Santiago and Concepción are attractive for residential property investors, Viña Del Mar less so, says the Global Property Guide
There are surprisingly large differences between returns on residential property in Chile’s main cities. The Global Property Guide (http://www.globalpropertyguide.com), the research site for residential property, released today the results of research into rentals in major cities of Chile. It revealed that:
- Apartments in prime areas of Santiago have excellent average rental yields of 8.16%.
- Apartments in the city of Viña Del Mar yield only half as much, on average, with gross rental yields of around 4.31% only. (Please see the article here: http://www.globalpropertyguide.com/Latin-America/Chile/Rental-Yields)
The rental yield is the annual rental income on a property, as a percentage of today's property purchase price. This is what a landlord can expect as return to his investment. The rental yield is one useful yardstick of whether property is over-valued or under-valued.
The high yields on apartments in prime areas of Santiago - Las Condes, Providencia, and Vitacura - suggest that these Santiago areas make good residential property investments.
Apartments in prime areas of Santiago cost on average US$ 98,520 for a 60 square meter apartment, according to the Global Property Guide’s research, versus US$ 87,480 for the same sized property in Viña Del Mar. However, 120 square meter apartments are more expensive in Viña Del Mar than in Santiago.
The result? Looking across the different sizes, prices in the two cities are more or less the same, on average.
Though apartments in Santiago and Viña del Mar cost around the same, per square meter, yet Santiago apartments produce twice as good rental returns – i.e., rents for the same sized apartment in Santiago are nearly twice as high. This means that Santiago is much more attractive as a residential investment.
In the southern city of Concepción, 120 square meter apartments have excellent gross rental yields of 9.04% - also, an excellent level of rental yields, making Concepción a very attractive investment.
Why consider rental yields? Some investors in residential property may ignore rental returns, being more concerned with capital gains.
Yet even they would do well to consider rental yields. The rental yield, or price/rent ratio, is similar to the price/earnings ratio in the stock market. As in the stock market, property investments with high rental yields tend to perform better, and have higher capital gains, in the long-term.