Introduction

Two years on from the beginning of the pandemic, the real estate industry in Brazil is still absorbing and reflecting on the impacts and changes caused by COVID-19 and is adapting to the new realities that have been arising for all segments of this market.

The expectation of several market players is that 2022, like 2021, will continue to be a year of business growth, demonstrating the great adaptability of the real estate market.

The year of 2021 brought positive results for the real estate residential market in Brazil, given the growth in the supply of credit, the sales levels of new and used real estate and the number of launches of real estate developments.

This projects good trends for the real estate market in 2022, bringing an estimate of even greater growth to the national economy, with the creation of new professional opportunities and increased business generation.

It is worth noting the resilience of the Brazilian real estate market given the difficulties of the pandemic. In this scenario of uncertainties, the Brazilian real estate market has innovated with proposals that aim to adapt the market to the new post-pandemic reality, namely:

• properties that include an office, given the hybrid work model implemented by several companies;
• a larger living area;
• metaverse properties, with the union of the physical and virtual world;
• buildings use conversion (eg, commercial units into residential, hotel units to loft/apartments, shopping malls into hospitals/medical centres, etc);
• approval of zoning law bills aiming to revitalise degraded and abandoned areas in large urban centres, among others.

Notably, some strategic points must be carefully analysed by real estate brokers and real estate agents. While 2022 could be another very promising year, it also carries challenges in the economy, as well as in health and in politics, for example the Russia-Ukraine war and the 2022 Brazilian general election.

Thus, the vision indicated by agents of the real estate market when analysing the projections of the sector demonstrates an expectation that economic growth in 2022 will tend to be as good as it was in 2021, especially if the federal government adopts and implements certain legislative measures with the National Congress that could lead to an economic recovery. Such a recovery would be very welcome after the recessionary period caused by the impacts of the pandemic, also leading to growth in the construction segment, which generates a significant number of jobs in the country.

Among the measures mentioned above that would help maintain the upturn, depending on the approval of National Congress, are the approval of administrative reform for civil servants; and tax reform, which would lead to greater rationality in the system of taxes levied in Brazil. In short, these reforms seek better productivity, reduction of unnecessary costs, greater rationality and the organisation of taxes collected by public authorities.

Despite transactions involving new real estate having increased 12.8% in 2021, the continued growth of the real estate sector is particularly important because Brazil currently has a housing deficit of about eight million dwellings. This deficit is expected to grow, reaching twelve million dwellings by 2030.

Since 2020, the Brazilian real estate market has improved significantly, overcoming the economic downturn notably in the residential sector, possibly leading to a novel cycle of new projects and expansion in the real estate market, which is expected to endure and match the economic development of other areas of the country.

The positive factor that has been making the expansion of the Brazilian real estate market possible has been, and continues to be, the amount of the national interest rate index, the so-called “Selic rate”, which is currently at 10.75% per year. Even though it has increased considerably since 2021, this movement has largely caused the reallocation of investments from financial assets to real estate ones, especially residential real estate, and continues to contribute to the development of the real estate market.

Below, we present recent legislative innovations of great importance, which will certainly impact the real estate market in 2022 and following years.

Acquisition of Farmland by Foreign Capital

The National Congress initiated a Process of Bill, which proposes, 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 for 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 non-government organisations (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 that will certainly contribute to the desired rise in investment in the Brazilian economy and agribusiness, such as 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.

Federal Real Estate Funds – Project “Incorpora Brasil”

The project “Incorpora Brasil! – Federal Real Estate Funds”, originated with Decree No 14,490/21, regulates the market’s survey in order to obtain subsidies to assist in the structuring of Real Estate Investment Funds with Union properties.

The Ministry of Economics started the mentioned market survey process for the creation of federal real estate funds. The plan to create quotas within a fund increases the liquidity of large federal properties, which would not have the same result if they were sold individually.

The goal is to create funds with a similar destination, such as development funds and logistics funds. From then on, large areas can be incorporated to create new neighbourhoods or to create logistics warehouses.

The Union has a real estate portfolio of approximately 750,000 properties valued at approximately BRL1.3 trillion (book value). Many of them are abandoned, depredated or badly used, and the sale to the private market will not only give them a better destination, but will also encourage the generation of employment, income and Brazilian real estate development.

Trends For the Next Months

Legal landmark on guarantees

Presented on 25 November 2021, the Process of Bill No 4,188/21 creates a specialised warranty management service, the objective 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 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 economy minister 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 Valorisation 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 to contract 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.

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 at 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 the use of guarantees offered 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 contributing to more attractive interest rates and increasing competition.       

Provisional Measure No 1.085/2021 and the upgrade of public registries

In order to modernise and simplify the procedures related to public records of legal acts and businesses, it was published the Provisional Measure No 1,085 on 28 December 2021 in the Federal Official Gazette, which intends to virtualise the services of registry offices throughout Brazil, making them faster and more accessible, notably the Real Estate Registry, Registry of Deeds and Documents, the Civil Registry of Legal Entities and the Civil Registry of Individuals.

The Provisional Measure 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)

SERP facilitates the modernisation and virtualisation of registry acts in Brazil and centralises, 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 include the following.

• Extinction of segregate estate.
• Role and enforceability of documents to be presented by the developer.
• Deadline for analysis and/or registration of real estate development memorials; appointment of a commission of representatives of the unit purchaser; 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.
• Revocation of the possibility of irrevocability of contracts for the sale of standalone units and the right of compulsory award by the purchaser.
• Certificate clarifying civil or criminal lawsuit may be replaced by the history of the procedure.

Changes in the Public Registries Law

On Article 11, the Provisional Measure brings 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 microfilming and registration of new documents.

Changes in the Urban Ground Division Law

Law No 6,766/1979 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 implementation of Electronic System of Public Registries (SERP).

Changes in the Civil Code

• 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 EIRELI as a legal entity;
• 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.

The Provisional Measure also 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 Provisional Measure 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 Provisional Measure 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, in Portuguese (Sistema de Registro Eletrônico de Imóveis ‒ SREI), responsible for the registration and annotation, must do so electronically.

Final Remarks

The Provisional Measure 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.

Implementation of various measures to promote and facilitate legal transactions, especially those of 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”, in Portuguese (Empresa Individual de Responsabilidade Limitada – EIRELI), a corporate type that had no more practical relevance.

It should be noted that despite producing immediate legal effects, the Provisional Measure is subject to the National Congress's appreciation within 120 days from the resumption of activities by the Legislative Power, for its definitive conversion into an ordinary law. In this sense, it is possible – and likely – that it will still undergo profound changes in its wording or even that it will be rejected and archived.

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 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.