Housing market situation

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Britkid
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Re: Housing market situation

Post by Britkid » Tue Jan 16, 2018 9:08 pm

It's been so long since land/house prices went down any serious amount ....when did this happen? certainly well before my time here? before 2000??? Can anyone even say? It's been so long that there is no conception that it could happen (the idea is alien to people when I bring it up they just dismiss it) which makes me wonder if we are in a bit of a bubble. If copper dives and the economy tanks, it could lead to a decline. On the other hand, if the economy does well the prices will just stay at a similar level with no real growth for quite some time.

My wife told me she saw some property advertised locally at a lower price than before. I could see the same thing happening here as what happened in the UK. When the market starts going down, people refuse to drop their selling prices. Advertised prices at a certain point in time in the UK (end 2008 or start 2009 maybe) were only 5% down but actual sale prices were say 15% down. Others just refuse to drop the price, and total sales reduce. Could see that happening here.

The Chileans who turned down an offer of 120,000 for some amount of land is going to really struggle to accept if 1 year later 100,000 is a good offer and they should take it. They won't.

I'd be very hesistant about investing in Chilean land, personally.

But, this is one of those things I give opinions on when really I have no idea, so treat this as the opinion of a drunk in a pub and you'll be about right. I don't even follow the housing market.
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at46
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Re: Housing market situation

Post by at46 » Tue Jan 16, 2018 9:45 pm

Britkid wrote:
Tue Jan 16, 2018 9:08 pm
If copper dives and the economy tanks, it could lead to a decline.
Hello?

Is a 55% dive in copper not a dive?
http://www.infomine.com/investment/meta ... opper/all/

And is the GDP dropping by 15% not an economy tanking?
https://www.google.com/search?q=GDP+Chi ... 1I7GGLL_en

Meanwhile, Santiago apartments are up 35% in UF terms.

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murf
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Re: Housing market situation

Post by murf » Wed Jan 17, 2018 1:02 am

Britkid wrote:
Tue Jan 16, 2018 9:08 pm
It's been so long since land/house prices went down any serious amount ....when did this happen? certainly well before my time here? before 2000??? Can anyone even say? It's been so long that there is no conception that it could happen (the idea is alien to people when I bring it up they just dismiss it) which makes me wonder if we are in a bit of a bubble. If copper dives and the economy tanks, it could lead to a decline. On the other hand, if the economy does well the prices will just stay at a similar level with no real growth for quite some time.

My wife told me she saw some property advertised locally at a lower price than before. I could see the same thing happening here as what happened in the UK. When the market starts going down, people refuse to drop their selling prices. Advertised prices at a certain point in time in the UK (end 2008 or start 2009 maybe) were only 5% down but actual sale prices were say 15% down. Others just refuse to drop the price, and total sales reduce. Could see that happening here.

The Chileans who turned down an offer of 120,000 for some amount of land is going to really struggle to accept if 1 year later 100,000 is a good offer and they should take it. They won't.

I'd be very hesistant about investing in Chilean land, personally.

But, this is one of those things I give opinions on when really I have no idea, so treat this as the opinion of a drunk in a pub and you'll be about right. I don't even follow the housing market.

I remember as a young lad back home in Ireland, one of the neighbors went off to London and bought a house (think late 70’s - early 80’s)
He paid somewhere in the region of 70k quid iirc. It was the price of a farm at the time. Within a few short years he had to dump it for 40k, so property prices do correct in the U.K. perhaps not in recent memory but they do nonetheless.

Likewise here in the US we had a gold rush of sorts with property prices rising steadily at first then exponentially over a long period from early eighties until 2008 when the rug was pulled out from under it then widespread panic set in and the tulips came home to roost....


I am in no rush to purchase and frankly, won’t unless I need to for relocation purposes or if there is a sizable correction.
"Life is what happens to you while you're busy making other plans"

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murf
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Re: Housing market situation

Post by murf » Wed Jan 17, 2018 1:10 am

at46 wrote:
Tue Jan 16, 2018 9:45 pm
Britkid wrote:
Tue Jan 16, 2018 9:08 pm
If copper dives and the economy tanks, it could lead to a decline.
Hello?

Is a 55% dive in copper not a dive?
http://www.infomine.com/investment/meta ... opper/all/

And is the GDP dropping by 15% not an economy tanking?
https://www.google.com/search?q=GDP+Chi ... 1I7GGLL_en

Meanwhile, Santiago apartments are up 35% in UF terms.
Copper has become much more of a speculative commodity and is governed as much by that as by supply and demand and also, the Chilean economy is diversifying rapidly so I’m not sure how intertwined the two are anymore
"Life is what happens to you while you're busy making other plans"

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Re: Housing market situation

Post by admin » Wed Jan 17, 2018 11:05 am

Well, we have been having the 'is Chile's real estate market a bubble' conversation now for over a decade, including through the 2010 earthquake and the 2008 international mortgage crisis. Probably not a bubble. Then also, I suppose the point of a bubble is, no one sees it until it blows-up. If it is a bubble, It at least has some room to run and some new fuel to continue inflating.

January, 2018, this is what i see:

This is a paywalled article, but the headline pretty much says it all.
https://www.df.cl/noticias/mercados/mer ... 02217.html

48.9% of businesses are increasing their investment for 2018, 34.8% are increasing salaries. That money has to go somewhere.

Everyone is calling it the pinera effect. Which I think translates to 'he is not likely to shoot the economy in the foot, even if he does nothing else'.

GDP growth is being targeted at 3.0 to 3.5% this year, with a possible upside surprise. Chilean stock market, in dollar terms, was the second best performing EM stock market in the World in 2017. Estimates are another 18% is possible in 2018.

The electric car / renewable energy boom, is putting Chile in a privileged position for the next 10 years or so. What is the stat. An electric car uses 4 times the copper of a gas vehicle. Copper demand will be up, Chile has lithium and a bunch of other things the EV market will need.

Chile had the second lowest inflation in the region for 2017, next to Peru.
http://www.pulso.cl/economia-dinero/chi ... inflacion/#

The building association recently estimated 500,000 shortage in houses in Chile.

One of the bigger issues they site is replacement costs. Chile built a lot of crappy houses and apartments over the course of 30+ years, and now people are wanting newer, and better houses. If you just do a conservative back of the napkin calculation, and assume that all construction in Chile (or at least vast majority), is built half as good as say the U.k. or the U.S., how long do you think those houses are going to last? You don't see whole lot of 100+ year old houses in Chile. The ones built 20 years ago, probably have a half life of about 30 years.

I actually believe there is pent-up demand for new houses, due to everyone sort of holding back for the last 3-4 years to see what was going to happen with the election.

We also are seeing a serious decentralization going on in Chile, finally. Lot's of people are permanently moving out of Santiago, but they are demanding newer and better housing. The puerto montt airport use to be ghost town, with the 1 or 2 flights a day. Now, 20+ flights a day (lost track of the current number), in the down season, and the flights are cheap.

The central bank lowered interest rates, that has people buying real estate again. There was talk the central bank might lower interest rates again, but think they might hold tight to see what the strong dollar does for inflation. 50% of Chile inflation index is tied to imported goods. So, let's see.

There is moratoriums being implemented by the cities against new high-rises in the center of the city. This has happened in Puerto Varas, central Santiago, few other places. Cities are trying to get a handle on the population density and infrastructure. Even little Frutillar, population 17,000, is going vertical with new apartment buildings being built. That is pushing developments out to new areas.

So, could this all be a bubble, yea; but, that trauma from the real estate market is always a question.
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Julito
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Re: Housing market situation

Post by Julito » Wed Jan 17, 2018 3:59 pm

Property development (new houses and apartments) didn't even seem to pause over the last 4 years in and around Villarica/Pucon. And it's not only holiday accommodation, many people are moving to live permanently in the area.

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Space Cat
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Re: Housing market situation

Post by Space Cat » Wed Jan 17, 2018 4:43 pm

murf wrote:
Tue Jan 16, 2018 8:31 pm
There appears to be a flooding of cheap credit and banks appear to be “throwing “ money at the masses. In fact the hardest part of getting a loan seems to be the inexplainable wait time at every bank branch.
I recently argued about this with my friend and then checked the OECD stats. Chile seems to have one of the lowest household debts unless I'm looking at the wrong stats or the government is reporting it with some tricks.

It's 66% here vs. 121% Spain, 150% UK, 173% Canada, 276% Netherlands and 300% Denmark.

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Re: Housing market situation

Post by admin » Thu Jan 18, 2018 8:09 am

Space Cat wrote:
Wed Jan 17, 2018 4:43 pm
murf wrote:
Tue Jan 16, 2018 8:31 pm
There appears to be a flooding of cheap credit and banks appear to be “throwing “ money at the masses. In fact the hardest part of getting a loan seems to be the inexplainable wait time at every bank branch.
I recently argued about this with my friend and then checked the OECD stats. Chile seems to have one of the lowest household debts unless I'm looking at the wrong stats or the government is reporting it with some tricks.

It's 66% here vs. 121% Spain, 150% UK, 173% Canada, 276% Netherlands and 300% Denmark.
Well, there is a bit of gaming of those stats, but I believe in a good way for the economy. While other countries, especially the United States, seems to make it harder and harder for people to get out of debt and rebuild their credit; Chile, has progressively made it easier and easier.

I believe overall it is a good thing. Typically around 7 years or less in Chile, and people can start rebuilding their credit.

For the banks and other creditors also get fairly quick and easy liquidation for debts; bad debts don't turn in to ghost debts sitting on their books forever. Typically about 6 months to about a year for example to take someone's debt, run it through the courts, and get their assets to auction. They might not recover all their money, but a good portion of it.
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Re: Housing market situation

Post by admin » Thu Jan 18, 2018 12:38 pm

House sales in Santiago, up 16% in 2017
http://www.pulso.cl/empresas-mercados/v ... rtamentos/

and stock market just broke 5,800 for the first time:

http://www.pulso.cl/empresas-mercados/i ... -historia/

Although, I seen an inflation / dollar adjusted calculation that the stock market needs to really hit more like 6,000+ to set a new record high.
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Re: Housing market situation

Post by admin » Thu Jan 18, 2018 1:08 pm

Then you have this stuff going on. Puerto Varas suspends building permits for all new high-rises, and the courts back them up:
http://www.ellanquihue.cl/impresa/2018/ ... incipal/2/
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Re: Housing market situation

Post by murf » Fri Jan 19, 2018 12:25 am

The price of Copper and debt ratios (the latter which I take with a grain of salt) are all very well but they have little do do with immediate valuation of property.

There are three main methods of property valuation
1) income method or approach
This is a method whereby the Income or ability to generate income from a property are taken into consideration and a multiple applied (approximately 14x) to assign a valuation
2) Replacment cost
This method takes into account the cost of replacement of structures and land costs.
The land valuation in this method may be derived from the income approach or by
3) comparison method
In this method the value of the property is decided based upon sales of similar properties within a given period of time, usually within the last six months

If you apply any of these standard methods of valuation to the market in Chile you will find that the market is out of kilter.

Even if one applies the generalized method of 3-5 times house hold income the prices don’t make sense.

If one takes a look at the following data and compare Chicago with Santiago then one can easily see that Chicago commands roughly 1.5 Times the wage for a given profession and thus should have a 1.5 Times the valuation of property in Santiago but I can tell from experience that property in maipú is twice as expensive as comparable property in similar locations in Chicago and even then, the quality of the housing stock in said barrios is inferior.
https://teleport.org/cities/santiago/salaries/
https://teleport.org/cities/chicago/salaries/

I’ve seen rents for 3 bedroom properties in barrios of Santiago which rent for as little as $250 US per month commanding prices of over $100k US

I was hoping that someone might enlighten me by saying there are outside influences, perhaps rich Argentineans buying up Con Con as I have seen a lot of Argentinean plated cars on the coast but I honestly don’t know.

In full disclosure, I felt that there was a bubble last time I was in Chile, 6 years ago and an apartment I intended to purchase then on the coast for $160 k US now has an asking price of $240k US so one might ask “what does Murf know”
Perhaps Chile is indeed “different “
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Re: Housing market situation

Post by admin » Fri Jan 19, 2018 8:11 am

I like the auction method of valuation.

Watch a room of 100 people or so, with 5 to 10 interested in a particular property, and see how much they are willing to pay in say 3 to 5 mins of bidding. That is your liquid real time base value of a property at any moment. About as close as you get to a real estate stock exchange. The problem is the really hot markets you almost never see properties go to auction. It is rare to see most properties go for under 50% of their market (apraised) value. More typically only about 30% under.

I have a million theories for it, but they mostly boil down to chileans like real estate.

Most any chilean will invest in property, given the chance. Try talking to them about other sorts of investments, and their eyes will cross.

Perhaps it a throwback to the days of hyper-inflation, where real estate holders managed to hang on to their wealth, while everyone else took the hit. There is a possibly a cultural security factor to it.
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