CHILE: An Introduction to Real Estate
The Real Estate Market in Chile
As with the 2023 report, we must address the effects of the COVID-19 pandemic, which continue to impact most markets worldwide. In 2023, the Central Bank of Chile aimed to curb rising inflation through interest rate increases. Fortunately, due to the solid and healthy institutional structure of the Central Bank of Chile, which has remained independent of changing governments, inflation was stabilized by the end of 2023, making 2024 a more stable year. To stimulate the economy, the Central Bank decided to lower interest rates in the last months of 2023, which has shown positive effects, or “green shoots,” of a more active economy.
However, revitalising the real estate market in Chile has not been easy. Besides inflation, banks have become more restrictive in granting financing to both developers and final customers. This has led to an oversupply of real estate units, forcing developers to find various ways to attract clients who are slowly returning, thus energising this crucial sector of the economy and presenting new challenges and opportunities.
Regulatory Challenges
Another significant problem facing the real estate industry is regulatory issues. Numerous studies have shown that the regulated timelines for the approval of real estate projects are rarely met by authorities, affecting investment decisions in the sector. The bureaucracy and red tape involved in obtaining necessary permits and approvals can significantly delay projects, adding to costs and uncertainty. For instance, a typical real estate project might require approval from multiple agencies, each with its own set of regulations and timelines, creating a complex and often slow-moving process.
However, both the Government and private sectors have made great efforts to find solutions to invigorate the industry. A bill is being discussed that aims to reduce excessive procedures, shorten review times, and simplify approval processes, following the example of other countries that have seen substantial improvements in project reactivation with similar changes. Streamlining these processes could not only speed up project timelines but also reduce costs for developers, making real estate investments more attractive.
Several private sector actors have also pushed for regulatory and tax incentives, which have proven effective in past crisis situations. For example, tax incentives could include deductions or credits for investments in certain types of projects, or reduced tax rates for income generated from new developments. These comprehensive agreements will undoubtedly bring positive results for the future of real estate developments and the economy.
Real Estate Companies
Financing restrictions have forced real estate companies to be better prepared when approaching financial institutions. This includes having stronger financial statements, more detailed project plans, and a clearer understanding of market conditions. While this affects the previously experienced dynamism, it can also be seen as an opportunity for companies to better face future macroeconomic stress situations and keep the economy active.
To attract consumers, companies have had to be creative, presenting new investment opportunities under different legal structures, such as rent-to-own agreements, guaranteed rent in investment apartments, interest rate coverage for specific periods, and significant discounts. These strategies can make homeownership more accessible for consumers and provide more predictable returns for investors. The most skilled companies have capitalised on these opportunities.
Furthermore, companies with healthier financial situations have found significant opportunities to acquire development land. This is beneficial for generating land stock at this time, ensuring that these companies are well-positioned to take advantage of future market recoveries. By securing land now, they can plan and develop projects that will meet demand when the market conditions improve.
The Multifamily Market
During the pandemic, some real estate developers found good opportunities in multifamily buildings, as the lack of access to credit made it harder to buy homes, increasing rental demand. Multifamily projects, which include apartment buildings designed for rental, have become a significant growth area in the real estate market. This market has grown explosively in recent years in Chile, keeping the real estate industry moving and attracting investors with stable returns.
Multifamily developments offer several advantages. They can provide steady rental income, which is less susceptible to market fluctuations compared to sales. Additionally, they can attract a broad range of tenants, from young professionals to families, providing a diversified income stream. Even companies not focused on real estate have seen the potential of their land through alliances with investment funds and developers, creating a synergistic approach to development.
The Government is also evaluating the implementation of multifamily projects, as they help reactivate the economy and solve housing problems by providing subsidies and setting rent prices. By offering subsidies, the Government can make rental housing more affordable for lower-income families, while also ensuring that developers have a financial incentive to build. Setting rent prices can help prevent excessive rent increases, ensuring that urban areas remain accessible to a diverse population.
The Challenge.
The major challenges for the real estate industry require a comprehensive and collaborative review by public and private actors. Real estate project development in Chile involves numerous interdisciplinary components, including legal, financial, environmental, and social aspects. Effective collaboration between these sectors is crucial for overcoming the complex challenges faced by the industry.
Staying updated on regulations, requirements, and trends is essential for the success of a real estate development. This involves continuous learning and adaptation to new laws, market conditions, and consumer preferences. For example, sustainable building practices are becoming increasingly important, both for meeting regulatory requirements and for attracting environmentally conscious consumers.
The dynamics of this important sector, one of the main drivers of Chile’s economy, will be reactivated by addressing these challenges head-on. Presenting attractive opportunities for those who are best prepared will involve not just responding to current market conditions but anticipating future trends and demands.
Investors and developers who can navigate the regulatory landscape, secure financing, and adapt to changing market conditions will find significant opportunities in the Chilean real estate market. As the country continues to recover from the pandemic and the associated economic disruptions, the real estate sector will play a crucial role in driving economic growth and development.
Conclusion.
In conclusion, the Chilean real estate market is poised for recovery and growth, but this will require strategic planning, regulatory reforms, and innovative approaches to financing and development. By addressing these issues, the industry can overcome current challenges and capitalize on future opportunities, contributing to the overall economic health and stability of Chile.