Does Chile Property Price Bubble?

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vamoschile
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Does Chile Property Price Bubble?

Post by vamoschile » Thu Feb 20, 2020 1:01 am

Does Chile have a property price bubble? I ask because I look at local prices for property/houses and it seems really high for the wages that most Chileans make. Do you think there could be a potential crash anytime soon?

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Re: Does Chile Property Price Bubble?

Post by admin » Thu Feb 20, 2020 7:44 am

we have had threads and discussions on this question going back probably 13 years since the forum started. It seems to be resurrected every year or so.

If it is a bubble, it is a a really long big one. The 2008 global financial crisis did not pop it. The 2010 8.8 earthquake did not pop it. The October 18th social unrest did not pop it (although I would not buy anything near where the protesters like to gather).
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Re: Does Chile Property Price Bubble?

Post by admin » Thu Feb 20, 2020 7:48 am

FYI, the most recent and active discussion on the real estate market is here (2017 to 2020):

viewtopic.php?t=14666

but it was getting a little long in the tooth, so I suppose a new thread on the topic is in order.
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Re: Does Chile Property Price Bubble?

Post by Zenth » Thu Feb 20, 2020 8:48 am

You don't know if there was a bubble until it pops. If prices have been steady or rising for a dozen years, it's probably not a bubble. But, don't quote me.

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Re: Does Chile Property Price Bubble?

Post by admin » Thu Feb 20, 2020 8:50 am

so, in answer to your question, and I should have standard copy and paste answer to this by now: no, there is not a bubble

1. The vast majority of chileans are not as poor as they like to think they are. Not by any international or latin American standard.

2. the real "poor" and lower middle class get a substantial housing subsidies, ranging from completely free houses to loan guarantees.

3. there is a very liquid credit market for houses in Chile, with fast, efficient ways for banks and lenders to foreclose or collect.

4. there really is two economies in Chile, and thus two different real estate markets. set aside the ghettos and poor areas, because no gringo is looking there anyway (or at least should not be). The upscale / middle class has money. lots of money, and they have lots of credit. They also have lots of assets to underwrite that credit.

so, if you are just looking at the upscale, upper middle class and above, then the prices make total sense relative to the income levels.

owning two or three properties is very common in Chile, even among the lower middle class. Chileans like to invest in property far more than say stocks, etc. simply because it is simple, and historically it has brought good, safe, returns.

also helps that chile has a inheritance laws that for the most part insure the next generation will get the property. families build multigenerational wealth through property.

There are bunch of other reasons.
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Re: Does Chile Property Price Bubble?

Post by admin » Thu Feb 20, 2020 8:52 am

Zenth wrote:
Thu Feb 20, 2020 8:48 am
You don't know if there was a bubble until it pops. If prices have been steady or rising for a dozen years, it's probably not a bubble. But, don't quote me.
well, there has been some regular "cooling off periods" for various reasons. the whole market takes a breather. rarely do the prices go down, but more like they do not accelerate at the same rate as before, as the economy catches up. look at the start of that thread back in 2017. we were talking about a soft market.
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Re: Does Chile Property Price Bubble?

Post by admin » Thu Feb 20, 2020 9:10 am

oh, and the high demand areas, will always be the high demand areas.

the poor and lower middle class, in an attempt to emulate the rich, have always strived to buy in to the high demand areas, keeping steady upward pressure on the prices in those areas.

any time there is even a slight pause in prices, a flood of new rich money will flow in to those areas as they see an opportunity to show they have "made it".
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Re: Does Chile Property Price Bubble?

Post by 41southchile » Thu Feb 20, 2020 10:04 am

vamoschile wrote:
Thu Feb 20, 2020 1:01 am
Does Chile have a property price bubble? I ask because I look at local prices for property/houses and it seems really high for the wages that most Chileans make. Do you think there could be a potential crash anytime soon?
New Zealand
Australia
UK
Cities in Canada
Lots of cities in USA
Many cities and counties in Europe.
Prices are all really high for the wages most of the citizens in those countries make.
So if Chile has a bubble , so do all those other countries too it seems, it's happening in many places.
Do all bubbles pop is the bigger question? Or do they slowly stagnate rather than a huge pop.
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tiagoabner
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Re: Does Chile Property Price Bubble?

Post by tiagoabner » Thu Feb 20, 2020 10:09 am

It's also important to state that Las Condes isn't Santiago and Santiago isn't Chile.
I'm NOT your lawyer, accountant or financial planner. All information at this post should be considered for your entertainment only. Consult a professional before making a decision regarding whatever topic was mentioned in this post.

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Re: Does Chile Property Price Bubble?

Post by admin » Thu Feb 20, 2020 12:23 pm

tiagoabner wrote:
Thu Feb 20, 2020 10:09 am
It's also important to state that Las Condes isn't Santiago and Santiago isn't Chile.
and Chile isn't the Patagonia.

:lol:
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Re: Does Chile Property Price Bubble?

Post by Britkid » Sat Feb 22, 2020 4:17 pm

I thought there was a bubble for a while, but when I researched it a bit and did some analysis, I became less convinced. I now think there probably isn't a bubble outside of Santiago. Maybe a slight overheating that suggests if nothing else that rapid or large price rises probably won't occur in the short term.

For central Santiago and fancy areas, I am less sure what will happen there. There is a bit better case that this could be a bubble. Maybe. But not sure.

The older thread referenced earlier had plenty of comments and analysis on this.

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Re: Does Chile Property Price Bubble?

Post by Baltimore » Tue Feb 25, 2020 3:13 pm

Hard to say in terms of the whole real estate market in the country, I think it is more of a bunch of local markets. As others have mentioned it, there are long threads of discussion on the topic. Here are my main opinions about it:

1) Chileans love real estate, buying a house or a piece of land is the first thing most people do as soon as they have money. Most people have no idea about investing in stocks or bonds, some put a little bit of money on mutual funds but they often sell as soon as the market goes down.

2) I don't think there has ever been a massive housing market crash in Chile, at least not in the last 80 years at least. I mention this because, if you ask around old people about the housing market you will get only one unanimous answer: "property prices never go down". To their credit, that is a true statement based on their experience with the housing market in Chile.

3) There are areas in Santiago where property values and rental prices have detached from each other in the last years. If you are planning to buy something to live in, there are neighborhoods where price-to-rent ratios are tilted towards renting. If you have patience and are willing to walk around the neighborhood you like, you might be surprised to find what some properties are rented for. I don't know about price-to-rent ratios in other areas of the country
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4) Related to 1), I get tons and tons of ads in Facebook and Instagram about "investing" in rental apartments in Santiago and Viña, parcelas in Coyhaique , etc. I don't recall getting ads like these ones neither in Europe nor in the US and I don't recall americans nor europeans being so obsessed about buying a piece of land in places like WA state or Alaska. It might just be a feature of the Chilean culture, it might be an indicator of the lack of publicly-owned natural parks in Chile, some might be already hedging against extreme scenarios of climate change, some might be betting on "the next big city in the south", some are just buying something the live in when they retire, who knows...

5) Most Chileans think in nominal pesos, not in real pesos. Someone that bought a property for 100 million pesos in 1999 and sold it today for 200 million made 0 profits, it was all inflation. Keep this in mind when you hear someone tell you about how much money they made selling their old house.

6) This report by Fidelity investments really help me to put things in perspective. https://page.ws.fidelityinternational.c ... 0FINAL.pdf

I don't think there is a single person that could answer your question, but getting some information about the local culture and the way the market has evolved over the last decade could help you make an informed decision about the type of risks you will be taking if you decide to buy a property in Chile.

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