Latam Research - São Paulo's Plano Diretor
In 2014 São Paulo published its “Plano Diretor” (masterplan) which was a comprehensive urban planning initiative aimed at addressing various issues related to urban growth, transportation, housing, and social inequality in the city. The main objectives and accomplishments of the Plano Diretor included a push towards transit-oriented development, mixed-use development, and affordable housing, while reducing parking and thus traffic congestion. By all measures the plan was successful, but the revised plan, proposed in 2023, and now finalized in 2024, improves upon virtually all aspects of the legislation, and has made Paladin’s thesis for residential development in São Paulo even more compelling.
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Transit-Oriented Development (TOD)
The original plan encouraged higher-density development along public transport axes (known as "eixos") by allowing developers to purchase air rights and increase the floor-area ratio (FAR), thus adding more buildable area. This was intended to reduce car dependency, alleviate traffic congestion, and promote public transportation. While the rest of the city is limited to a residential FAR of 2x the lot size, in the eixos, FAR could reach up to 4x.
The 2024 revision expands these eixos from a 400-meter radius around metro stations (with a full inclusion within 600 meters) to a 700-meter radius. The perpendicular reach from transportation corridors (metro, train, and major bus lines) has been extended from 150 meters to 400 meters. These changes increase potential densification areas by 83.5 km², representing a 158% increase over the 2014 boundaries.
Practical implication: certain neighborhoods, such as Paraiso, are now in play for density
bonuses and are high priorities for land acquisition, as land is in the process of re-pricing.
Mixed-Use Development:
The plan promotes mixed-use developments to ensure all neighborhoods have access to essential services and infrastructure, fostering a more inclusive city. FAR incentives were introduced for including street-level retail ("façada ativa") and income-generating non-residential (NR) components. By adding these features, FAR could be increased from 4x to 5.6x. Projects that include pedestrian walkways through the property also receive discounts on air rights. The 2024 plan improves flexibility by addressing issues in the original version. NR units were often sold as residential properties with separate entrances and amenities, which enabled them to function as hotels or rental apartments, missing the intended office-space purpose. Going forward, NR units must be strictly for office use, and enforcement will ensure compliance. Additionally, retail placement can now be concentrated along main avenues, rather than being dispersed across all adjoining streets.
Practical Implication: The flexibility in retail placement will better serve the intended
purpose, and stricter enforcement of NR spaces will close a common loophole.
Affordable Housing
The original plan introduced Zones of Special Social Interest (ZEIS) to encourage affordable housing (ERP) for families earning up to 10 minimum wages (around US$31,000/year), integrating low-income populations into the urban fabric and reducing informal settlements. Since 2014, ERP project numbers have surged, while middle- and upper-income developments (ERM) have slowed.
Under the 2014 plan, projects exceeding 20,000 m² of sellable area were required to include a percentage of affordable units. The 2024 revision allows affordable housing incentives for projects of any size. Developers can earn FAR bonuses for including affordable units for families earning up to 6 minimum wages (US$19,000/year), adding up to 2x FAR, with an additional 1x FAR for those earning up to 10 minimum wages. With the combined incentives for mixed-use development (FAR 5.6x) and affordable housing (FAR 3x), developers can now achieve a FAR of up to 8.6x. Units can also be sold to investors who rent to qualified families, broadening the buyer pool. As you can see below, the number of projects (left) and units (right) have exploded for the ERP segment (red) since 2014, while decreasing for middle to upper-income homes (ERM, blue).
Additionally, under the revised plan, affordable units can now be sold to investors, provided they rent them to families within the specified income thresholds, further expanding the pool of potential buyers.
Practical Implication: Developers are now highly incentivized to create mixed-income
projects with affordable units, which can increase FAR by an additional 3x.
Parking
The 2014 Plano Diretor reduced parking requirements, changing the regulation from one spot per residential unit or 35 m² of commercial space to one spot per 75 m². The 2024 revision goes further by eliminating minimum parking requirements altogether. If a project includes no parking, it can receive an additional 0.4x FAR bonus. This means that, by utilizing all the available bonuses for mixed-use, affordable housing, and eliminating parking, a project can reach a maximum FAR of 9.0x.
Practical Implication: Eliminating parking requirements can reduce construction timelines
by 8–10 months and cut hard costs by up to 30%, boosting project returns. Developers are
likely to include only the minimum parking necessary for market demand, especially in transit-
oriented developments.
Conclusion
São Paulo's revised Plano Diretor introduces critical changes that further its goals of promoting dense, mixed-income projects near public transport while improving residents' quality of life. At Paladin, we are already taking full advantage of these updates. We are redesigning a project in São Paulo’s Pinheiros submarket to include affordable housing, a move projected to increase the project's IRR by over 600 basis points. Our pipeline is filled with opportunities created by these changes as we continue to develop high-quality, sustainable housing in Brazil.
About Paladin Realty
Founded in 1995, Paladin Realty is a U.S. SEC Registered Investment Advisor and boutique real estate investment firm focused on value-added real estate investments in the United States and select markets in Latin America, with a focus on workforce housing. Over the past three decades, we have invested in more than 420 properties in 8 countries comprising $7 billion of total cost across a range of residential and commercial property types, with a particular emphasis on workforce housing (rental and for-sale). Our workforce housing investments to date include 90 value-added U.S. rental apartment properties totaling over 15,000 units and nearly $1 billion of cost. In addition, the firm has developed nearly 40,000 for-sale residential units across Latin America totaling about $5 billion of total cost. The firm was founded in 1995 originally in partnership with the family office of former U.S. Treasury Secretary and corporate leveraged buyout pioneer, William E. Simon. The firm’s senior management team acquired 100% of Paladin Realty in 2006. See www.paladinrealty.com
This report reflects the opinions of Paladin Realty and does not constitute legal advice. Paladin Realty is not a legal expert. Readers should not rely on the accuracy of the information herein and should consult carefully with their legal counsel to further understand existing and potential rent control laws, ordinances and regulations and should not make investments based on the brief summary of complex laws, ordinances and regulations provided herein. This report does not and will not constitute a part of any offering memorandum and is not intended to constitute investment advice and does not take into account the investment objectives, financial situation, or particular needs of a recipient. Paladin Realty does make any representation or warranty as to the accuracy or completeness of the contents of this report and takes no responsibility for any loss or damage suffered as a result of any omission. The opinions contained in this report are subject to change without notice. The author(s) of this report and Paladin Realty’s research team may participate in investment decisions and receive compensation based upon the performance of Paladin Realty and/or certain of its investment funds.