Property Values?

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El Chupacabra
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Property Values?

Post by El Chupacabra » Mon Oct 05, 2015 8:37 pm

Hello all, I wanted to reach out to the forum members and get your opinions on the current real-estate values. Over the last 10 years real estate prices have significantly increased, and I was wondering if anyone thinks there might be a market correction or price drop in the near future? I'm debating on purchasing a few properties, but am hesitant. Your thoughts and opinions are all welcome.

Areas of interest include around Santiago, Vina del Mar and some land around the Puerto Varas area.

Thanks.
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Re: Property Values?

Post by Britkid » Mon Oct 05, 2015 9:13 pm

A neighbour, 2 doors down, put her house up for sale and withdrew it after no success. I'm wondering if we are getting into a situation where asking prices are constant, but actual sale prices and amount of sales are in decline.

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Re: Property Values?

Post by Donnybrook » Mon Oct 05, 2015 10:07 pm

Previously owned houses are experiencing a slump in the general Santiago area. Maybe due to the number of new flats available. Maybe due to unreal expectations about how much you can get for one. With a new flat you have a 5 year guarantee and nothing to fix (hopefully). With a used house you always have something to do before you can move in. I know mine could do with painting and updating the bathrooms. I would just subtract that cost, or near it, from an asking price. Actually, I do have two people who have asked to be first refusal. All sorts of things like location can be game changers.

There is a bit of a glut on the market of flats people bought to rent and a lot are either empty or rented out for less than planned.

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Re: Property Values?

Post by thisisreallycomplicated » Mon Oct 05, 2015 11:22 pm

El Chupacabra wrote:Hello all, I wanted to reach out to the forum members and get your opinions on the current real-estate values. Over the last 10 years real estate prices have significantly increased, and I was wondering if anyone thinks there might be a market correction or price drop in the near future? I'm debating on purchasing a few properties, but am hesitant. Your thoughts and opinions are all welcome.

Areas of interest include around Santiago, Vina del Mar and some land around the Puerto Varas area.

Thanks.
I'm waiting for the correction. I don't know what's normal around here, but there seems like a lot of new houses, without people living in them. So I'm thinking they overbuilt.
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Re: Property Values?

Post by AHusband » Mon Oct 05, 2015 11:47 pm

I haven't been in the Vina/Valpo area very long (2.8 years). But I have seen so many condiminos or gated communities advertise to sell flats/houses and just not sell them (for 2 years). I have also seen places for rent continually over 2 years. Never a price change. Also, I have seen huge amounts of construction during the last 2 years.

Something doesn't add up.

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Re: Property Values?

Post by thisisreallycomplicated » Mon Oct 05, 2015 11:59 pm

AHusband wrote:I haven't been in the Vina/Valpo area very long (2.8 years). But I have seen so many condiminos or gated communities advertise to sell flats/houses and just not sell them (for 2 years). I have also seen places for rent continually over 2 years. Never a price change. Also, I have seen huge amounts of construction during the last 2 years.

Something doesn't add up.
I think overbuilding is what usually happens later in a real-estate bubble. And when I first got here, people were telling me that prices had been going up a lot, and they were going to keep going up. So I figured the end was near, and it was better to wait for the crash.
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Re: Property Values?

Post by admin » Tue Oct 06, 2015 9:37 am

Yea, Chileans will ask absurd prices, not sell the property, and then keep raising the price in such a way as to outrun the market when it does not sell.

The new developments, with the big developers, will appear to sit empty for all kinds of reasons. First, the cities can drag their feet with the final reception issuing the title. Construction delays, and so on. they themselves might be sitting on the project until the prices improve.

keep in mind, the costs to build most everything in Chile is nowhere in line even with the sale price, still. I sat down one time with my wife's cousin. she is construction engineer, and owns her own construction company (they do roads and drainage type stuff for the government). We did some back of the napkin calculations on those big new shiny towers you see with a sale price of 100 million+ per unit. Do you know what it costs to build one of those apartment units?

About $10-15 million pesos per unit or less, depending on the size and such. Perhaps a little more or a little less, project to project; but, they are way cheap to build. The economies of scale protect them on most of those buildings. They are mostly concrete, and concrete is cheap in bulk. so, yea, they got some profit margins to work with, even in a dead or contracting market. Don't cry those guys.

Even with a dead market, the tax advantages of owning real estate for private citizens is likely one of the best investments out there. Until the new reform fully kicks in, there is no capital gains on owning real estate. Even with the new reform, real estate up to about the first 190 million pesos will still be capital gains free. So, parking money in real estate, even in a nearly flat market, is beats a CD or whatever. Inflation alone will push the market price.

Now, all that said, what is happening, from my humble perspective, is that people are starting to get in to financial trouble in other places; and are looking to unload secondary, investment, speculative properties. Better to for example dump that parcela you bought 4 or 5 years ago in Puerto Varas while on vacation (that has tripled in price), and never did anything with it; than loose your house in Santiago because you lost your job, or can not keep up with your bank payments, or whatever.

If you want a real perspective on where the bottom of the market is at, and just how liquid it is, watch the auctions. Not even for investment purposes, as auctions are problematic and complicated, but to see what the banks and others are liquidating properties at. You can get a sense of what sorts of loans are going bad in the market, how much the bank loaned, and who is in trouble. It is not a perfect measure, for all kinds of reasons, but over time you get a feel for increases and decreases in the distressed property market and the economy overall. A lot of the property being auctioned, not just real estate but things like machinery, is because some other loan besides a mortgage went bad. For example, consumer credit card debts, small business loans, and so on. The banks will seize property and force it to auction to collect a portion of the debt. Often the person will still owe more money.

From there, you can guesstimate that if there is a general uptick in the amount of auctions, there is also an uptick in people liquidating properties and other assets that are in trouble but not necessarily to the point that they are going to end-up at an auction or in court sort of trouble.

For example, I have some family in Santiago that have been renting a big house for about 5 years, diligently paid the rent and so on. They just got notice from the owner that he wants the house back because he is in financial trouble and needs to sell it.

So, you get auction properties + a lot of financially unstable people dumping properties at one time right now, and generally looking to move their properties rather than let them sit on the market forever. You might throw in some of these developers that are overstocked, and perhaps even have some dollar loan payments or something to make, to get on with their next project. Motivated sellers, let's call them.

Those are the guys pushing prices down or at least flat. There is always the fishermen in the market that will sit on a property for years, that are in no real hurry, waiting for that 15-30% a year rise to continue (perhaps they will over the long-haul). The guys that have to unload, those are the guys moving the market right now.

Unemployment numbers the government is reporting right now I don't buy. One thing is I believe they are only capturing unemployment at the low end of the wage scale, but I don't believe they are catching the professionals.

I am hearing a lot of antidotel evidence that the mid to high wage earners, mostly made up of professionals, are suffering major unemployment problems; and I do not think the government stats are capturing them, as they are neither here nor there on the employment roles of companies. Friend of mine was on the phone with a friend of hers that manages a company. He said, "8 out of 10 of my friends are unemployed right now". She said, "well now it is 9 out of 10". They were referring to their circle of friends that were upper income professionals. The guys making about 1 to 4 million pesos a month. The sorts of people who's household incomes run about 2-8 million pesos a month. Also the sorts of people that tend to invest in that second or third property.

They often work as independent contractors, or even if they are on the pay rolls, laying one of them off has a disproportional impact on the earned wages out there. They overall tend to be a bit more unstable in their employment, but also make more money when employed. They are the guys with sufficient money to possibly ride out periods of unemployment for a while, but they also tend to be the types of people that might own an extra rental property, a summer house, a speculative bit of land in the south. When they get in to trouble, they will unload those extra resources to cover their short-fall. They have credit lines at the bank, lot's of credit cards, car loans, and so on; so they are covering their margin call on their lifestyle by unloading property.

Now, all that said, again, keep in mind that we are in the low ebb of the annual property cycle right now. The winter, all across Chile, is when prices like clock work contract or go flat. People simply buy less, and are looking for property less. This is especially true outside the urban areas, in rural farming or tourism type areas. Every year, prices go up in the summer, as sellers see window shoppers on vacation, then they flat line in the early fall as the window shoppers go back to Santiago, and then they get desperate about this time in the spring, just before the planting season or the tourism season starts again. 9 out of 10 of those window shoppers are not serious buyers, but it makes sellers believe there is demand for their property, and thus they increase the prices.

So, before making any real claim about prices and the real estate market, we need to watch through the summer, and see how the market develops. If come February, lot's of properties are still on the market, and prices don't move or go down, then we could see super drops in prices next fall (March and later). If the unemployment situation is as bad as I think it is, among top wage earners, we should see lot's of Chilean stay in the country for vacation (strong dollar should keep them corralled), but not shop for properties as much while on vacation around the country (less window shoppers).

Still, remember the famous, high-demand areas, will suffer the least, and rebound the fastest. Vina, puerto Varas, los condes, and so on. Marginal locations, the places Chileans don't really like all that much but gringos might (e.g. remote patagonia), will take longer and be hit harder.
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Re: Property Values?

Post by admin » Tue Oct 06, 2015 9:50 am

oh, by the way,the friend I mentioned above that is unemployed, does environmental impact audits for mega multi-billion dollar projects (dams, ports, mines). Essentially, if she is unemployed, it means there is a major pull-back in planned mega projects; or, put another way, if she is unemployed, it means, at some point thousands of other jobs will never materialize because the drop in demand for initial and ongoing environmental audits required for those projects to even get started or keep on going. She is literally the economic canary in the coal, copper, lithium, gold mine (and a bunch of other things).
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Re: Property Values?

Post by nwdiver » Tue Oct 06, 2015 12:26 pm

New apartments 10-25% off asking price.................... used apartments, we don't buy as they think the property is worth what it was worth 2-3 years ago............. they are not selling........ the bubble will burst and Chile will hurt as most peoples net worth is in their properties.............. this isn't Vancouver where 100,000 multi millionaire from across the sea want to own a property, and well its pretty beautiful ;)
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Re: Property Values?

Post by john » Tue Oct 06, 2015 12:44 pm

admin, thanks for your insightful synopsis on the current property market. At last night's Rotary Club meeting, I heard anecdotal evidence that appears to substantiate your comments about the unemployment situation, especially among higher-end professionals. Some of the members are self-employed professionals (architects, construction engineers;etc.) and they were bemoaning the 'fact' that things have slowed down considerably in their's and related industries...which they believe is a harbinger of a major correction to come in the real estate market within the next few months. One of the members is also a licensed auctioneer and he indicated that he has seen a significant pickup in the number of estate auctions recently. All seemingly strong indicators of downward pressure on property prices to follow in the very near future.

To the original OPs query, yes, there is strong anecdotal evidence to indicate a major downward correction in real estate prices is on the horizon...and, I concur with admin. that the optimum time to make a property investment might be in the March time period.
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Re: Property Values?

Post by thisisreallycomplicated » Tue Oct 06, 2015 3:07 pm

Is there any data available, on historical property prices here? I'm wondering how overpriced things are. I know it's available in the US, but I haven't seen anything yet here. But I haven't really looked either. Are sale prices public record?
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Re: Property Values?

Post by thisisreallycomplicated » Tue Oct 06, 2015 3:36 pm

thisisreallycomplicated wrote:Is there any data available, on historical property prices here? I'm wondering how overpriced things are. I know it's available in the US, but I haven't seen anything yet here. But I haven't really looked either. Are sale prices public record?
I just did some searching, and there is some available. I don't know if it's reliable, but so far it seems consistent with what I know (house prices increasing a lot more than inflation).
“Now it’s conspiracy – they’ve made that something that should not even be entertained for a minute, that powerful people might get together and have a plan. Doesn’t happen, you’re a kook, you’re a conspiracy buff!” – George Carlin

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