September 13, 2013 6:51 pm

Brazil property: buyers target homes in Rio’s ‘pacified’ favelas

A favela on the slopes near Corcovado in Rio de Janeiro©Getty

A favela on the slopes near Corcovado in Rio de Janeiro

On a hill overlooking the golden beaches of Ipanema in the south of Rio de Janeiro, a new community is developing. Local artists and architects come here alongside expat property developers and hotel owners to buy properties with spectacular ocean views. A sushi bar has recently opened and a boutique hotel is under construction.

This is Vidigal, formerly one of Rio’s most dangerous slums, or favelas. In December 2011 it became the latest area to benefit from “pacification”, the Brazilian government’s programme which aims to clean up the city before next year’s World Cup and the 2016 Olympics. Many of the drug traffickers previously in charge of the slums were jailed and replaced with a round-the-clock police presence.

Secovi Rio, which represents Rio’s estate agents, estimates that in the 72 hours after police took control of the first three favelas, including Cidade de Deus on which the 2002 film City of God was based, property prices there jumped by 50 per cent.

Since Vidigal’s pacification, it has become something of an emblem for the city’s fast-moving real estate landscape. Gabriel Leveau, of local agency Rio Exclusive, says that price rises in the favelas have been exaggerated but still estimates they are now about 40 per cent higher than they were pre-pacification. A typical purchase might be about $15,000 for a concrete studio, $24,000 for a two-bedroom apartment, or $43,000 for a three-bedroom one. However, some of the most desirable favela properties can sell for $100,000. Most properties are sold privately, via community noticeboards. Rental data are hard to come by but it is estimated that property rentals have tripled in recent years.

“It has become fashionable to live in Vidigal,” says Leonardo Schneider, Secovi Rio’s vice-president. “There is some controversy, as the original poorer communities are gradually moving elsewhere, but there is no doubt that it has become popular with investors and owner-occupiers.”

Some residents argue that they feel safer in favelas than in non-pacified areas because of the police presence. For prospective buyers, the biggest issue is no longer gang-related crime but ownership disputes. Andreas Wieland, a local resident, recently won a dispute over his ownership of the popular Alto Vidigal nightclub, which he bought four years ago for $10,000. He has since, he claims, been offered $300,000 to sell it.

The benefits of pacification, including security, proper electrics, water supply and banks, have trickled down to neighbouring communities too, according to Gustavo Monteiro of Secovi Rio. “In Botafogo, where the very first favela [Santa Marta] was pacified in 2008, the price of two-bedroom apartments rose by 139.6 per cent over four years. Appreciation during the four years previously was just 33.3 per cent.”

Property price growth in Rio as a whole has averaged 23 per cent annually over the past five years according to the FIPE ZAP index, although it has recently slowed. In Leblon and Ipanema, the two most upmarket districts close to the beach, where penthouse apartments in traditional high-rise blocks are favoured by the Brazilian elite and where the actress Monica Bellucci is rumoured to have bought a property, prices have risen from about R$8,000 ($3,440) per sq metre five years ago, to about R$25,000, according to James Lomas of local agent Indigo.

In Porto Meraviglia, the old port where Donald Trump is building office blocks worth $2.6bn, a long-awaited urban regeneration project has pushed up residential prices to the point that some developers say is already too expensive. “Rio as a whole is still attractive to investors,” says Lomas, “but compared to a few years ago it is expensive.”

For the investor, then, favelas and the suburbs are becoming more appealing. Ricardo Ranauro, chief executive of developer Calper, says it is hard for developers to buy land in favelas themselves because properties are sold piecemeal, but there are often good opportunities nearby. Calper has purchased a large plot of land at the foot of a pacified favela in the southwest of the city, near Barra, where the Olympic Park is being built.

A ‘Frames’ property in Barra

A ‘Frames’ property in Barra, where prices for apartments still available start from R$1.2m

The advent of the Olympics, says Ranauro, has led to vastly improved transport systems, notably the BRT (Bus Rapid Transit). A new service has cut travel times from the city centre to Barra by half. Properties here have proved very popular. Calper last year launched Frames, which will be used as the Olympics media village before buyers take ownership at the end of 2016. The company sold 500 out of 780 units within a week, largely to Brazilians. Some flats are still available, priced from R$1.2m.

Given the high level of interest from the growing Brazilian middle class, it can be hard for overseas investors to get a bite of the cherry, hence the fascination with the favelas and areas beyond Rio such as oil hotspot Macae, where British agent Savills has recently launched the Nexus development, at least 10 per cent of which has been sold to US and European buyers.

Other hotspots include Rocinha, Rio’s largest favela, where a new library has opened. However, James Lomas advises looking beyond the headlines. “Rocinha doesn’t have Vidigal’s view and is still pretty edgy. I think the better option is Cantagalo favela because it has great sea views and is in the middle of Ipanema.”

The safest investments are still in the well-established Ipanema and Leblon neighbourhoods, Lomas adds, particularly given Brazil’s recent currency volatility and slowing GDP growth. While yields have fallen to about six per cent, short-term lets can make up for it. “I’ve just rented a penthouse in Leblon for a month during the World Cup for a year’s worth of rent,” he says. “Properties here are limited because of the geographical constraints of the mountains and sea. They will always be in demand.”

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Buying guide

● International buyers can purchase freely in Brazil but require a Government tax number (a CPF)

● It is important to establish that favela properties have a clear title. Prospective buyers can check at the local community association

● The Brazilian Forum for Public Security estimates that murder rates in pacified areas have dropped by 80 per cent, although it notes there has been a rise in lesser crimes

What you can buy for ...

£100,000 Several three-bedroom concrete houses in Vidigal

£500,000 A two-bedroom apartment close to the Ipanema beach

£1m A family townhouse in Copacabana in need of modernisation

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