The Chile Real Estate And Property Market
Prices for real estate in Chile may be quoted in Chilean pesos, but more commonly you’ll see prices quoted in UFs. The UF—Unidad de Fomento—is a unit of account Chile originally created for pricing international secured loans. The exchange rate between the Chilean peso and the UF is adjusted to inflation so that the value of the UF remains constant. Today the UF is used in bank loans and other financing, construction, housing values and the like.
There are two property tax systems in Chile: agricultural and urban. Most residential properties fall under the urban system. However, if you buy a home in a rural area, it may fall under the agricultural system, which has slightly lower property taxes. Second, property taxes are based on the legal value of a property, which in many cases is lower than the market value.
Be aware than Chilean houses tend to be smaller—both overall, and also with more rooms packed into the square footage—than American homes are. You’ll need to be flexible on this point, too. If you need large rooms, you’ll probably have to trade off on some of your other criteria.
Chile has the natural and economic resources necessary for a successful real estate investment, no matter your ultimate intention.
Real estate in Chile has given investors dependable capital gains in Chile’s major markets, such as Santiago, Viña del Mar, and Valparaíso. Agricultural investors tend to focus on the Zona Central, which includes rural land both north and south of Santiago. This is Chile’s agricultural heartland. The region grows mostly berry and orchard fruits for the export market and grapes for wine. Fruit production is the fourth-place industry in Chile, with much of the output being grown for the North American market during the winter months.
Chile has no restriction on foreigners owning property.
Of course, capital Santiago, Chile’s financial hub and largest city, offers an abundance of real estate opportunities of all kinds… but there are also plenty of lesser-known cities and towns that could offer investors a better payoff than already-saturated Santiago.
Residential Real Estate in Chile
Coquimbo is the southernmost region of Northern Chile, it’s bordered by the Pacific on the west and hemmed by the Andes Mountains on the east. This region is home to La Serena, Chile’s premier city for tourists—the population of the city doubles in summer due to the tourism influx.
La Serena is called a “metropolitanized suburb” and primarily a residential area (despite its population size of over 200,000 residents). The city is so-called because it’s the city where the executives of nearby mining town, Antofagasta, overwhelmingly choose to raise their families. Between the executives and the tourists, La Serena is a solid bet for a sustainable residential rental yield.
Just south of Coquimbo and just north of the Santiago Metropolitan Region, the Valparaíso region is known for its numerous, major coastal cities; it’s the go-to vacation place for local residents looking to escape Santiago. In addition to the various beaches, Valparaíso itself (the capital city of the region) is a major port city and receives plenty of cruise lines (with more coming every year).
Valparaíso is also home to Viña del Mar, one of the top cities for tourism and the premier resort city in Chile, known internationally for its malls and entertainment venues. Chile’s most world-renowned and well-touristed destination, Easter Island, is administratively part of the Valparaíso region.
Beach towns Algarrobo and Papudo promise plenty of interest for rentals, but property costs are markedly less expensive than Valparaíso and Viña del Mar.
South of the Valparaíso region, the O’Higgins region is home to the best surfing spot in Chile: Pichilemu. The city is noted for its black sand beaches and is considered to have top-notch surfing year-round. Thanks to this international reputation and attention, Pichilemu hosts several major surfing competitions throughout the year. Punta de Lobos and its beach, in particular, attract many competitors and spectators from around the world.
Commercial Real Estate
The Santiago Metropolitan Region is Chile’s most densely populated region and the country’s financial capital. It stands decisively alone when it comes to the best region for construction projects or any commercial real estate purchase. But, because it’s such an obvious choice, the market is nearly saturated already. Land and property costs have increased while rents have come down.
Nevertheless, as more and more large international companies open branches in Santiago, there is still solid demand for “Class A” construction (given to the most modern and prestigious buildings). The recently built Torre Titanium La Portada and the Gran Torre Santiago (Costanera Center) demonstrate the strong market for these high-quality office buildings. (The majority of the office buildings in Santiago are Class B—outdated and less desirable overall).
Antofagasta And Atacama
These neighboring regions in Northern Chile are grouped together because together they constitute the heart of Chile’s mining industry. Antofagasta alone accounts for over 50% of Chile’s mining output.
Much like Santiago, the majority of the buildings in these two cities are Class B. Unlike Santiago, however, the market for office building projects is not nearly as saturated. In Antofagasta—the city with the highest GDP per capita in Chile—property is quite expensive, but there’s continued and increasing international interest in mining the region and new mining projects have brought sufficient demand for construction projects here.
Copiapó, located in the Atacama Region is another important source of copper ore in Chile. Property is noticeably less expensive here than in Antofagasta, and building projects and offices of both Class A and B are still in demand.
Bío-Bío is the second most populous region in Chile; it’s south of Santiago, essentially at the centermost point of Chile. Concepción, one of the most industrialized cities in Chile, is an important one for the country’s trade and manufacturing. Concepción is known for its high number of foreign residents and expat communities (majority of foreigners are from the United States, Spain, and Italy).
Concepción, while industrialized, lacks office buildings falling into the higher classifications. At the same time, the cost of living and property in Concepción is markedly less expensive than properties for sale in Santiago, Antofagasta, or Copiapó… giving Concepción the highest potential for a profitable return on commercial property investment. There is a significant market for buildings falling into both the Class A and B classifications in Concepción.
A major advantage of such a large country and so much varying terrain is the availability of huge tracts of land. There are no shortage of opportunities for the individual investor to buy large plots of land all over the country.
In Chile, forestry is one of the main economic sectors, and tree export is the second-largest sector in Chile (behind copper mining).
From a tax perspective, the cost of maintaining land in Chile is very low. Land value and maintenance taxes are calculated based on the assessed value of a property, which are considerably lower than the property’s market value. The exact calculations vary between the regions, but, generally, the assessed value of a property is roughly 25% of its market value for agricultural land and 50% of its market value for commercial land.
Land value tax for agricultural land is 1.2% of its assessed value or about three-tenths of a percent of its market value. For commercial land, the yearly maintenance cost is about 0.98% of its assessed value or about five-tenths of a percent of its market value.
For example, land value tax for 100 acres of agricultural land sold for US$3,000 per acre (a reasonable cost projection)— thus carrying a market value of US$300,000—would be approximately US$900 per year. If the property were used commercially the land value tax would be approximately US$1,500 per year.
There has never been a better time than now for real estate investors to purchase property in Chile… but who knows how long it may last