Growing demand for properties at auction and consortium

The economic crisis increases the interest of consumers and investors in consortia and auctions when buying a property.

From January to September of this year, the number of active participants in consortia skyrocketed, surpassing the record level of 9 million consortium members. Of this total, almost 1.5 million are real estate consortiums, with more than 30% growth in sales of new quotas, according to a survey by Abac (Brazilian Association of Consortium Administrators).

For the market, the main factor responsible for this increase is the increase in the Selic rate from 2% to 13.75% in less than a year, which made real estate financing more expensive and requires greater planning from the consumer.

“The consortium is directly related to the difficulty of having credit. Many cannot prove income for financing”, says Tatiana Schuchovsky Reichmann, CEO of Ademicon, which recorded growth of 40% since the Selic left 2%.

Indicated for those who are not in a hurry to buy a property, the consortium is seen as a way to save money to acquire the property.

Under this system, the value of the quota for the property is spread over a predetermined period, and all members of the group contribute by paying the installments over that period.

Periodically, as stipulated in the contract, the administrator provides the participants with the credit, by raffle or bid, until all are served.

“It’s almost like a private pension plan, which can be advanced at any time with a lottery. If you manage to place the portion within the family budget, it doesn’t matter if you will be the first or the last to be contemplated, because the value is updated and the bid can deducted from the credit”, says Tatiana.

“Another attraction is the consortium’s management fee being lower than the Selic. There are those who use the consortium for working capital, selling the letter of credit to finance a more expensive asset”, says Ismael Dias, CEO of Cotafácil.

The main public of real estate consortiums is between 36 and 45 years old and acquires a letter of credit, on average, of R$ 250 thousand.

While the consortium is a middle-class option for real estate financing, auctions are the focus of investors.

“When interest rates were low, there was a lot of speculation in the sector. Now, with interest rates and inflation high, we see investors betting on auctions to buy cash for up to half the market price”, says Patrícia Curvelo, from BidYou.

The properties offered at auctions, in general, are taken over by the banks due to default on the financing. There are also those from businessmen who lost their assets to pay labor debts and those from extrajudicial auctions, which take place by choice of property owners. For this reason, lawyer Leandro Sender recommends paying close attention to the auction notice.

“The best thing is that the property is unoccupied, to avoid having to file a possession action, which has a high cost”, he says.

Although used, properties offered at auction can be in good condition, increasing interest in the sector.

In October of this year, the number of auctions held by the Superbid Exchange increased by 25% compared to the same month in 2019. Compared to the same month in 2020, the increase was 21%. For November this year, the company foresees an increase of 5% in comparison with the previous month.

“The number of newcomers to auctions has increased significantly. Many look at buying the property at auction with a more attractive value to resell or rent the property”, says Andreia Tavares, Director of Real Estate at Superbid Exchange.

Public servant Reinaldo Fernandes Filho, 49, bought an unoccupied apartment in São Gonçalo (RJ) in April for R$93,000. With another BRL 10,000, he paid for the documentation, taxes and a small renovation of the property, which he put up for sale three months ago, for BRL 185,000.

“In 2019, I bought a car for personal use, but it turned out to be profitable on resale. Then, I bought three more cars and sold them at a profit. This year, I wanted to enter the real estate auction, with an expectation of a financial return of at least 50 % profit”, he says.

The plan, he says, is to buy other properties at auction to resell.

Among the precautions to be taken at an auction, Andreia recommends visiting the place, even outside, and maintaining emotional control. “The interested party must not exceed the predicted value, especially since bids cannot be canceled at auctions. To give up on an item that has been auctioned, you will have to pay a fine”, she says.

How to make a good deal

WHEN PURCHASING A CONSORTIUM

1. Look for an administrator of consortia authorized operated by the Central Bank of Brazil at www.bcb.gov.br or at https://abac.org.br/associados

2. Carefully read the terms of the contract to know your rights and obligations

3. Check the credit amount and duration of the group in the contract

4. Check the contribution percentages (management fee and, if any, reserve fund and/or insurance) and other expenses that will be charged

5. Check what the credit correction criteria will be applied by the administrator and the guarantees that you must provide to withdraw the good when contemplated

6. Check the draw and bid contemplation rulesthe form of advance payment of installments and the possibility of opting for a smaller or larger amount of credit before contemplation

7. Confirm what was promised, in advertising or by the seller, is stated in the contract. Disregard verbal promises: all rights and obligations of the consortium member must be established in the contract

8. Demand one of the copies of the accession document and/or copy of the group’s regulations upon signing the contract

IN AUCTIONS OF IMMOBILE

1. Read the notice

• The document must bring all the information about the property. If information is missing, doubt
• Check if the property has debts that must be paid, or if they are all paid off and if the former owner of the property has no legal action discussing legal situations about the legality of the auction, for example
• Pay attention to the conditions of sale, the payment method and the minimum bid amount
• Consider hiring a lawyer to assist with reading

two. Study the market and the auctioneer

Before participating in the auction, check if the auctioneer is duly registered with the municipality’s Board of Trade and how much properties similar to the auction are worth in the same location and characteristics

3. Visit the property

Look at the details, get to know the neighborhood, see if it’s really what you’re looking for. If the property is occupied, try to talk to the current resident to assess possible problems in vacating

4. Check lawsuits and give preference to unoccupied properties

Many auction properties remain occupied because their former owners are fighting the eviction order in court. Often, with injunctions that protect them from eviction. It is necessary to check each case, so that the process does not end up being more time-consuming and costly than necessary

5. Consider extra expenses

In addition to the auction price, you will need to pay taxes, certificates, property registration and the auctioneer’s commission — which is generally 5% of the sale price.

Sources: Abac (Brazilian Association of Consortium Administrators), Superbird Exchange, lawyers Sabrina Marcolli Rui and Leandro Sender