Housing market situation

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Baltimore
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Re: Housing market situation

Post by Baltimore » Fri Apr 05, 2019 1:55 pm

PXYC wrote:
Mon Apr 01, 2019 2:31 pm
Oh hey, really appreciate all your feedback, and "remates" is off-limits for me then!

I'm not in a rush to buy, I'm just interested, I really think that Chile will repeat the history that I already lived back in Europe, I'm just trying to learn the grey areas specific to Chile.

So far families trying to sell their parents appartments to subsidize medically assisted retirement were the only deals I tried to bid in Providencia, these kind of businesses usually comes with 30% dicount price but they obviously prefer "diñero contado" and I still need 40% of a loan so I was never able to make a deal. Also, its not easy to find so many opportunities like this - which is a good sign for the old folks I guess.. :wink:

For the other user who recommended me buying two or three appartments with credit, that is exactly what I won't do. I'm very careful with those kind of moves. Let me tell you what I know:
1. Jose buys 200k apartment at the top of the market with the confidence that market will always goes up. Jose can pay dividend but he barely makes it, in fact, his parents are his "fiador".
2. Some bank sneezes in USA. Economy drops. Pheriperical countries ate dragged into it.
3. Jose cannot pay his dividend. He tries to sell for 210k. He tries to sell for 200k. He tries to sell for 190k. The bank goes for his parents house and Jose finally is forced to sell for 150k because it is best to pay a 50k debt of nothing than the bank taking Jose's parents home.
4. After a 5 year correction, economy is better again and the housing market reaches a new top, but Jose is in deep sh*t forever.
I know people in my homecountry that lived this.

Look here another story closer to home, I have a Chilean friend, she is a doctor and she probably has a better salary than me, she bought a 300 palos appartment in 2017 in Providencia, it's very nice but i think "gee a little more and you could buy a pied a terre in Brooklyn, is it really this good here in Providencia?". In 2018 she has an amazing opportunity for a 2 year fellowship (with no salary, just a little housing help from governmenment program) abroad so she needs money and she cannot afford to pay her 1 palo dividend every month. Here what happened: she cannot sell her appartment for the same price and she is now renting it for 750 lucas a month. Ok so banks here give good credit score to doctors and she was able to refinance her debt, and she will probably return for an even better salary, but honestly i have known too many good people whose life were ruined by too much debt and never recovered. I'm good with what I have, I will not risk it, I am bidding tops 150 palos appartment.
I'm in a similar situation and decided not to buy a place yet, at least not in the neighborhoods I like. I can give a pretty big down payment and all banks offer me loans to buy almost anything I want, but price-to-rent ratios are way too skewed against purchase. The only folks that I know of that have entered that market and that are happy about it made down payments of nearly 70%-80% of the property value using money they inherited (maybe there was a better use for that money?). The other ones that are happy are those who bought 7-8 years ago, of course, before prices went up.

I have a couple of friends that work for investment banks and financial companies in Chile in similar situations and they decided to do the same, they all rent very nice houses or apartments for pennies w.r.t. the current "market value" of those properties. This is not because they cannot afford them, it is because on paper it looks like a bad business. Obviously, you can always ignore current price-to-rent indices and just bet on appreciation, which might be a good option if you have an appetite for risk, but that is not my type of game. I have a couple of those nice brand new 6-floor apartment buildings developed by Moller & Pérez-Cotapos (fancy ones) next to where I live and, dude, good luck trying to sell one of those things for more than what you paid for. It was quite interesting to see how rental prices for those properties posted on Portalinmobiliario.com dropped from 1.6M a month right after they finished the building to 800K or less per month now.

As others say, if you want a good investment, you might want to look at cheaper properties/neighbourhoods where you can just put 20% down, rent the property, and wait until it pays for itself. You might still be able to find some of these options in Santiago, but I believe that today the buy-to-let market is pretty competitive. You might also want to look at options outside of Santiago, where you are not competing against firms using computer algorithms to soak up the last bits of profitable options left on the table.

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41southchile
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Re: Housing market situation

Post by 41southchile » Fri Apr 05, 2019 4:20 pm

Baltimore wrote:
Fri Apr 05, 2019 1:55 pm
PXYC wrote:
Mon Apr 01, 2019 2:31 pm
Oh hey, really appreciate all your feedback, and "remates" is off-limits for me then!

I'm not in a rush to buy, I'm just interested, I really think that Chile will repeat the history that I already lived back in Europe, I'm just trying to learn the grey areas specific to Chile.

So far families trying to sell their parents appartments to subsidize medically assisted retirement were the only deals I tried to bid in Providencia, these kind of businesses usually comes with 30% dicount price but they obviously prefer "diñero contado" and I still need 40% of a loan so I was never able to make a deal. Also, its not easy to find so many opportunities like this - which is a good sign for the old folks I guess.. :wink:

For the other user who recommended me buying two or three appartments with credit, that is exactly what I won't do. I'm very careful with those kind of moves. Let me tell you what I know:
1. Jose buys 200k apartment at the top of the market with the confidence that market will always goes up. Jose can pay dividend but he barely makes it, in fact, his parents are his "fiador".
2. Some bank sneezes in USA. Economy drops. Pheriperical countries ate dragged into it.
3. Jose cannot pay his dividend. He tries to sell for 210k. He tries to sell for 200k. He tries to sell for 190k. The bank goes for his parents house and Jose finally is forced to sell for 150k because it is best to pay a 50k debt of nothing than the bank taking Jose's parents home.
4. After a 5 year correction, economy is better again and the housing market reaches a new top, but Jose is in deep sh*t forever.
I know people in my homecountry that lived this.

Look here another story closer to home, I have a Chilean friend, she is a doctor and she probably has a better salary than me, she bought a 300 palos appartment in 2017 in Providencia, it's very nice but i think "gee a little more and you could buy a pied a terre in Brooklyn, is it really this good here in Providencia?". In 2018 she has an amazing opportunity for a 2 year fellowship (with no salary, just a little housing help from governmenment program) abroad so she needs money and she cannot afford to pay her 1 palo dividend every month. Here what happened: she cannot sell her appartment for the same price and she is now renting it for 750 lucas a month. Ok so banks here give good credit score to doctors and she was able to refinance her debt, and she will probably return for an even better salary, but honestly i have known too many good people whose life were ruined by too much debt and never recovered. I'm good with what I have, I will not risk it, I am bidding tops 150 palos appartment.
I'm in a similar situation and decided not to buy a place yet, at least not in the neighborhoods I like. I can give a pretty big down payment and all banks offer me loans to buy almost anything I want, but price-to-rent ratios are way too skewed against purchase. The only folks that I know of that have entered that market and that are happy about it made down payments of nearly 70%-80% of the property value using money they inherited (maybe there was a better use for that money?). The other ones that are happy are those who bought 7-8 years ago, of course, before prices went up.

I have a couple of friends that work for investment banks and financial companies in Chile in similar situations and they decided to do the same, they all rent very nice houses or apartments for pennies w.r.t. the current "market value" of those properties. This is not because they cannot afford them, it is because on paper it looks like a bad business. Obviously, you can always ignore current price-to-rent indices and just bet on appreciation, which might be a good option if you have an appetite for risk, but that is not my type of game. I have a couple of those nice brand new 6-floor apartment buildings developed by Moller & Pérez-Cotapos (fancy ones) next to where I live and, dude, good luck trying to sell one of those things for more than what you paid for. It was quite interesting to see how rental prices for those properties posted on Portalinmobiliario.com dropped from 1.6M a month right after they finished the building to 800K or less per month now.

As others say, if you want a good investment, you might want to look at cheaper properties/neighbourhoods where you can just put 20% down, rent the property, and wait until it pays for itself. You might still be able to find some of these options in Santiago, but I believe that today the buy-to-let market is pretty competitive. You might also want to look at options outside of Santiago, where you are not competing against firms using computer algorithms to soak up the last bits of profitable options left on the table.
I personally dont know how skewed the rental returns are vs buying prices are, but I think if you have the money sitting there or at least 70 or 80 percent then it works, like you said.
Inheritance money etc, what are the alternatives? The stock market? Not everyone's into that, a crappy term deposit that pays you nothing, a rigged fondos minutos? A business with some dodgy partner that is at least 50 percent likely to rip you off even if he is family or friend. Property makes the most sense and I can see why so many invest in it. Its something physical as well, if all else fails you are still holding a physical asset you can drive past and look at, or even live there if you had to.
But you are right I think you need to go to the lower end of the market for the better returns, although from my back of the napkin estimates , if you had a pile of money and could buy freehold and rent it out continuously you could probably expect 3 to 4 percent annual return on that money . These are just around Puerto Varas, (I haven't really looked into cheap cheap options but they virtually dont exist anymore here) .
That's just straight rental , doesn't take into account any maintenance on the property (not an issue with most people here and probably very low spend on that) also taxes to pay, although they are relatively low. I'm also not including insurance or any other expenses, so you buying freehold you maybe fine with that.
But if you are buying with a mortgage you are basically forced to gamble on property appreciation and the capital gains, as the rental return doesn't work to cover you costs, unless you can use it to offset some other taxes, which I'm not sure if you can anymore, you probably can , I would have to check.
If you are looking to make decent money and of course if you time it right you are only looking at the appreciation the rental is just offsetting some of your cost to service your mortgage .
Although if you are doing it for a living expect to pay between 27 and 40 something percent tax on that capital gain , can be less if you have a good accountant, (which you should if you are doing it for a living), theres always a way to lower it, but there are no tax free cap gains.
Even building to rent out doesn't really add up unless you have super cheap land, but then you will be in the middle of nowhere and no one will rent it anyway , or again doing it to lower tax somewhere else.
Like it was in NZ I suspect a lot of the advantages are tax advantages here rather than just pure cash flow from rentals.
NZ rental returns too were probably about 5 percent per annual on same senario as above with a pile of cash before any expenses. The difference was there they had interest only mortgages for 5 yrs you could keep rolling over and you could offset "losses" against your income taxes, also tax free capital gains, they stopped most of that earlier this decade, not before a lot of people did very well and property prices exploded and now there is an "affordability crisis".
No way would I invest in property in Puerto Varas town now. Over hyped and over priced for me. If only I wasnt partying it up in 2001 and 2003, that was the time to invest in Puerto Varas. Hell even up till about 2010, now its a struggle, especially as you point out with so many playing that game.
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at46
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Re: Housing market situation

Post by at46 » Fri Apr 05, 2019 7:38 pm

41southchile wrote:
Fri Apr 05, 2019 4:20 pm
But if you are buying with a mortgage you are basically forced to gamble on property appreciation and the capital gains, as the rental return doesn't work to cover you costs
The rent can still cover the cost of mortgage in an apartment priced around 2200 UF with 20% down. A friend just bought one here in Concon for around that much and invested about 400 mil to fix it up. Rented it two months before the deal even closed for exactly the same amount as his mortgage payments.

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Re: Housing market situation

Post by 41southchile » Fri Apr 05, 2019 8:06 pm

at46 wrote:
Fri Apr 05, 2019 7:38 pm
41southchile wrote:
Fri Apr 05, 2019 4:20 pm
But if you are buying with a mortgage you are basically forced to gamble on property appreciation and the capital gains, as the rental return doesn't work to cover you costs
The rent can still cover the cost of mortgage in an apartment priced around 2200 UF with 20% down. A friend just bought one here in Concon for around that much and invested about 400 mil to fix it up. Rented it two months before the deal even closed for exactly the same amount as his mortgage payments.
Yup, that's why I put the proviso " But you are right I think you need to go to the lower end of the market for the better returns"
I was sort of thinking along the 5000 UF and up market. I'm not sure where the limit is on when rent would cover a mortgage, and when you would have to cover the difference but you right , on 2200 UF with 20 percent down its doable to cover the mortgage.
I don't think there are any apartments in that range in Puerto Varas, most are desde 3900 UF.
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Re: Housing market situation

Post by at46 » Sat Apr 06, 2019 11:31 am

Baltimore wrote:
Fri Apr 05, 2019 1:55 pm
I have a couple of those nice brand new 6-floor apartment buildings developed by Moller & Pérez-Cotapos (fancy ones) next to where I live and, dude, good luck trying to sell one of those things for more than what you paid for. It was quite interesting to see how rental prices for those properties posted on Portalinmobiliario.com dropped from 1.6M a month right after they finished the building to 800K or less per month now.
If the decision to build that was made based on a computer algorithm, someone must have forgotten to update it :)

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Re: Housing market situation

Post by Baltimore » Sat Apr 06, 2019 1:18 pm

at46 wrote:
Sat Apr 06, 2019 11:31 am
If the decision to build that was made based on a computer algorithm, someone must have forgotten to update it
LOL, I agree, but some people are still willing to buy those apartments at posted prices, even if after buying them they can only rent them for $800.000 pesos per month, so I'm not sure if the inmobiliaria that built those apartments made a bad decision. But I'm sure you can find the exception of a visitor/diplomat/CEO whose rent is paid for by a company that will just pay whatever rent price you ask for. BTW, I'm talking about apartments with gastos comunes between $250.000 and $350.000 per month.

Maybe these purchase decisions make sense if you are filthy rich and have lots of cash sitting under the pillow? Or maybe they made an excellent bet and apartments in the 10.000UF -15.000UF range will actually sell for 30.000UF in 5 more years...

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Re: Housing market situation

Post by 41southchile » Sat Apr 06, 2019 5:39 pm

So I was talking to someone last night who is involved in construction, . apparently some construction companies are selling appartments with big discounts and in some cases are having to slash their asking prices in Puerto Varas , and at least two appartment buildings are stallled mid construction due to difficulties financing . There also seems to be more and more concerns about quality of appartments and leaks and fast deteriation of some newish builds, basically construction companies building Las Condes style appartment towers (with huge huge gastos comunes too) in the inclement South is not always a good ideas it seems and the fizz has definitely gone out of the appartment market here, still wouldn't buy one. Over 100 million for a 46sqm appartment with bathrooms with no windows and no central heating, still sounds like they suckered a few people in, now the game might be up as the penny is dropping for many it seems
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Re: Housing market situation

Post by admin » Sun Apr 07, 2019 8:02 am

yea i have always been baffled by the santiago crowd that comes down to southern chile to live in a concrete box; when you can get a house for pretty much the same price plus 5000 square meters if land.

I believe it is same people that freak out at the sight of dirt road.
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Re: Housing market situation

Post by passport » Sun Apr 07, 2019 1:38 pm

I find it incredible that he local building code allows apartment construction without central heat

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41southchile
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Re: Housing market situation

Post by 41southchile » Sun Apr 07, 2019 2:08 pm

passport wrote:
Sun Apr 07, 2019 1:38 pm
I find it incredible that he local building code allows apartment construction without central heat
So do I. Mind you I find lot of things incredible here, but remember it's not always a case of whether the building code allows it or not, sometimes its a case of, build first get permission later (or modify their original plans that were granted permissions).
Forgivness or multas after construction is always easier to seek than permission in many constructoras eyes.
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Re: Housing market situation

Post by at46 » Sun Apr 07, 2019 6:18 pm

passport wrote:
Sun Apr 07, 2019 1:38 pm
I find it incredible that he local building code allows apartment construction without central heat
I've lived in three buildings with central heating installed. But, looking at the monthly gastos comunes, I can see that only 5-10% of the residents actually use it. The cost of central heat versus portable electric heaters for a two bedroom in my current building is about three times higher. What's the point of installing it if only a few people use it?

Choosing a building to live in I look at the number of apartments occupied permanently, and also whether or not I'd have neighbors (and what kind of neighbors) above and below. Because chances are my apartment would be warmer between two others with permanent residents in versus empty ones, with or without central heat.

In any case, orientation towards the sun and having thermopanel windows are more important factors for me than both the central heat and the neighbors. Those are the only 100% sure ways to reduce your heating costs that I know of.

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Re: Housing market situation

Post by 41southchile » Mon Apr 08, 2019 9:44 am

at46 wrote:
Sun Apr 07, 2019 6:18 pm
passport wrote:
Sun Apr 07, 2019 1:38 pm
I find it incredible that he local building code allows apartment construction without central heat
I've lived in three buildings with central heating installed. But, looking at the monthly gastos comunes, I can see that only 5-10% of the residents actually use it. The cost of central heat versus portable electric heaters for a two bedroom in my current building is about three times higher. What's the point of installing it if only a few people use it?

Choosing a building to live in I look at the number of apartments occupied permanently, and also whether or not I'd have neighbors (and what kind of neighbors) above and below. Because chances are my apartment would be warmer between two others with permanent residents in versus empty ones, with or without central heat.

In any case, orientation towards the sun and having thermopanel windows are more important factors for me than both the central heat and the neighbors. Those are the only 100% sure ways to reduce your heating costs that I know of.
Yeah I guess so, but in a cooler climate like Puerto Varas, if I was going to live in an appartment I'd like the option at least, maybe its those ones that are not selling?
I've seem signs up for another appartment ready to start that offers central heating, underfloor heating, energy efficient etc etc. I guess the market dictates.
But to hear of leaky appartments less than 5 years old is kind of a sign to steer well clear of them, central heating or not.
It's no secret around town that the previous socialist mayor of Puerto Varas received quite a few brown envelopes during his term from constructoras as well as a lot of other inappropriate behavior, a simple internet search of news articles will show how he put back progress in Puerto Varas by 4 years the way he operated.
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