Many Latin Americans have within their cultural references to Chile as the birthplace of the band Los Prisioneros, very present within the social outbreaks of the region with their song ̈The Dance of those who are left over ̈, (in several interviews the members of the band have expressed the feeling of sadness that produces the validity of the song more than thirty years after its release) and the country of great pens such as the poet Pablo Neruda and Isabel Allende.
If something has characterized Chile within Latin America, it is the solidity of its economy, which in many ways has been oblivious to the ups and downs that periodically shake the region. It is the main producer of copper in the world and has demonstrated the responsibility of its institutions, since a good part of the economic bonanzas have been saved to soften the lean times. Before the social outbreak of 2019, it was said that the southern country is that of the middle class.
For Latin Americans, housing is the most important non-financial asset, and Chileans are no exception. According to data handled by the Chilean Chamber of Construction, from 2004 to 2011 the total sale of properties, including houses and apartments, remained stable with an average of 6,000 each year.
From 2012 to October 2015 units sold increased to 15,000 at their highest peak. After the introduction of VAT on home purchases, there was a sharp drop in sales with less than 5,000 in the following quarter. While it is true that there have been fluctuations, the sector recovered, but never returned to previous levels.
As expected, sales began to decline from July 2019 having its lowest point in June 2020, with less than four thousand units sold. In the following periods the market has been recovering, although it remains volatile. In its favor, it has the lowest interest on mortgage loans in the region. Since 2004 rates have fallen and currently stand at 2.51% effective annually, with clear downward trends.
What is surprising is the sustained increase in prices, regardless of market fluctuations. During the years 2003 to 2007 the value of properties remained at around 100,000 dollars, but since 2008 they have risen and not even the crisis caused by the Covid-19 pandemic or the social outbreak of 2019 had an effect on the valuation of real estate. In April 2021 a house or apartment was obtained at $ 230,000, more than double fourteen years ago.
There are many voices that have warned of the exorbitant prices of housing in Chile, and for others the existence of a bubble is evident. Some say it is the scarcity of land, but it has been shown that the owners of large tracts of land have decided to wait for the best time to build and thus enjoy greater profits.
Another possible cause is the low remuneration of workers. While property values grow almost exponentially, salaries grow linearly. The usual comment in the southern country “is third-world salaries to pay first-world prices.” There are several studies that indicate that a good part of the income of the most favored quintile of the population comes from income. Santiago de Chile is the most expensive city in the world in terms of housing: about 61% of income is to pay rent.
Another possible cause of excessive prices is the possible cartelization of the real estate sector, that is, the companies Excessive prices suggest the cartelization of the real estate sector, that is, the companies in the sector set a very high price to the detriment of buyers and do not allow the entry of new competitors.
There are several factors that encourage speculation: the subsidies given favor indebtedness, the lack of control in the increase of the mortgage portfolio by the authorities, there is no kind of regulation in the real estate market, very restrictive laws that do not allow the free market, and the spectacular profitability of the sector. In no real estate project in the southern country is a return of less than 40%, when the normal rate in the world is 18%. And the surplus value is around 3% per year.
There are already signs that the bubble could burst. Since 2016 the non-payment rate has been increasing, although it is still the country with the lowest delinquency in Latin America. While it is true that the Chilean economy was one of the least punished in the region during 2020, it had its ravages. For example, the Chilean peso is experiencing a historic devaluation against the US dollar.
Everything points to a bubble in Chile’s real estate sector and if history has taught us anything, it is that bubbles sooner or later burst and the effects can be catastrophic. Fortunately, the geographical proximity to Miami makes it the natural destination to invest capital and protect heritage against any eventuality.
The US city has had to deal with the consequences of the 2007 bubble and took measures to avoid a new one such as strict regulations in the sector so that no more units are built than are needed, and more responsibility within the financial sector. In addition to the obvious advantage of renting in dollars at a time when its price is skyrocketing.
Well, faced with such a scenario in Chile, every Chilean investor has a mission to protect their assets: diversify, as there is a stronger currency -the dollar-, an attractive and stable real estate market; all roads lead to Miami.
In PFS Realty Group given our real estate activity we are focused on advising those individuals and families who are interested in making investments of this type in Miami and South Florida, we have been working for more than twenty (20) years and for this, twenty (20) years that give us a specialty in what we do, If you want to explore real estate investment opportunities, we can schedule a meeting, face-to-face or virtual, to expand this information. Write to us at info@pfsrealty.kinsta.cloud and also visit our www.pfsblog.kinsta.cloud website to learn more about us.
