deeded asset.

You are paying for all of this !!!!!

10. Remember folks, if you are in a room, and you do not know who the mark is, chances are it's you. You are a fish out of water (with all due respect, so most other expats, other than seasoned ones, who are regulars around here ). You are a king in your domain, back home there is.  Out here, until you take your share of licks, 

you are nothing short of a chump.  It's jungle out there.

The how to, yes, I believe I have it cold.

See ya.

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How do I| know this ????

Ten years on this racket.

I collect and gather a lot of date, parsed into spreadsheets ( basically I know, as recently as up to  2020, of who owns what and where , rolling backk into the turn of the XX century ).