More and more Chileans seek to invest in Uruguay

The arrival of Gabriel Boric to the presidency of Chile and the constitutional debate that has not yet been completely settled had as one of its consequences a greater interest of the investors of the Andean country to place capital outside their land.

Among the destinations, they have targeted Uruguay, where the government, real estate agents, and legal and business advisors have detected an increase in inquiries for at least a year.

Uruguay XXI is the government office in charge of investment promotion and foreign trade.

It receives what the institution calls Investment Opportunities (ODI), defined as concrete business possibilities beyond a simple consultation, explains its executive director, Sebastián Risso, in an interview with Bloomberg Línea.

There were eight opportunities from Chile this year when the annual average was two or three possibilities.

Of these, the arrival of Cencosud, which will install part of its technology support services center in the Aguada Park free trade zone, has already been confirmed, said the official.

In addition, another company linked to waste management will arrive. The other six are still in the decision-making process, Risso said.

The interest, said the director of Uruguay XXI, is in different business areas: from financial, technology, and logistics, to commerce and real estate.

“What most attracts their attention is the political, economic, and social stability.

“And all that hand in hand with the benefits that may be available, but the stability attracts them,” said Risso when asked why Chilean investors see Uruguay as attractive.

The official declined to go into specific aspects of the Chilean political situation when asked.

However, economic analysts, investment advisors, and real estate agents do not hesitate to point out Boric’s arrival to power and the social unrest as a factor that triggered the inquiries.

The real estate consulting firm Moebius assured that this year, there had been at least 60 property purchase and sale operations carried out by Chileans, the company’s director, Gonzalo Martínez, told Bloomberg Línea, based on sources in the real estate market.

The main reason is to secure a mortgage, especially under the so-called promoted housing regime.

The average profitability of this regime in the Uruguayan capital Montevideo is 6% per annum.

Although there is no record, the agent explained, this represents a leap compared to previous years, when the purchases were specific for summer homes, he said.

The rapprochement was also somewhat in the financial market.

This year, the Uruguayan firm Gastón Bengochea, a broker with 50 years in the market, presented a commercial agreement with the Chilean house LarrainVial to offer one of its products in Uruguay.

The proposal, designed for retail investors, includes two global multi-asset strategies, said Diego Rodríguez, managing partner of Gastón Bengochea & Cía.

In addition, fund distribution company Excel Capital opened an office in Montevideo, in the Zonamerica free trade zone, seeking to boost its presence in Argentina and Uruguay, reported CityWire in August.

GABRIEL BORIC AND THE NOSTALGIA FACTOR

Inquiries have been rising for at least a year, agreed business advisors consulted by Bloomberg Linea.

“We see Chilean investors who, as a result of the political context and the institutional changes that have been discussed in recent months, feel the need to look for more stable and secure destinations where to shelter capital through placements or by investing in businesses in their own line of business or simply in properties,” said Valentina Sena, director of Clients and Markets at KPMG Uruguay.

Juan Manuel Mercant from Guyer&Regules said that “the process that Chile went through in the last two or three years generated the concern to start looking at other alternatives” beyond his country or North America.

“URUGUAY STANDS OUT AS THE MOST STABLE AND RELIABLE OPTION”

Along the same lines, Sena pointed out that although Chileans have a “sense of belonging” that makes them invest in their country, in recent times, the debate about possible tax changes led to sounding out investments beyond destinations such as the United States or Spain.

And, he pointed out, within the region, “Uruguay stands out as the most stable and reliable option”.

“There is something we can see in most of the meetings we have with Chilean investors: the nostalgia factor.

“When you present Uruguay and its goodness, the Chilean automatically identifies with that reality and wants to feel again that stability and certainty he was always proud of”, added the lawyer.

Federico Formento, a partner at Adders law firm, said that “the main reasons” put forward by Chileans interested in investing in Uruguay are “the change of political conditions, a scenario of recession in the making, plus a projected reform of the tax system that would affect capital”.

The lawyer described that last week they held an event with 50 registrants and have at least five consultations per week, of which “many are for legal or tax residency”.

Boric’s approval of his administration is at 27% according to a survey by the firm Cadem, representing the lowest level since he took office seven months ago.

In addition to a defeat in the constituent plebiscite, the Chilean president faces economic forecasts for 2023 from the International Monetary Fund that show Chile as the only country in the region that will have a contraction of its Gross Domestic Product, something that the president attributed to an expansion of consumption in 2021 as a result of the withdrawals of pension funds and social transfers from the state.

REAL ESTATE INVESTMENT

The Director of Clients and Markets of KPMG Uruguay stated that there is interest in the technological and financial sectors, although she said that “the star is real estate”.

In that area, the investor profile is very varied.

“We find a medium-high profile, who wants to invest in the purchase of properties, at first, to generate income through leasing, but also to have a plan B in case they finally choose to reside permanently in Uruguay,” said Sena.

To a lesser extent, the consultants consulted visualize investors linked to developing real estate projects, who aim to allocate capital and know-how for the business.

The director of the real estate consulting firm Moebius said that he has daily contact with Chilean business people between 35 and 60 years old with the idea of buying for rent. He also pointed out that construction companies are looking for land or development funds.

“The Chileans started timidly, and during the year, they have bought between 60 and 80 properties,” the agent said.

According to him, before the current boom, Chileans used to buy in Punta del Este as vacation homes.

However, now they are focusing on obtaining dividends from apartments in Montevideo.

A studio apartment in Montevideo rents for about US$350 a month, and a one-bedroom apartment for between US$500 and US$600.

“The best option is a one-bedroom with a garage because that is what is not available, and when it comes time to sell it, with a garage, you will sell it right away,” said Martinez.

A one-bedroom apartment with a garage in central areas of Montevideo, such as Cordón, can cost between US$110,000 and US$120,000, while in other neighborhoods further east, such as Pocitos, Punta Carretas or Malvín, it starts at US$170,000.

As for technology and financial companies, Sena explained, in most cases, it is not a question of relocating 100% of the business center but of diversifying it.

Thus, they are betting on adding operations or relocating only some processes in Uruguay. Formento, from Adders, said that “there is a huge interest in the Free Trade Zone regime”.

WHAT ARE CHILEANS CONSULTING?

According to Adders’ Formento, the biggest concerns of Chilean investors “are given by the small size of Uruguay”, which has repercussions in “a not very big internal market”.

He also pointed out that another aspect for which he receives inquiries is “the degree of commitment” to Mercosur.

President Luis Lacalle Pou has expressed his intention for Uruguay to obtain agreements with countries outside the bloc.

The government denies that this means leaving the bloc, but some partners, such as Argentina, point out that if Uruguay moves forward, it will damage the founding mandates of the agreement.

Sena of KPMG Uruguay said that in the technology industry, “there is concern about the availability and, especially, the cost of labor”, even though this is transversal to the entire sector in the region.

During the presentation of the August government in Chile, in the round of questions open to the attendees, a person who identified himself as a Cencosud executive asked about possible union conflicts in Uruguay.

He did so based on a comment made by representatives of Arauco, which in the assembly and construction of the Montes del Plata plant had different conflicts and stoppages that delayed the work.

According to Risso, union issues are generally not consultation of foreign investors. The same was said by others consulted for this article.

Arauco CEO Cristián Infante, who valued regulatory stability, also said that day that if they had to decide where to build a new plant, Uruguay “would be a very important candidate”.

WHAT IS URUGUAY SHOWING?

Upon detecting the growing interest, the Uruguayan government presented in Santiago de Chile in August to 100 business people.

Risso said that the visit was not planned at the beginning of the year, but rising inquiries led Uruguay XXI and the embassy in Chile to organize the event.

The director of Uruguay XXI said that the presentation highlighted the economic policy’s stability, the game’s clear rules, and the possibilities in terms of services and innovation.

It includes positioning as a regional distribution center and the possibility of being a technology and corporate services supplier.

They also presented Uruguay’s exports, 50% related to agribusiness and 30% to services.

As for tax benefits, the Investment Law promotes businesses “where there is no differentiation between the foreign and local investor,” Risso said.

“That is something very objective,” he affirmed. This regulation enables exemptions from Income Tax on Economic Activities and Wealth Tax. Uruguay also has a free trade zone and a free port regime.

“These are all policies that are 30 years old. All political parties have passed, and not only have the policies continued but they have been improved. This speaks of stability and clear rules of the game,” said the official.

Uruguay also highlights electricity generation from renewable sources, which represent 97% of the total produced, and the democratic strength based on international rankings. “These are all factors that companies are increasingly looking at with attention,” Risso pointed out.

CHILEAN COMPANIES THAT ARE ALREADY IN URUGUAY

Beyond the boom of interest from Chilean investors in the last year and a half, different business groups have taken the path of setting up operations in Uruguay.

In 2021, the net Foreign Direct Investment received by Uruguay was US$ 1,403 million, led by Spanish capital (18%), Argentine (15%), Finnish (10%), and Brazilian (9%).

According to a report by Uruguay XXI, Chile (6%) of the total was behind these countries, as well as Switzerland and the United States.

Some 70 Chilean companies are present in Uruguay, said Risso of Uruguay XXI.

Among them are Arauco, a partner in the Montes del Plata pulp mill, Ultramar, which participates in the port business through the Montecon company; the Falabella group with Sodimac; and the Enjoy hotel chain, owner of a resort and casino that has become an icon in Punta del Este.

Enjoy entered the operation of the former Conrad hotel in 2013 and since then has invested US$400 million, according to Uruguay XXI data.

Montes del Plata operates a 1.4 million tons per year pulp mill located in Colonia. It was the second in the country, after UPM’s plant in Fray Bentos.

UPM is about to inaugurate the third plant in 2023, which will consolidate the industry as one of Uruguay’s leading exporters.

In the case of Ultramar, the company is currently at odds with the Uruguayan government after it extended the concession to the Belgian company Katoen Natie until 2081 for a specialized container terminal, which in fact, will imply a restriction of Montecon’s operations in the public docks of the Port of Montevideo.

In the hotel business, there is also the holding Tanica, owner of the Cottage hotels in the exclusive areas of Carrasco and Puerto del Buceo in Montevideo.

And in the technology area, the software company SimpliRoute operates in Uruguay.

With information from Bloomberg