Brazilian Challenge Day 28: Open House

Today, the Brazilian experience involved an apartment sales pitch.

As promised, we attended the open house from the fruit juice postcard we received in Vila Madalena (see Another Strange Marketing Strategy). The strategy grew stranger still. First, the address on the postcard was across town from where we received it. Second, Vila Madalena is a charming neighborhood with cafe’s, cool botecos and trendy boutiques.

Here is the loveliness of the neighborhood where we were headed:

One of the cross streets also had a row of prostitutes displaying their wares. Attractive. So why would people that like to hang out in Vila Madalena want to live here? Strange target market tactic.

When we finally arrived at the address… there was no building. Just kind of a showroom. Where the building will eventually be is a parking lot.

Inside the place was full…

…of real estate agents. Yes, there were more than 30 people in the place and we were the only potential customers. We found out later than the developer didn’t have its own sales team, but the room was filled real estate agents from a variety of companies. It seems that our postcard should have had the name of a broker written on it so when we arrived, we got assigned to the right salesperson. But it didn’t. So either those young ladies working the streets of Vila Madalena were going to get ZERO commission, or the person who hired them paid for nothing, depending on how the deal was struck. Instead of a real building, they had a model of what the building would look like.

And some display boards.

They randomly assigned us a real estate agent. He proceeded to show us two of the tiniest apartment I’ve seen in a long time.

I hadn’t bother to imagine how 64 and 82 square meters might look, but I’ve seen bigger bedrooms on boats. And how much were they going for? The apartments started at R$450 (about US $260,000). Pleeeeaaase do not tell me that Sao Paulo real estate market is not inflated. (By the way, the two apartments in our Oscar Freire building, seconds away from the yummiest gelato in the city, are still on the market. It’s been more than six months, maybe even eight.)

My husband, always a good sport, chatted it up with the agent while I pretended to speak not a single word of Portuguese and took pictures.

So how were these sales folk expecting to sell tiny apartments in a building that didn’t even exist yet? The financing of this program was the most interesting part of the entire experience.

In order to get a mortgage here, one needs to put 30% down. (This is not so unreasonable. In the U.S., it used to be common that you needed 20% down.) This particular developer is apparently trying to attract those buyers who may not have this money up front (who would do that… only every mortgage company during the subprime mortgage phase.) Their deal is that you can now, at this moment, contract for one of the apartments and make payments for the 30% required over the next 30 months WHILE the building is being built. Essentially, if you had nothing to put down, you would make monthly payments of R$4500 (approximately US $2600). Then, at the time of the actual acquisition, you would have satisfied the 30% requirement. Genius, right? The construction is partially financed by the buyer.

The question I asked aloud later in the car was this – what if, along the course of the 30 months, one finds that they cannot, in fact, make these payments? Do they get their money back? (Do you think I can convince my husband to call and find out the answer?? Probably not.) We speculated that no one was going to refund what you had currently invested, but you might be able to sell your position in the apartment building to someone else. And I suppose, if the real estate market were to continue its upward spike, this is a situation that you might make money in, if a contract were to allow this kind of creativity. Or, of course, lose money. I wonder…

Well, it was quite an interesting experience in the Sao Paulo house market, and I must say… … the juice was darn good.

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20 Responses to Brazilian Challenge Day 28: Open House

  1. nina says:

    oh, did they mention about the monthly fees you have to pay on top of everything. Which start out at like 200 and then eventually get to 1000 heais monthly payments (or more). NICE. Apartment living owning is insane. INSANE. Plus after it’s built you have to pay a ton more to buy the apartment, if you didn’t buy it while it was being built. I looked at apartments here, I thought it would be better to leave unattended (well in the hands of a company), if we returned to the US and wanted to rent property out.

    Oh, yeah and that fee you pay is for maintaining the build. People do have the opportunity to steal that money too. So you have to watch everything like a hawk. PLUS the building can be constructed badly and then your just stuck with it (not to mention possibility of money problems, they are using the money from the subprimes to build the building). I don’t really like the idea of pay now, get later in Brazil.

  2. Eri says:

    Comprar na planta em geral significa uma economia de uns 20% no minimo. Mas como qualquer outra compra, você tem que procurar se informar sobre a construtora (quem esta garantindo a obra em caso de falência da construtora, apartamentos garantidos/financiados pela Caixa em geral são seguros), também se informar sobre as taxas que a construtura possa cobrar durante a construção e se a construção tem alvará da prefeitura.
    O melhor é sempre visitar outros apartamentos já prontos da mesma empresa e conversar um pouquinho com os porteiros desses prédios. O porteiro com certeza vai saber se houve qq problema com o prédio após a entrega.


  3. I really want that model building. That playground is tooooo adorable looking! Can you go back and swipe it?

  4. Danielle says:

    One thing I’ve learned in this country is to trust nothing that isn’t finished. Don’t consider anything that someone is planning to do; only consider what is already done, and ready. This building could be a metonymy for that lesson.

    • Totally. It’s also bizarre that the developer isn’t taking responsibility for sales. We’ve seen countless apartments in NYC for sale in new or renovated buildings, and sometimes the building wasn’t all the way finished, but the developer hired a sales team. This removing themselves from the sales process is not only another indication that they might not even have funding, but also distancing themselves from what the final product will be. Crazy!

  5. Ray says:

    I hate this new stupid/greedy trend of tiny apartments in Sao Paulo, it started in the 90’s and I don’t ever want to be a part of it.
    I say go to Higienopolis and buy a large, older apartment in a well built solid building and renovate it to your taste. That’s what we plan to do. 🙂


  6. eastcoastmom says:

    We used to live on Oscar Freire… Small world.

    eastcoastmom in Madrid

  7. Anna says:

    its very common to buy an apartment while the building is being built “na planta”.
    if you look for an honest company and visit their previous buildings you can trust the company. There are bad companies of course but also good ones and you can make a lot of money buying at that stage and selling it when it is build and read to move in. I know a lot of people who do that and it can be a very rewarding investment !

    My mom does that quite often. She likes to buy apartments at the beach at early period and then sell it later on. But she is very careful on which constructors she chooses from.

  8. Alex says:

    Hm, that does look rather small.

    But it’s in Vila Madalena! Space comes at a premium!!!!

    Just kidding. One thing about SP which confuses me is that it’s a geographically gigantic city with quite a lot of room to build, and lots of good areas so I don’t really get why the prices are so high.

    On the other hand, I understand why Rio is so expensive. There is not much space and the good neighborhoods are far and few in between, therefore supply and demand comes into play.

    Brazil is just getting expensive! That’s the only comfort I can offer.


  9. How much a person ends up paying for something is, to a large part, influenced by said person’s buying skills. If one can’t do the research and follow up on the purchase then a “premium” will be charged by the market for those ineptitudes: getting the shaft and it’s resulting costs ( legal fees for an attorney), or paying more for basically the same item when a similar option was available for considerably less, at an equal measure of risk.
    It’s the same all over.

    Your husband is a hero for going to these things. He seems like a person with a good sense of humor 🙂

    • He does – especially since we are not in the market to buy an apartment at all and this was just for my own blog research.

      You make an excellent point. There is a premium paid for “ignorance” as well as a lack on capital in all free markets.

  10. Jenner says:

    Wow! I’m a reader of your blog and, guess what?, also a real estate developer.
    All, and I have to stress all, buildings are sold up front, 20% below the estimated price when it will be finished. Also, the buyer do not pay interests before the building is finished. That’s why people buy before even the start of the construction.
    Have you noticed the tens of thousands of high rises in São Paulo? Of course you did and all were financed this way by the buyers and developers. Only subsidized buildings are financed other way. And banks only get into the business after the construction.
    How safe is this for the buyer? Basically, the developers live on trust. If you don’t see in São Paulo unfinished buildings, it’s because developers like to keep their businesses alive!
    You don’t see the developer’s sales team because we have by law to hire licensed realtors and they have their own teams.
    And if you give up the deal before you get your apartment, the developer refunds you, not immediately, 70% of what you have paid. Of course you have the option of selling your deal to someone else. In this case we charge 3% of the debt as cession fee.
    I was sad to see the sales were not successful at the event.
    I hope you liked the explanation! Tchau!

    • Awesome! An insider! Thanks so much for the explanation! So very interesting, especially when you compare it to the U.S.
      Yes, once you start seeing half-finished building, you should be scared. Unfortunately, half-finished, abandoned projects like there were in the U.S. is a lagging indicator, not a leading indicator, and it means the industry is already in a deep, dark hole.
      Thanks again for the great information.

  11. Estou lendo seu blog já algumas horas, e estou amando, primeiro que eu treino meu inglês e segundo me divirto com sua experiência aqui no Brasil, passei 7 meses em Miami, estava conseguindo me virar bem com inglês que estava aprendendo na escola lá, acho que se eu estivesse lá já teria com um nível bem avançado, enfim parabéns pelo blog, e acho muito interessante você passar essa experiência para o mundo, pois já vi que alguns britânicos estão acompanhando o blog, muito legal mesmo.

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