New apartments in Southern Santiago saw the highest price rises, with a 12.7% increase y-o-y to March 2016. Western and Eastern Santiago saw price increases of new apartments around 6.8% and 5.8%, respectively. However new apartment prices in Central Santiago actually fell by 1% in real terms during the year to March 2016.
Home sales in Greater Santiago fell by 41% to 5,015 units during the year to Q1 2016, according to CChC figures. That's because home buyers rushed to buy before the end of 2015 to avoid paying higher prices in 2016 due to the implementation of VAT on properties.
"Many people that would have bought their home this year decided to do it last year so as not to pay the home tax that came about with the tax reform, so the fall in home sales was a predictable phenomenon," according to CChC sub director of research Marcela Ruiz-Tagle.
Chile’s real estate market saw real house prices increasing by almost 70% from 2004 to 2015. Even during the global financial crisis of 2009, there was only a small average price decline of 0.7% (from May to September 2009). The 2010 Chile earthquake of February 27, 2010 also limited annual house price growth that year. In 2011, house prices bounced back with 9.5% growth, followed by 5.5% growth in 2012, 4.2% in 2013, and 11.7% in 2014. The sudden rise was mainly driven by the apartment market, as strong demand accumulated in the northwest and southern areas of Greater Santiago from the beginning of 2014. Despite this in 2014, uncertainty around the new government, and its announcement of a possible tax adjustment, slowed sales. Also, supply shortages continued in 2014, especially in Greater Santiago due to land shortages, despite an increase in building permits, according to CChC.
In 2015, house price rises in Greater Santiago slowed to 4.4%, although national home sales accelerated by 24.6% to 79,694 units, along with a slight improvement in the country's economic condition. Increased building starts in 2014 and 2015 matched the increased demand, which helped to slow price rises.
In 2016, VAT of 19% will be imposed on sales of properties by "habitual sellers" such as real estate companies, and to legal or natural persons who purchase and sell their properties in a span of less than one year. Raw land or unimproved building lots are exempt from VAT.
According to the CChC, the VAT imposition is expected to increase property prices by around 8% to 12%, with properties worth CLF 1,000 (US$ 38,224) to CLF 3,000 (US$ 114,671).
Any individual or corporate body can acquire and own real estate in Chile, whether or not they are residents. However there are some restrictions regarding land located near the boundaries of the country. Chile has strong legal protection of property rights.
Analysis of Chile Residential Property Market »
Prices for apartments in Santiago are around USD 2,500 to USD 2,800 per square metre (sq. m.) or around USD 335,000 for a 120 sq.m. apartment. Prices in Viña del Mar are around 30% to 40% lower.
These are reasonable prices, and by the standards of the continent, Santiago has a comparatively low price to income ratio, with a typical 120 sq. m. apartment 17 times average GDP per capita.
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.
If the property is newly built by a developer, the transaction cost will be higher, due to the 19% VAT imposed on such properties.
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.
In 2015, Chile's GDP rose by 2.1%, after 1.9% in 2014. Chile's economic expansion in 2015 was driven by domestic demand, with government consumption rising by 5.8% and household consumption by 1.5%. Investment, on the other hand, remained weak.
Chile started 2016 with an expansion of 2% during the year to Q1 2016. The economy was aided by the price increase of copper (Chile's main export commodity) and other commodities. This led to the 2.4% y-o-y rise in exports, the fastest growth in two years. Imports, on the other hand, contracted further by 3% (from -1.9% in Q4 2014).
The central bank predicts an economic expansion of 1.25% to 2% in 2016, a downgrade from an earlier forecast of 1.25% to 2.25%. In 2017, economic growth is expected to be around 2% to 3%. "We expect the economy to continue growing below its potential for a few more quarters, impacted in particular by the weak performance of those sectors most dependent on investment," said the central bank in its recent quarterly Monetary Policy Report.
Chile ranks as an upper-middle income economy according to the World Bank. It has a track record of sustained growth, having grown at an annual average of 5.6% from 1990 to 2007, among the highest growth rates in the world.
From 2008 to 2012, Chile’s economy continued to grow strongly, and only had an economic contraction of 1.1% in 2009 as a spillover effect of the global financial crisis. Chile then managed a rebound of 5.7% growth in 2010, despite the earthquake. Strong economic growth continued from 2011 to 2013, with an average growth rate of 5.1%. In 2014, Chile posted its slowest economic growth since 2009, expanding by only 1.9%, due to the decline in global demand for copper and other mining products, and slower than expected output and domestic demand.
In May 2010, Chile became OECD´s first Southern American member, highlighting reduction of poverty from 45% in the late 1980s to around 14% in 2009. There were other advances, such as strengthening of state institutions and fighting corruption.
Fiscal discipline is one of the pillars of Chile’s solid international image. 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, but 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 0.02% of GDP in 2010 as the economy recovered. Chile posted a fiscal surplus of 1.87% of GDP in 2011 due to rising copper prices and higher tax revenues, followed by a surplus of 1% of GDP 2012. However, the country recorded three consecutive years of fiscal deficits: 0.7% in 2013, 1.6% in 2014, and 2.2% in 2015, due to the decline of income from Chile's main export commodity, copper.
One of Chile’s perennial problems is high unemployment, mainly due to restrictive and complicated labour 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 6.4% as of February-April 2016. According to the central bank, the jobless rate may rise up to over 7% in 2016 due to falling investment and weak economic growth. "The coming quarters are going to see lower (growth) on average ... so it's difficult to think that there could be an improvement in the labor market during the remainder of the year," said Rodrigo Vergara, Central Bank of Chile President.
In 2014, Chile began a new presidency. The Socialist Party's Michelle Bachelet had already served as president from 2006 to 2010 (Chile has a one-term presidency limit), and won in the run-off election held on December 15, 2013 against labour minister Evelyn Matthei, with 62.3% of the total votes. The new president, who succeeded the position previously held by former president Sebastián Piñera in March 2014, vowed to push educational, constitutional, and tax reforms during her term.