The Impact of Property Segregation on Real Estate Development

Abstract

This study investigates the importance of the property segregation regime (patrimônio de afetação) in real estate development in Brazil, a mechanism designed to ensure greater protection and transparency in the real estate sector, especially following the crisis caused by the ENCOL bankruptcy in 1999. ENCOL's collapse exposed market vulnerabilities and negatively affected homebuyers, highlighting the need for measures to secure real estate investments and protect buyers. In response, the Brazilian government instituted the segregation regime in 2001, separating a specific development’s assets from the developer’s general assets. This study seeks to understand whether property segregation can indeed contribute to the security and success of real estate projects, protecting buyers and enhancing the stability of developments. The objective is to analyze how this legal framework impacts buyer security and if it can provide a solid foundation for financial operations in the sector. Additionally, the research examines market prospects for developers that adopt property segregation, considering the benefits and limitations of this practice for strengthening Brazil’s real estate sector. The study emphasizes property segregation as essential to security in real estate development, benefiting both buyers and developers. Combined with the Special Taxation Regime (RET), this protection facilitates financial management, generates tax savings, and attracts new investments, promoting transparency and confidence in the sector. These mechanisms contribute to a more stable and sustainable real estate market in Brazil.