Property Futures

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Chile Is Very Attractive for Real-Estate Investment

Article: Political stability and economic growth are the attractions of the property market in Chile.

In a sense, Chile is a jewel that does not often get the attention of the media or prospective investors. Yet it is arguably the most stable and advanced economy on the South American continent and has a high standard of living.

Skyline of Providencia district in Santiago de Chile with snowed Andes mountain range in the background.  This is a wealthy residential and commercial district in the city.

Chile real estate market analysis

According to the 2007 Index of Economic Freedom, published by The Heritage Foundation and the Wall Street Journal, Chile ranks 11th, just behind Canada, in the degree of economic freedom.

  • It has two special characteristics not normally found in Latin America: security and stability.
  • Tourism growth this year will be around 12%.
  • The capital of Santiago is a flourishing metropolis with world-class infrastructure and contains more than a third of the country’s population. It is a major business hub for the continent but suffers from the handicap of a considerable amount of air pollution.

The housing market in Chile

  • Property prices are growing strongly in Santiago and the average price in real terms of a new house in Greater Santiago grew by around 9% year on year to January 2013.
  • The new apartments in Central Santiago had a price growth of almost 11% in real terms during the same period.
  • Western and Eastern Santiago grew by around 8% and 10% respectively while Southern Santiago had the highest increase of almost 12 %.
  • The market prices in Chile grew by 30% from 2004 to 2012 and even the global financial crisis only caused prices to decline by a modest 1%.
  • The earthquake in 2010 limited growth for that year but sales rebounded strongly in 2011 by more than 25%, followed by a further growth of over 17% in 2012.
  • GDP growth was almost 6% in 2011 and 5% in 2012 and the forecast for 2013 is a healthy 4.5%.

On 27 February 2010, the country was struck by a tsunami and earthquake, which affected almost 75% of the population.  To rectify the damage, the government put a national reconstruction plan in place aiming for full restoration by 2014.

  • The plan involves spending around USD $2.5 billion and a commitment to rebuild more than 200,000 houses.
  • Around 65% has been completed with 28% in progress and work on the balance will begin by June 2013.

The Ministry of Housing and Planning (Ministerio de Vivienda y Urbanismo or MINVU) is the country’s largest real-estate business and second largest mortgage lender.

The mortgage market in Chile

The mortgage market is one of the best in Latin America and has been growing steadily to over 18% of GDP in 2011.

  • Most mortgages are fixed rate with loan-to-value (LTV) ratios of about 80%.  This relatively conservative ratio helps protect lenders against credit default risk.
  • Banks in Chile follow strict lending criteria that are very difficult for foreigners to satisfy – m ortgages are generally not available even to foreigners who are resident in the country.
  • These tight controls also insulated the Chilean banking system from the excesses of the 2008 financial crisis.
  • Lending rates over the past few years have been between 4% and 5% and, as at the beginning of the year, start at around 4.4%.

The bottom line

Even though it may not exactly be top of mind, Chile is one of the most attractive destinations in South America when it comes to real-estate investment.  The political stability and the prospect of growth in real-estate prices should be kept in mind you are looking for opportunities for property investment in Latin America.

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One comment on “Chile Is Very Attractive for Real-Estate Investment

  1. Pingback: Beyond Brazil | Commercial Real Estate Finance

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