Strong housing market in Chile
Last Updated: March 14, 2013
New apartment prices in Central Santiago enjoyed 10.8% growth during the year to January 2013, also in real terms. Western and Eastern Santiago both had lower price growth of around 7.9% and 10.7%, respectively. Southern Santiago had the highest price increase of 11.7%.
Chile’s real estate market saw real house prices increasing by 30% from 2004 to 2012, and even during the global financial crisis of 2009, there was only a small average price decline of 0.9% from May to August. The 2010 Chile earthquake of February 27, 2010 also limited annual house price growth to around 1.5% to 4% from March to December. In 2011 and 2012, house prices saw y-o-y increases of 8.7% and 5.7%, respectively, due to Chile’s relatively strong economic growth.
Home sales rose strongly in 2011, with a rise of 25.3% to 58,716 residential units, according to the CChC. In 2012, residential units sold reached 69,191 units, up by 17.8% from the previous year.
Chile wasn’t able to escape the global financial crisis’ spillover effects entirely, as its economy contracted by 0.4% in 2009. However the economy bounced back strongly, with 6.1% growth in 2010, despite the shock of the earthquake. GDP growth remained strong in 2011 at 5.9%, and 5% in 2012. Chile’s economy is expected to remain robust with around 4.5% growth in 2013.
Buy a small apartment to rent out in Chile
Buy a small apartment in Chile – the return on your property will be twice as high as for a large apartment. Gross rental yields for medium-sized apartments in Santiago are now above 10% - that’s for apartments around 70 square meters.
These are the highest yields we have recorded for Chile during the Global Property Guide’s 6 year existence. Six years ago, when we first began to study Chile, the highest yields were to be found in larger houses in the North (Antofagasta, San Pedro de Atacama), and also in the Centre (Valparaiso, Viña del Mar) (though Santiago had a more classical “small = high yields, large = low yields” configuration).
Yet increasingly the realities now favour buying small properties rather than large, as during 2010, rents have moved up sharply for smaller apartments. Small residential property is where the ‘returns juice’ is strongly concentrated in Chile.
Chile is one of those countries where data on house prices is not collected by the authorities, despite the high state of development of its institutions
Chile's rental income tax is high
Rental Income: Nonresidents earning Chilean income are subject to AT, which is levied at 35% on gross income.
Rental incomeis subject to FCT at a flat rate of 22.5%. FCT and property taxes are credited against the taxpayer’s AT liability.
Leasing of real estate is subject to VAT at 19%.
Capital Gains: Gains are taxed at the standard FCT, like any other profit, if immovable property is sold within the first year after acquisition, or if an apartment is sold within the first four years.
Inheritance: Inheritance, gifts and donations tax rates vary according to the degree of relationship and the value of the inheritance, from 1% to 35%.
Residents: Residents are taxed on their worldwide income.
Total transaction costsare low in Chile
The total roundtrip transaction cost, i.e., the cost of buying and selling the property, is around 5.30% to 5.40% of the property value. This includes the estate agent's fee of 4%, which is split evenly between buyer and seller.
If the property is newly built by a developer, the transaction cost will be higher, due to the 19% VAT imposed on such properties.
Chile's law neutral between landlord and tenant
Chilean law is neutral between landlord and tenant, following fairly recent changes in the law.
Rents: The rent can be freely agreed upon. There is no legal maximum for deposits.
Tenant Eviction: Eviction of tenants may be difficult or easy depending upon the nature of the agreement. Monthly tenancies can be terminated by giving two months' (notarized) notice of eviction.
However tenants in fixed term contracts and in contracts exceeding one year can only be evicted through long judicial proceedings.
Chile's robust economy continuesNotably one of South America’s most affluent and stable countries, Chile ranks as an upper-middle income economy according to the World Bank. Chile has a solid track record of sustained growth, expanding by at an annual average of 5.5% from 1990 to 2007. Although the period included a contraction of 0.4% in 1999, it was still was among the highest growth rates in the world.
From 2008 to 2012, Chile’s economy posted strong growth and only had an economic contraction of 0.9% in 2009 as a spillover effect of the global financial crisis. Chile then managed to pull a huge rebound of 6.1% economic growth in 2010 despite being struck by an 8.8 magnitude earthquake in February 2010. Economic expansion continued in 2011 (5.9%) and in 2012 (5%). GDP is expected to expand by around 4.5% in 2013.
In May 2010, Chile became OECD's first Southern American country member. Chile’s accession to the OECD highlighted the reduction of poverty from 45% in the late 1980s to around 14% in 2009. There were advances in other aspects, such as strengthening of state institutions and fighting corruption were also noted.
Fiscal discipline is one of the pillars of Chile’s solid international image. Since 2000, the government has run a sustained budget surplus. From 2000 to 2012, Chile recorded an average budget surplus of 1.7%, reaching a record high of 8.8% of GDP in 2007. The budget surplus not only transformed Chile from a debtor to a creditor country, it also placed the country in solid position to weather global economic volatility.
During the 2009 recession, the Chilean government increased spending by 16%, availing of funds specially set aside from sales of copper profits. A fiscal stimulus program worth around 2.4% of GDP was implemented, which led to a fiscal deficit of around 4.5% of GDP by the end of 2009. The deficit narrowed to 0.4% of GDP in 2010 as the economy recovered. Chile posted a fiscal surplus of 1.4% of GDP in 2011 due to rising copper prices and higher tax revenues, and a surplus of 0.6% of GDP is expected for 2012.
One of Chile’s perennial problems is high unemployment, mainly due to restrictive and complicated labor laws, and relatively generous social benefits. Unemployment rose to around 8% to 10% during 1999, but fell back to around 7% in 2006. The recent economic recession triggered another increase in unemployment to around 10% in 2009. However unemployment is currently subdued at 6% as of January 2013.