Real Estate Development Funds are considered a subcategory of Real Estate Investment Funds – the equivalent of REITs (Real Estate Investment Trusts) – that focus exclusively on constructing real estate assets across various segments. These properties can then be marketed for either sale or lease. This is one way to invest in the early stages of real estate development, allowing participation in the financial returns of residential development, for example, without needing to purchase the physical property or invest large amounts. Additionally, investors benefit from the expertise of a developer and management company to oversee the project. Read on to learn more about this type of investment.

What Are Real Estate Development Funds?

This type of investment functions like a residential condominium designed for investors. In essence, a group of individuals pool their resources to be applied toward a specific construction or project in the real estate market, whether residential, commercial, industrial, or office-related.

This type of investment functions like a residential condominium designed for investors. In essence, a group of individuals pool their resources to be applied toward a specific construction or project in the real estate market, whether residential, commercial, industrial, or office-related.
Once the property is complete, it can be listed for sale or lease. Regardless of the type of transaction, the proceeds generated by the project are distributed among the investors. This could be through the property’s sale value (or properties) or the monthly rental income. The earnings are then distributed among the fund’s investors according to the amount invested by each individual.

How to Invest in Real Estate Development Funds?

Unlike investing in stocks on the stock exchange, Real Estate Development Funds require the involvement of a fund manager with expertise in the real estate market and REIT management. The manager is responsible for overseeing the financial resources invested, guiding the selection of land, property, or construction projects, and developing a strategy for the project’s development, sale, or lease. This process takes into account the potential returns, risks, and liquidity of the assets, as outlined in the fund’s regulations.

How to Report Real Estate Funds on Taxes in Brazil?

To begin, it’s essential to have detailed records, including the income statement and transaction history for each month of the previous year. These reports are typically provided by the fund administrator.

Step 1: Tax-Exempt Income

Under the “Tax-Exempt and Non-Taxable Income” section, report the income earned from real estate funds. At this stage, include the fund administrator’s details.

Step 2: REIT Transactions

If you traded REIT shares during the year, fill out the “Variable Income” section under “Real Estate Investment Fund Transactions.” Here, you must report net profit or loss from sales.

It’s important to note that only the fund’s distributions are tax-exempt. If you sell your fund shares and generate capital gains, you must report these gains in another section and pay the applicable income tax, if required.

Step 3: Declaring REITs

Access the “Assets and Rights” section and navigate to Group: 07 – Funds and Code: 03 – Real Estate Investment Funds (REITs). In this section, include the fund’s name, CNPJ (Corporate Tax ID), share value, and brokerage name. All this information is available in the income report provided by the fund manager.