Chile: Overview

RENTAL YIELDS

Last Updated: Nov 08, 2008

Santiago - 8.16%, Viña Del Mar - 4.31%

There are surprisingly large differences between levels of gross rental yields in Chile’s cities.

Apartments in prime areas of the capital, Santiago - Las Condes, Providencia, Vitacura - have excellent average rental yields of 8.16%, according to our research.

This suggests that prime areas of Santiago are potentially excellent residential investments, as far as apartments are concerned.

In the city of Viña Del Mar, the apartments we surveyed yielded only half as much, on average, with gross rental yields of around 4.31% only. At this kind of level, investment in property for rental income is only a moderately attractive proposition, unless there are other incentives.

For Viña del Mar and Valparaiso, we covered the whole city. It wasn’t possible to narrow down the research further.

Houses in Valparaiso have moderate to good yields at 6.9%, for the rather small houses, which was the only size for which we were able to get data.

In the southern city of Concepción, 120 square metre apartments have excellent gross rental yields of 9.04%. Unfortunately, data was scarce and we were only able to form an impression of yields for this size, but generally, in a particular city, yields tend to be consistent across the different sizes, except that smaller apartments tend to yield more.

Apartments in Santiago and Viña del Mar cost around the same, per square metre. Apartments in Santiago start at an average of US$ 98,520 for a 60 square metre apartment, versus US$ 87,480 for the same sized property in Viña Del Mar – but this cost-difference is not consistent across the size-range, and the 120 sq. m. apartments that we surveyed are slightly more expensive in Viña Del Mar. Readers should not attach too much significance to these minor differences.

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TAXES AND COSTS

Last Updated: Feb 18, 2009

Chile's rental income tax is high

Rental Income: Non-residents earning Chilean income are subject to AT, which is levied at 35% on gross income.

Rental income is subject to FCT at a flat rate of 17%. 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.

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BUYING GUIDE

Last Updated: Jan 04, 2007

Total transaction costs very low in Chile

The total roundtrip transaction cost, i.e., the cost of buying and selling the property, is between 5.3% and 6.9%. This includes the estate agent's fee of 4%, which is split evenly between buyer and seller.

The total cost of registering the property is only 1.4% of the property's value. Six procedures are necessary for registration, which can be completed in about 31 days.

If the property is newly built by a developer, the transaction cost will be higher, due to the 18% VAT imposed on such properties.

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LANDLORD AND TENANT

Last Updated: May 30, 2006

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.

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ECONOMIC GROWTH

Last Updated: Dec 22, 2008

Resilient against the global slowdown

Chile is one of the world’s longest and narrowest countries. Due to its unusual chili-like shape, its landscape and climate varies greatly. The country is composed of three distinct and parallel natural regions – from east to west, the Andes, the central lowlands and the Coast Ranges.

The climate varies from hot desert in the north, through Mediterranean-type in the central portion, to the cool and humid marine west coast type in the south. Santiago, the political, cultural and economic capital of Chile lies along the temperate middle section of the country, together with the other important cities of Valparaiso and Concepcion.

Chile (population: 16.8 million) has one of South America's most robust and open economies GDP per capita is around US$10,800 in 2008, one if the highest in the region. The effects of the global economic slowdown are likely to be minimal, due to sound public finances and sufficient international reserves.

While major economies are experiencing recession, Chile’s economic growth is expected to continue reasonably strong with 3.9% GDP growth expected in 2008, and 2.8% growth in 2009, this is clearly lower than the 5.1% economic growth achieved in 2007, and the average GDP growth rate of 4.3% from 2000 to 2006.

Higher international fuel and commodity prices pushed inflation to 8.8% in 2008, from 4.4% in 2007. As the global economy cools, international prices also retreated, leading to the easing of inflationary pressures. Inflation is expected to drop to 6.4% in 2009, and 3.5% in 2010.

Chile is the world's leading producer and exporter of copper, and a major exporter of other minerals. Buoyed by high commodity prices, the government’s budget surplus was around 8.5% of GDP in 2007 and is estimated to be around 7% of GDP in 2008.

Although the government is described as centre-left, it focuses mainly on expanding social services while maintaining a free market and strong trade-oriented outlook. Michelle Bachelet, the country’s first female president, will step down on 2010 (successive reelection is not allowed). The opposition centre-right coalition is expected to win the election in 2009, but no drastic changes in economic policies are expected.

Chile has completed landmark free-trade agreements with the EU, the US, South Korea, Japan and Australia, continuing its export-oriented development strategy. Talks are ongoing with several other countries. The country is an associate member of the Common Market of the Southern Cone (MERCOSUR) and full member of the Asia-Pacific Economic Cooperation (APEC) organization.