Chile: Real estate market recovers in ground zero and greater opportunities for investors are foreseen

RIO DE JANEIRO, BRAZIL – In recent months the real estate market has gradually resumed the pace of sales and leases in certain sectors of the capital, so that the gray days for neighborhoods such as Baquedano, affected by the effects of the social outbreak and months later by the pandemic, are gradually being left behind. And despite the fact that the area is still far from reaching levels close to 2019, the sector is optimistic about the dynamism of sales and rents, which, according to them, make up an ideal scenario for investors and tenants.

This was revealed by an analysis prepared by the TocToc.com platform, which as of December last year showed not only an increase in the commercialization of real estate in that area, but also important changes in the seasonality of sales peaks, and new factors that have boosted the market. According to the data provided, in 2021 November was positioned as the month with the highest sales of houses and apartments in the area, with 115 units; that is, not only did it double the number of properties marketed (56) during the highest sales month of 2019, but also the peak -which normally occurs in June or July- of 2021 was shifted towards the end of the year.

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Daniel Serey, Research Manager of TocToc.com, explains that this phenomenon is associated with a fact that brought sales forward and that has to do with tax aspects: Instantaneous depreciation. “If you invest in a significant number of properties there is a tax benefit where you can instantly depreciate those assets you buy”, says Serey, and maintains that this is one of the main reasons behind the sales peak between August and October of last year that occurred in districts such as Santiago and La Cisterna.

“This benefit is not new, but we saw a very important acceleration of sales in some communities, and when we contacted the real estate agencies they told us that they were precisely buyers using this benefit”, he says.

And to this is added the decision of massive early purchase by investors in the midst of an economic and political scenario marked by the uncertainty of the presidential elections and what was at that time an eventual fourth withdrawal of pension funds. “They are high net worth investors and they made the decision at that minute,” he points out. And he explains that “the uncertainty regarding mortgage rates” prompted buyers to think “let’s buy now because, if at least we know that the rate is high, we don’t know if the situation is going to deteriorate or not”.

Thus, the early purchase responds to the effect that a fourth withdrawal of funds could have had on the capital market and thus on “the number of years over which people asked for their mortgage loan, because there was much less money in the system to lend for a shorter period of time”, comments the research manager.

INTEREST IN LARGER AND MORE EXPENSIVE PROPERTIES

One of the most striking phenomena also revealed by the study is that the sale and purchase of 3D type apartments, that is, those larger and of higher value, experienced a significant increase. This, in the midst of the difficulties in accessing “home ownership”. Thus, in 2021 the sale of 28 units of this type was reported in Barrio Baquedano, which implies exactly double what was noted in 2020, and 460% more than in 2019.

“One of the things that is not clear yet, but that we have seen several signs, is that there was indeed a change of preferences product of the experience of the pandemic, which culminates in the search for more space not only for people,” he argues. According to the expert, “some investors can read here an opportunity in the sense that as there is a search for more space, there is pressure on the rental side as well”, and therefore, the rental value will improve.

Thus, “despite the deterioration experienced by the Baquedano neighborhood, it continues to be a privileged place in the city from the point of view of transportation and different services,” says Serey.

STABLE PRICES IN 2022

In 2021 the sale of apartments reached an average value of UF 3,508, that is, 5.8% more than in 2021, and 68% more than in 2019 (around UF 2 thousand), and from the sector they foresee that this value will be maintained for the rest of the year. One of the causes corresponds to the fact that although it is possible to expect prices to fall together with demand, the spokesman of TocToc.com affirms that “credit conditions and interest rates should stabilize, so that more and more 30-year mortgage loans should return”. In other words, “there would be a period of tranquility in the housing world and that would stimulate the return of demand to more normal levels,” he adds.

Added to this is the fact that the industry has experienced a very significant cycle of rising costs, especially with respect to materials, which is aggravated by the current geopolitical situation in Europe. “To some extent there was a sort of hope that the price of costs would normalize (…),” but the war diminished that positive outlook, says Serey. And he compares the current situation with the Subprime Crisis, where real estate companies began to give purchase facilities in the payment of the foot, for example, beyond lowering prices.
Drop in rents

Regarding rents, in 2021 the sector recorded the leasing of 6,518 units. That is, a considerably lower figure than in the previous year (14,601) and than in 2019 (8,148). And it was not only leases that fell, but also prices. So that in 2021 the average annual rent reached UF 10.7, very close to the amount of 2020 (UF 10.8) and slightly below the value of 2019 (UF 12.7).

Daniel Serey comments that the increase in rents in 2020 and the considerable drop in 2021 was a fact “quite generalized in Downtown Santiago and peripheral districts”. But in Barrio Baquedano “there was an even greater increase in the supply of rents and a drop in prices as a result of everything that happened in the middle of the pandemic”. And he points out that as a result of the flight of people from the sector, what happened is that in general – due to the protests – “there was a super negotiation by the owners of those apartments in order not to lose the tenants, and they started to lower prices”.

“And then there is the whole economic issue in the pandemic, which caused both the Baquedano sector, as well as the entire downtown Santiago sector to have a very significant drop in prices. But with the recovery in general, the delivery of the IFE and other factors, that price has been recovering gradually,” he adds.

In this sense, the expert indicates that “regardless of the current situation that the sector may be experiencing, in general the situation is not the pitched battle that we had two years ago”. So, despite the fact that prices have not yet recovered to levels prior to the social outbreak, as is the case in Las Condes, “it is due to an economic issue”.

“There are protests and all, but the rest is quite recovered from the demand point of view. This area has become a good place to invest, buy and rent. Obviously it was a bit stigmatized after the explosion, but it is a place that has unbeatable conditions compared to other parts of the city, at prices still lower than what we have in Ñuñoa and Providencia, which enjoy similar urban services,” he concludes.