Does Chile Property Price Bubble?

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PXYC
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Re: Does Chile Property Price Bubble?

Post by PXYC » Sun May 09, 2021 11:05 pm

PXYC wrote:
Wed Feb 26, 2020 10:33 pm
China has 50 million unoccupied houses and their bubble has never bursted nor is predicted to burst in the near future.

I don't think it's the quantity of new housing that bursts the bubble, by definition, it should be the combination of a large group of people forced to sell a large quantity of overvalued housing they cannot sell for the original price, typically because they can't pay their loans, and this representing a significant % of available housing. I would like to know what is the % of people that are paying their house on credit vs the total amount of houses already paid. I have the impression that buying your house on credit in Chile is a recent phenomen (>10 years), which means that if there is indeed people forced to sell overvalued houses the impact on the total amount of housing might not be that big - it will impact something, but maybe it won't burst anything.

Now, what I find very particular of Chile market is the price cost to rent ratio, which is pretty low, you need to wait a few generous years so that inflation works your way - on other countries it starts working on your favor almost as soon as you buy it. Comparing it with the rest of the world, where people invest their excess of capital on housing to generate more capital excess, wich rises renting prices to prohibited levels, I think it is at least something that young santiaguino professionals can't complaint (I know people with wages on the 600 lucas levels renting those very small apartments all for themselves for 250 lucas in Santiago with the subway on their door, while in my early years as a young professional in Europe, while having a higher that average wage level, I couldn't rent more than a shitty bedroom on a shared appartment with 3 other young professionals).
So, funny to read my post 1 year later. After all these months, there was not a bubble burst nor the feared real estate small investor wreck.
Me myself and I finally bought an appartment in Providencia in December - me and my partner switched from a 60m² to a 100m² appartment with a big balcony. The appartment we left (owned by us) has been up for rent for two months now and there has been near to zero interest on it - the pandemy has really slowed things but there are also not so many people looking for rent on the big city right now I would assume.

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Re: Does Chile Property Price Bubble?

Post by admin » Mon May 10, 2021 8:04 am

I think the rental market is sort of a victim of its own success in Santiago.

If there was a bubble, it was in apartments. especially small apartments. too many people speculating on airBnB money.

That got popped early on.

the rental market will come back, just not many want to commit to upgrading their expenses right now by moving to another place, and moving it mega hassel right now with all the restrictions.

also historically low interest rates, AFP money, probably got a few people off the sidelines to buy rather than rent.
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otravers
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Re: Does Chile Property Price Bubble?

Post by otravers » Wed May 12, 2021 6:19 pm

A couple of factors protect Chilean real estate from a real, lasting crash a la Japan:

1. Real estate prices have construction/replacement costs as a baseline floor. It's a phenomenon across the western world (let's generously include Chile in our definition of "western world" here) that young people don't want to / have been brainwashed not to pursue trade jobs. This is a multi-decade secular trend that doesn't seem to reverse any time soon. A young, qualified electrician or plumber will make significantly more money than many college "educated" people of the same age, and that's before taking account how much the latter have spent on university and unearned while studying. Factor in that they can stay fully employed forever barred being injured and plumbing or roofing seems like very sound career choices.

2. The UF reinjects baseline inflation into loan costs ergo into real estate costs, so at least in nominal terms prices continue to inflate mechanically.

On the other hand, if/when Chile goes full Chilezuela, all bets are off.

Looking at it globally, real estate prices have more than fully recovered from the 2008 crash in the US, they're through the roof in Australia and Canada, have significantly appreciated in Europe, and even a market like Germany that was famous for flat real estate prices have seen inflation.

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