Change in Law to Trigger Surge of Investment in Brazilian Land, According to Reuters

By Gustavo Bonato and Lisandra Paraguassu

SAO PAULO – The impending removal of restrictions on foreign land ownership in Brazil is anticipated to spur investments, primarily from large funds seeking long-term returns, and to revitalize a stagnant real estate market.

In 2010, the government of President Luiz Inacio Lula da Silva caught investors off guard when it halted foreign purchases of significant agricultural land, citing concerns over potential acquisitions by Chinese investors that could compromise national sovereignty.

Now, with the interim administration of President Michel Temer following the impeachment of Lula’s chosen successor, Dilma Rousseff, there is optimism that renewed foreign investment in farmland will invigorate the struggling economy.

"Many investors are poised to act," said Jose Vicente Ferraz, director of Informa Economics FNP. "We expect that within a few months post-legislation changes, significant investments will begin."

A high-level government source indicated plans to relax farmland ownership regulations as part of an upcoming package of measures. These will include criteria aimed at preventing excessive speculation in farmland.

Since the 2010 restrictions, foreign investors have been required to partner with Brazilian firms, often taking minority stakes in land investments. "Some funds and families are hesitant to enter partnerships. They are waiting for the legislative changes," Ferraz noted.

Investors globally are keen to acquire undeveloped land to transform it into productive agricultural areas, presenting opportunities for superior profits compared to anticipated land value appreciation.

Brazil is a leading exporter of sugar, coffee, orange juice, beef, and poultry, while also being a key player in soybean and corn production. To meet the rising food demand from the growing global population, Brazil needs to increase its agricultural land.

With uncertainties in major economies experiencing negative interest rates and slow growth, asset management funds are eager to find more secure investment options, according to Julio Piza, CEO of a land management firm. "Pension funds, for instance, are focused on maintaining future value and are looking towards long-term investments like land," he explained.

Industries that will benefit most from the reopening of foreign investments into land include timber and pulp and paper, which require substantial capital for long-term projects that have been scarce since 2010. Elizabeth Carvalhaes, executive president of the Brazilian Timber Industry Association, emphasized the need for a free market to support these large-scale operations, noting the misconception that national companies may have distorted market valuations.

The recent depreciation of Brazil’s real against the dollar, coupled with a tight credit environment, is expected to facilitate land sales to foreign investors, analysts suggest.

The Matopiba region, which encompasses the thriving grain belt of northeastern states—Maranhao, Tocantins, Piaui, and Bahia—is likely to attract significant investment. Fabio Silveira, associate director at MacroSector consultants, highlighted that new infrastructure projects, like the Norte-Sul railroad extension and a new grains terminal in Sao Luis, Maranhao, will foster investment in that area. "This region is critical for current investment in Brazil, and a considerable portion may come from abroad," he said.