Real Estate Sector Regulation

Government actions, particularly regarding the regulation of real estate activity and the regulation ofcredit policy, can have an impact on the Company´s activities.

Regulations concerning real estate activity

Regulations for real estate activity concern matters such as the obligations of the developer and therestrictions imposed by zoning laws and by environmental protection laws.

Ownership of real estate is governed by the Brazilian Civil Code. For the purpose of providing greater security in the sale of real estate, as well as for the creation, transfer, modification or waiver of rights with respect to property, certain legal formalities are required, such as the requirement to use a public deed, except for cases of a transaction involving the Brazilian government´s Real Estate Finance System ( Sistema Financeiro Imobiliário ), or SFI, and the Brazilian government´s Housing Finance System ( Sistema Financeiro da Habitação ), or SFH, among others.

Real estate development

Development activities are regulated by the Developments Law. This law states the principal obligations of the developer include:

  • securing all of the approvals and authorizations from the relevant agencies required for implementation of the project;
  • registering the development with the relevant real estate registry, which is necessary for selling the individual units;
  • designating in the preliminary documents the timeframe for the developer to complete the project;
  • indicating the registration number of the development in advertising materials and agreements executed with the unit purchasers;
  • supervising the construction of the building, within the timeframe established in the agreement and in accordance with the project approved by the relevant authorities;
  • delivering the finished units to the final owners in accordance with contractual specifications, transferring the ownership of the units sold to the owners and executing the relevant final deeds of sale; and
  • providing for the filing of the construction documentation, specifications and the condominium agreement with the relevant real estate registry.

The principal obligation of the purchaser, in turn, consists of paying an amount equivalent to the allocated proportion of the land area and construction. Construction of the development may be contracted for and paid by either the developer or the final unit purchasers.

Brazilian development law provides for two systems of building a development: construction under contract and construction by management. The construction-under-contract system has two variants: one at a fixed price established prior to the beginning of construction, and the other at a price that is adjusted by indices stipulated in advance by the contracting parties. Under the construction by management system, the buyers of the units under construction are liable for payment of the full cost of the construction, in the form of a pro-ration of the monthly expenditures incurred by the developer or by the builder, and there is no fixed construction price, merely an estimate.

Assets appropriation regime

Pursuant to Law 10,931/04, the developer may submit the real estate development to the segregate estate regime or to the special tax regime (RET), which set forth the developer’s rights and obligations, granting more security to the purchasers of real properties, as well as to the bank financing the works.

Through the segregate estate regime, the lot and the construction works on it, as well as funds allocated to it and all assets and rights related to it, which may be used only in the execution and delivery of such real estate development, are placed in a separate estate from the estate of the real estate developer.

Therefore, the real estate development under the segregate estate regime is only liable for debts and obligations related to the execution of its works and delivery of its finished units to the purchasers, not being associated with any other rights, debts and/or obligations of the developer or other real estate developments.

Since August 2010, the Company has submitted all its launched developments to the segregate estate regime. In addition, the Company uses Specific Purpose Entities (SPEs) created to carry out specific real estate developments, aiming to segregate all rights and obligations in each development of the Company, thus increasing security of the segregate estate and also presenting itself as a more efficient and transparent structure in the cases in which the Company acts in partnership with third parties.

Conditional sale

Law No. 9,514/97 instituted the conditional sale of real estate for the purpose of facilitating real estate financing in general. Under the conditional sale mechanism, the creditor retains ownership of the assets pledged by the debtor as a guarantee. According to Law No. 9,514/97, upon full payment of the debt to the creditor, the conditional sale is automatically cancelled and the debtor gains ownership of the property.