The 4 Best Real Estate Investments for 2010

Next year is going to be the most exciting one real estate investors have seen in a decade. I’ve got my eye on four spots, in particular – diverse opportunities around the globe, each of which represents an excellent value play.

First up, Brazil. I’ll show you a way to capitalize on that nation’s continuing boom, particularly along the Northeast coast. That region boasts some of the world’s most glorious beaches. With big infrastructure projects on the horizon, it’s an area where the already-increasing property prices are going to spike in the months to come.

Back in 2007, I wrote of Brazil’s Northeast: “Until I discovered this region, I had become resigned to the thought that cheap and relatively accessible beachfront was a thing of the past… As far as I’m concerned, Forteleza is the best beachfront buy on the planet right now. An opportunity like this doesn’t happen often. When it does, you need to be ready to move…and to move fast.”

Those who did move fast have seen the value of their investments increase by 30% to 40%, sometimes more. And the good news is: The best is yet to come. Since I made that prediction two years ago, Brazil has been chosen to host the Soccer World Cup in 2014 and the Olympic Games in 2016.

News outlets recently reported that Brazil is sitting on 12 billion barrels of oil – this in a nation that was already energy independent before this discovery. Credit-rating agencies have upgraded Brazil to “investment grade.” And Brazil has led Latin America’s recovery, with a projected 5% growth next year. As I write, Brazil’s stock market, the BOVESPA, is up 81% for the year-to-date.

The best opportunities still remain in this nation’s Northeast – in Fortaleza and along the surrounding coast. Last year, Fortaleza was Brazil’s #1 domestic tourism destination. The city hosted 3 million Brazilian tourists and 250,000 foreign tourists. In fact, it has been number one for three out of the last four years. This is where Brazil’s wealthy come to relax on the beach.

Beach in Northern Brazil

Right now, there’s a shortage of hotel rooms and short-term rentals. Developable land is limited. And that spells opportunity for investors.

Brazil is a middle-class country today. This fact, combined with the incoming tide of foreign investment, would be enough for Fortaleza to make my list of top investment destinations. But there are two other major driving forces at play, which make this country an even more impressive bet.

First is the “World Cup Effect.” The big buzz in Fortaleza (and the surrounding areas) is the huge investment in tourism and infrastructure on the horizon. The government is spending 9.8 billion reais ($5.5 billion) in Fortaleza in the lead up to the 2014 soccer World Cup. Infrastructure projects will take up 63.3% of this spending. In June this year, Fortaleza’s governor released a list of projects that will be delivered for the 2014 games.

They include 850 million reais to be spent on tourism projects – gentrification of urban areas and the installation of attractions like the state aquarium. And large amounts will also go toward improved Internet access, better equipment for the police, hospital upgrades, and so on.

Transport infrastructure, with a 6 billion reais spend, is the big winner. The government is committed to projects that will encourage and facilitate the economic development of the region.

So the Fortaleza area is going to see a major upgrade in road (there will be a new ring road), rail (a metro system), bridge, port, and airport infrastructure. This will make certain areas more accessible and desirable, which will, in turn, drive up real estate prices.

The second important force at play is called Minha Casa, Minha Vida – My House, My Life. This government program has the mandate to make home ownership affordable to Brazil’s lower and middle classes. The My House, My Life program has 60 billion reais ($33.7 billion) in the kitty. The program has helped one million Brazilians become homeowners in 2009. A similar impact is expected in 2010. That’s a lot of new demand.

The program operates through a system of subsidies with Caixa Economica Federal, (Brazil’s government-owned savings and mortgage bank) at the heart. Developers of qualifying projects receive a subsidy and a tax break. In return for this supply-side incentive, they agree to offer units for sale at an agreed-upon and competitive rate. The government subsidy varies according to the applicant’s income. Earn up to three times the minimum wage and you can own a home worth up to 50,000 reais by making payments equal to just 10% of your income. Earn three to six times the minimum wage and you can buy a home costing up to 130,000 reais. This is the bracket where I expect to see the most activity, growth, and further upward mobility. And you can profit from that in several ways.

A Beach in Northeastern Brazil

First, there’s already a shortage of quality office space in Fortaleza. All this economic activity is going to accentuate this problem. To profit from Fortaleza’s development and growth, here’s what you need to do:

Buy office space in the Aldeota area.

Buy small units preconstruction in the boardwalk area. These will be perfect for short-terms rental. There are few remaining developable sites in this area.

In addition, buy preconstruction condos targeted at the local market in areas along the planned metro line. Look, in particular, to the area around the stadium.

Check in tomorrow, when I’ll tell about three other hot real estate locations for 2010…


Ronan McMahon
for The Daily Reckoning

The Daily Reckoning