Chile: Real Estate
In a year marked by the COVID-19 pandemic and the socioeconomic effects it has brought for almost all countries, the real estate sector has experienced interesting novelties and developments. The health emergency provoked by the virus, which reached our country in March 2020, was preceded by the social upheaval that sparked off throughout the territory at the end of 2019. The impact of both crises – social and sanitary – has been significant, but cannot be identified as the only factor that has led to changes in the Chilean market.
On March 18, President Sebastian Piñera declared Constitutional State of Exception of Catastrophe in all the national territory, with the objective – among others – of safeguarding compliance of quarantines and social isolation regulations. Only activities of first necessity (e.g. health, production and distribution of basic goods) were allowed to continue their normal operation, while the vast majority of commercial establishments and businesses were forced to close. This unusual scenario resulted in:
(i) the stopping of construction works, thus elevating the unemployment within the guild;
(ii) a sustained increase in vacancy of offices, especially of premium category;
(iii) numerous withdrawals from promises to purchase properties by clients, who preferred leases due to the decrease of the latter’s prices and the prevailing uncertainty;
(iv) a significant decrease in foreign investment in the region; and
(v) the increase by financial institutions of the interest rates of mortgage loans, which (as long-term debt instruments) were affected by the strong capital outflow from Chile.
Moreover, the closing of national borders affected the hospitality and tourism industries, which usually constitute an important contribution to our country’s gross domestic product. At the same time, most corporations had to implement teleworking and then adopt flexible shifts for the on-site work of their employees, which also motivated a new tendency of leaving the capital (Santiago) and seeking a new home at the central coast or south of Chile.
In this context, it is inevitable to analyse the effects and legislative changes provoked by the pandemic. For instance, parties of contracts have invoked unforeseeable circumstances or events of force majeure in order to excuse breaches of their obligations. This is a controversial matter in Chile, since the theory of unforeseen events does not yet receive much acceptance from our courts of justice. However, a recent bill of law seeks to incorporate force majeure as an exception of rent payment under the lease of commercial properties located within a territory where a governmental measure limits or prohibits its operation.
Additionally, a bill of law is currently being discussed in Congress in order to suspend – with some exceptions – seizures of and expulsions from inhabited properties, as main residence or intended for commercial use, whether or not they are open to the public. If approved, the suspension of seizures would last for twelve months as of the end of the state of catastrophe, while suspension of expulsions would be in force over a twelve-month period from the end of the state of exception, in both cases with December 31, 2021, as the final deadline.
Meanwhile, the Chilean government has adopted other measures as a part of its emergency plan for the economic reactivation, such as Law No. 21,256 (September 2020). This law allows taxpayers who declare First Category tax on effective income determined pursuant to complete accounting, and acquire physical goods – new or imported – from their fixed assets between June 1, 2020, and December 31, 2022, to carry out their instant and complete depreciation, in the same business year of their acquisition.
Other institutions have also joined the effort of helping citizens on real estate matters. For instance, the Internal Revenue Service offered the possibility of postponing the last two instalments of property tax accrued during the year 2020, which can be paid in four readjustable instalments and without interest during 2021, a measure that could benefit 731,712 natural persons who own properties with residential purposes, for which the tax assessment does not exceed approximately CLP144 million. In addition, Banco Estado (the only state-owned commercial bank in Chile) launched a campaign called “Hipotecazo,” a new benefit under which mortgage loans with preferential interest rates are granted to clients who – having fulfilled certain requirements – want to acquire their first home or relocate their current loans to this institution.
As can be seen, the outlook has been improving steadily. The new conditions under which persons have related with each other have brought important advances, such as the digitalisation and payment release of daily procedures before public services (e.g. issuing of certificates by the Civil Registry), and the progress of a bill of law focused on improving the systems of Notary Public offices and Real Estate Registrars. Such law would increase transparency, modify the appointment procedure of certifying officers and boost the digitalisation of public information regarding real estate properties.
A final and important consideration on new legislation, also not related to this year’s events, is the advance towards enacting a new Real Estate Co-ownership Law, considering that approximately 24% of our country’s homes are subject to such regime. The main issues addressed by this bill of law are the reclassification of condominiums, dispute resolution methods, the creation of a national registry of condominium administrators and the content of co-ownership regulations.
As far as potential new market trends is concerned, changes can be seen in housing projects and corporate offices. In the first segment, internal spaces are being rethought based on the square metres required for teleworking, and multifamily buildings have become a very attractive business alternative for investment funds, since they allow them to avoid problems related to co-ownership and ensure high percentages of occupation. This last tendency - along with others - will most probably lead to the update of our regulation on lease agreements, which is almost obsolete. In the second category, most single workstations could be replaced by shared workspaces, which may lead corporations to hire services (e.g. use of meeting rooms, reception, printing areas and Internet) from owners, rather than entering into long-term leases with the same.
In turn, there has been a significant increase in demand for industrial spaces, mainly explained by the boom of digital sales. Both retail companies and marketplaces are building large distribution centres, with the aim of improving delivery promises, reducing shipping times and enhancing customer experience.
In conclusion, all the above-mentioned conditions, trends and legislative reforms have significantly changed the real estate outlook in Chile, altering projects and priorities of all market players. The new reality in which we are living will definitely provoke additional changes and developments for this specific field of practice, at the same time that new and challenging opportunities will present themselves for all of us who work in the industry.