ABSOLUTE gUIDE sERIES to Investment Property
Chile
A BSO LUT E G UI DE SE R IES - C H IL E
Date of Publication: November 2008 © Obelisk 2
ABSO LUTE GUID E SE RI ES - CHI LE
Contents 5. Welcome to Chile
Dedicated to providing impartial information.
6. Economic Growth & Stability
Chile is considered to have the least corrupt economy in Latin America.
7. Currency & Banking
Chile’s banking system is well supervised and efficient.
8. Foreign Investment
Chile is recognised for its strong foreign investment track record.
9. Political Situation & Stability
Political stability has been achieved since Pinochet’s military dictatorship was overthrown.
10. Tourism
There is huge potential for tourism in Chile.
11. Infrastructure
The public infrastructure is very well developed.
12 - 13. Property Market
An emerging middle class is adding to growth in the property market.
14 - 15. Secondary Market Rental yields are high and demand is strong.
16. Mortgage Market
It is not possible for foreigners to obtain mortgage finance.
17. Market Risks
There are few risks for foreign investors.
18. Purchase Process
Obelisk recommends appointing a Chilean lawyer to draft contracts.
19. Investment Costs
The costs are largely shared by the buyer and seller.
20. Summary
There are several growth areas for investors to consider.
21. Verdict
Price growth is reasonable but taxation is high.
22. Obelisk Advantage
Obelisk approaches it projects purely from an investment perspective.
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A BSO LUT E G UI DE SE R IES - C H IL E
Iquique Antofagasta Copiapo La Serena Valparaiso
Santiago Talca Concepcion Temuco Puerto Montt
Coihaique
Punta Arenas
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ABSO LUTE GUID E SERI ES - CHI LE
Chile forms part of the Obelisk Absolute Guide Series, dedicated to providing impartial information to numerous property investment destinations worldwide.
Welcome
to Chile
As the market leader for overseas investment property,
with in-depth, clear-cut knowledge on the most important
we are committed to providing cutting edge information
factors influencing your property investment decision in
for property investors, one aspect that has earned us the
Chile.
award of International Property Specialist 2008 by Business Britain magazine.
In this guide you will find recent economic performance and predicted growth, a profile of the current property
We are therefore pleased to present our latest Property
market and its future potential, along with tourism trends
Investment Guide to Chile, an essential tool for the
and infrastructure improvements. The guide also includes
investor planning to buy property in this country. This
information about Chile’s mortgage market, the buying
guide forms part of the Obelisk Absolute Guide Series,
process and buying costs.
dedicated to providing impartial information about numerous investment destinations worldwide.
Obelisk’s Absolute Guide to Chile offers investors objective and authoritative information to facilitate an
At Obelisk, we are only too aware of the importance of
informed decision about investing in Chile. We trust that
extensive research into an investment destination and, as
you, as an investor, will find this guide indispensable.
part of our policy to offer investors the definitive service, this guide has been rigorously researched to provide you
Here’s to Successful Investing!
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A BSO LUT E G UI DE SE R IES - C H IL E
GDP Growth (2008): 5% GDP Per Capita (2008): US$9,949 Inflation (June 2008): 9.5% Unemployment: 8%
Economic Growth
& Stability Following the overthrow of Augusto Pinochet in 1990,
continuing sound fiscal policy of the government will
sound economic policies have been consistently
ensure that the 3% target rate for 2010 is reached.
maintained, contributing to steady growth and reduced poverty rates. These policies have also helped secure
Chile is considered to have the most competitive and
the country’s commitment to democratic and
least corrupt economy in Latin America. This is partly
representative government. To reflect rising standards
due to a friendly investment framework with reduced
of governance, a low and falling public debt burden
rates of corporate taxation and non-discriminatory treat-
and a strong policy framework, the risk rating agency
ment of foreign investors. The European Union has been
Standard & Poor’s has awarded Chile A+, the highest
the leading investor in Chile for some years, with Spain
rating for a country in Latin America.
and the UK being the top two investors in the country.
Chile is often referred to as the “Star of Latin America” for its open market economy. Strong consumer demand and solid public finances have insulated the country from the effects of the global financial crisis. Although inflation has reached the highest rate in 13 years, the
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Currency
& Banking The currency in Chile is the Chilean peso (CLP). The risk rating agency, Fitch, have rated Chilean currency as AAA, reflecting its stability, the strongest rating for any currency in Latin America. Chile’s banking system is efficient and well supervised, with strict lending limits for a single debtor or group of related companies. There are 12 foreign banks operating in Chile on an equal footing with the 13 domestic banks. The state-owned Banco Estado is Chile’s 3rd largest bank. A series of reforms, including capitalisation requirements and shareholder obligations, has increased competition and widened the range of operations for banks and other financial services. Domestic and foreign banking and insurance companies receive equal treatment.
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Foreign Companies Investing in Chile ABN Amro, Alcatel, AT&T, Carrefour, General Electric, Hydro-Québec, JP Morgan, McDonald’s, Mitsubishi, Motorola, Telefonica de España, Thames Water, Unilever.
Foreign Investment According to Forbes, Chile’s capital, Santiago, is ranked 5th
Chile’s open economy means greater competitiveness,
in their top 10 World’s Next Great Cities 2008 and 1 for
lower tariffs, increasing levels of foreign trade and rapid
its economic and commercial environment. Chile has an
integration into world markets. Chile’s sound and
open market policy and low level corruption with a secure
responsible economic management together with consistent
business environment for both domestic and foreign
policies and strong institutions have provided solid
interests.
foundations for a thriving business environment. The
st
country’s modern telecommunications system, an Chile has achieved widespread recognition for its strong
internationally competitive and solid banking sector,
track record in attracting foreign direct investment (FDI).
high-standard public infrastructure, high quality of services
In 2007, Chile achieved FDI inflows of US$14.46 billion
and ample availability of qualified workers are key factors
which almost doubled the US$7.35 billion revenue of
which impress foreign investors.
2006. Santiago in particular is highly regarded amongst
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the emerging markets for its economic and commercial
The Chilean government is encouraging domestic and
environment which includes government bond ratings, ease
foreign investment particularly in research and development.
of dealing with licences and costs of exporting and
The recently formed Council on Innovation and Competition
importing cargo. The city has become the hub for foreign
have a remit to identify new sectors and industries which
investment in Chile because of its exceptional business
they can promote to investors so that they can attract
environment.
additional FDI to new parts of the economy.
ABSO LUTE GUID E SERI ES - CHI LE
WTO Member: Since 1995 Political System: Presidential Representative Democratic Republic Ruling Party: Socialist Party of Chile Next General Elections: December 2009
Political Situation
& Stability The president of Chile is the head of state and also head of government. The current president, Michelle Bachelet Jeria, was elected by popular vote in March 2006 and will serve one term as the constitution does not permit consecutive terms of presidential office. Although Bachelet secured the popular vote in 2006, her popularity as president appears to be falling because of rising crime and the government’s failure to fix basic problems such as the safety of the public transport system. There is also an element of discontent amongst Chileans because they have not seen more tangible benefits from a substantial profit made from the country’s copper industry in 2005 when the commodity’s price escalated. However, economists have been impressed with how the government has used the profits to drive the economy forward to 3 years of strong growth.
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Visitor Numbers (Jan-Sept 2008): 1.95 million Tourism Contribution to GDP (2008): 17.2%
Tourism Chile is divided into 14 regions from north to south. It is the longest and narrowest country in the world and is also larger in area than any European country, with the exception of Russia. Because the country is so long, each region represents a different climate and geography which makes Chile a fascinating place for travel and research. From January to September 2008, Chile received 1.95 million tourists, an increase of 8.5% on the same period in 2007 and further growth in tourism is expected in the next few years. The government is investing substantially to enhance the tourism infrastructure with the opening of 5 star hotel chains across the country. Chile intends to reinforce its position as a provider of business tourism, hosting a growing number of conferences, congresses and other business events, as well as attracting long haul and high end tourism. In 2007, a new director of the country’s national tourism organisation (Corporacion Turistica de Chile) was appointed, with the UK as one of its primary target markets. The new director, Pablo Moll affirms: “We are launching this first-ever media and awareness campaign in the UK as we believe British travellers are tailor-made to enjoy Chile. Our campaign will be aimed at persuading the more affluent UK travellers that Chile is
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the best long-haul destination all year round”.
Tourism Contribution to Employment (2007): 17.7%
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Infrastructure US$50.2 million committed to aid Chile’s development by The International Bank for Reconstruction & Development. US$282 million contract awarded to Chile by Pacific Hydro to construct a hydro power project. US$273 million investment for ongoing development of Los Condores power utility in Chile. The public infrastructure is very well developed in
Airport expansion is expected to continue to increase
Chile and is considered to have the highest standard
to meet growing passenger demand. Among the
in Latin America. However, the country faces an
projects launched for tender by the Chilean Public
imminent energy shortage with demand forecast to
Works ministry in 2008 is the US$100 million
start overtaking supply in 2008. This is a particular
construction of an airport in Araucania and US$150
concern within the power-dependent mining sector and
million improvements to Punta Arena airport.
steps may be taken by mining companies to develop their own power facilities. Corporación Nacional
Housing construction is showing signs of growth with
del Cobre (Codelco), the Chilean state-owned copper
several major residential and commercial projects
company is securing the power supply to its mining
proposed. The largest project is in the Santiago area
operations with the US$1.7 billion construction of an
of Pudahuel where 15,000 new homes will be
electricity plant and it is forecast that other mining
constructed over the next 15 years, at an estimated
companies will follow this lead.
cost of US$750 million.
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Chile has one of the most open and investment friendly economies in the world with very few restrictions on foreign investments and equal treatment for foreigners and locals.
Capital Growth: 4% annually for the last decade Average Annual Rental Yield: up to 10%
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Property
Market
Chile has a large investor following as one of the most
First-time property investors are being attracted to the
stable countries in South America. Compared with other
Chilean property market where capital appreciation
emerging markets, Chile’s economy is strong and growth
appears more attractive in the longer term than many
potential in the property market is particularly high. A
pension funds or unit trusts. It is possible to buy a
spin-off from the growing economy is the emerging
property outright in Chile for less than the price of a
middle class in Chile, with increasing demand for second
deposit on a property in the UK.
homes. There are several investment hotspots in Chile The property market is buoyant and the government has
including Chiloe Island, Patagonia, Puerto Varas, Pucon
a number of projects in place for the construction of
and Villarrica. These areas have not experienced the
residential and commercial property throughout the
same degree of capital appreciation as property in and
country. House prices have increased annually at 4% for
around Santiago and so investment prospects are good.
the last decade and growth is not predicted to slow in the coming years.
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Secondary
Market
There is an emerging middle class in Chile with wages
region can achieve yields of up to 10% on larger
rising faster than the rate of inflation as a result of
properties. Property located to the south of the city
increased productivity. The cost of living in Chile is
has slightly lower yields but still earn a healthy 4.09%
between 25% and 40% lower than in the US and
to 7.5%.
Europe. Chileans are enjoying increased disposable income and housing is affordable for a
There is a housing shortage in Chile and the
growing number of the population. Mortgage rates
government is investing substantial amounts in several
are relatively low to encourage long-term borrowing
residential and commercial building projects to meet
for both domestic and foreign investors. House prices,
domestic need. With increased employment
although increasing year-on-year, are still low by
opportunities, particularly in Santiago, there is a
regional standards and there is scope for impressive
strong demand for resale and rental property
returns on property investments in the country.
throughout the country.
Rental yields are high in Chile and property investment can attract good returns. Apartments in the Santiago
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Chile’s rental market is small but surprisingly competitive with yields reaching 10% on larger properties in the Santiago region and between 4% and 7.5% on apartments in the south of the country.
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Mortgage
Market Although the mortgage market is well developed in Chile, it is not possible for a foreigner to obtain mortgages. Foreigners, who have been resident for years in the country and have evidence of an income generated within Chile, have difficulty in obtaining credit. Banks employ strict lending criteria for locals which is almost impossible for foreigners to satisfy. This is a policy that is unlikely to change and it is widely acknowledged that the tight controls on lending have massively reduced the country’s exposure to the global financial meltdown. There are no restrictions on foreign ownership apart from land near Chile’s borders. However, ownership is conditional upon the property being purchased as a cash transaction. Reforms have been introduced to ensure that property rights are completely secure in Chile. Investors looking to Chile for property investment potential should consider equity release or the remortgage of an existing property as a means of raising the capital for the purchase.
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Chile is often referred to as the ‘Star of Latin America’ for its pro-market economic agenda. It has a thriving and well managed economy, its public finances are robust, growth is strong and inflation remains moderate.
Market
Risks
Property investment into emerging markets may carry
Chile’s natural resources are threatened by widespread
some degree of risk. However, the degree that market
deforestation and mining. Air pollution from industrial
risk in a particular country affects a property investment
and vehicle emissions compound this threat. Although
depends largely on thorough due diligence conducted
Chile is party to various environmental agreements,
prior and during the purchase process.
Ozone Layer Protection being one of them, no agreements have been ratified.
Chile is dependent upon natural resources for much of its economic strength. The banking sector is one of the most
Unemployment has hovered around the rate of 8% to
secure in the world and has been shielded from the credit
10% in recent years and is expected to remain so in the
crunch. However, the inflationary pressures caused as
coming years, despite Chile’s strong economic growth.
a result of commodity prices surging upwards is testing
International observers believe that high unemployment
Chile’s financial resilience. When energy and commodity
is the result of Chile’s restrictive and complicated labour
prices come down from their all time highs, inflation
laws.
pressures will recede. With the rest of the country’s economy relatively unscathed, the potential for a quick recovery is good.
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Purchase Process Chile’s laws and legal processes may be very different from what you are used to and Obelisk strongly recommends that independent legal advice be taken during a property purchase. Below is the standard purchase process in Chile and issues that may affect a property purchase: There are no restrictions on foreign ownership in Chile and residency of the country is not required. Chile has strong legal protection for property rights, including secured investments in real property. A Rol Unico Tributario (RUT) is required. This is a number issued for tax purposes to non-resident foreigners, who are making an acquisition that requires inscription or registration with Chile’s public records. The number can be obtained from the National Tax Office in Chile. A purchase-sale agreement is signed before a notary, a deposit is paid and a date agreed for completion. A lawyer is appointed by the buyer to conduct a title search on the property and draft the purchase-sale contract. When buying land in Chile, it is advisable to have the property surveyed. This becomes more of an imperative as you move towards more rural areas such as Patagonia where boundary disputes are common. More urban areas tend to have well settled property lines. The purchase-sale contract is signed before a notary and the deeds are registered.
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Investment Costs Chile has a double taxation treaty with the UK and Ireland. Taxation is complex and subject to change. You are therefore recommended to take expert and up-to-date advice on taxation issues affecting the purchase and ownership of property in Chile. The costs of a standard property purchase in Chile may include the following: The title report is prepared by the buyer’s lawyer and generally, fees are set according to price and location of the property. This cost is paid in full by the buyer. The purchase-sale contract is usually charged at a fee of around 2% of the sales price and is shared between the buyer and seller. Notarising the contract is 2% of the sales price and this is also shared between both parties. The registration of title with the land registry is paid by the buyer and is in the region of 2.5% of the sale price. Property tax is payable annually and is levied at 1% for properties to around US$52,000 in value. Property tax is levied at 1.2% for properties valued above this limit. VAT is 19%. Rental income is taxed at the basic rate of income tax which is 17%. Capital gains tax is levied at 17%.
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Summary The following summary provides key highlights to consider when investing in Chile’s property market: The risk rating agency Standard & Poor’s has
Chile has a large investor following as one of the
awarded Chile an A+ rating which is the highest
most stable countries in South America.
rating for a country in Latin America. Rental yields are high and up to 10% can be Strong consumer demand and solid public
achieved for property in and around Santiago.
finances have insulated the country from the global financial crisis.
The mortgage market is well developed but is not open to foreigners, even those with a residence
Chile has the least corrupt economy in South
permit.
America. Chile has restrictive and complicated labour laws According to Forbes, Chile’s capital, Santiago,
which have resulted in high unemployment.
is ranked 5 in their top 10 World’s Next Great th
Cities 2008 and 1st for its economic and
The purchase process is straightforward and
commercial environment.
property rights secure.
Chile is the longest and narrowest country in
Chile has a double taxation treaty with the UK
the world with varying landscapes and climates
and Ireland.
making the country an excellent year-round holiday destination.
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The Absolute Guide Series Rating
Based on our extensive research, Obelisk has introduced a 5 star rating system to summarise the investment potential of a country. The availability of finance, economic stability, political stability, the strength of the local market to provide an exit strategy and the potential to earn from investment are the key criteria that determine the investment grade of each country.
Verdict Chile appears to be a cheap investment and although mortgages aren’t available for foreigners, they shouldn’t be necessary as property prices are low in the country. The economy appears to be buoyant although this could be due to the unprecedented profits earned from the surge in copper prices in 2005. Sound economic policies together with a strong banking system should ensure that growth continues in the future although the possibility remains that growth will slow to some degree. The purchase process for property is reasonably straightforward and there is a strong demand for housing, but price growth is not particularly strong and taxes are not attractive at 17%. Based on thorough research we have carried out on Chile, we at Obelisk believe Chile deserves examination as a potential investment market, but only in areas that relate to the growing tourist hotspots and the capital, Santiago.
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Obelisk
Awards Obelisk ‘International Property Specialist 2008’
Advantage
Voted International Property Specialist of the Year 2008 by Business Britain magazine, Obelisk has been recognised as the authoritative voice within the industry and its clients benefit from the company’s uncompromising high standards and professionalism. Obelisk has identified a simple and transparant purchase process for its clients as a simple, four step process: 1.
The client chooses and reserves the unit that best suits their investment requirements, and Obelisk takes the client through a compliance procedure.
2.
An independent lawyer, sourced and appointed for the client by Obelisk, will have already carried out full due diligence on the project. They will issue all purchase contracts and paperwork to the client.
3.
On receipt of this contract, the client will sign and make the first payment. The lawyer will notify the client of all further payments when required.
4.
The appointed lawyer will also represent the client in all aspects legally required within the country of purchase, ensuring that clients of Obelisk enjoy the benefits of simple and hassle-free real estate investment.
For more information about Obelisk’s investment opportunities in Chile, contact us now on info@obeliskinternational.com, visit our website at www.obeliskinternational.com or call us FREE on 0808 160 0670 (UK) or 1800 932 514 (IRE).
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Disclaimer The material contained within this document has been prepared for information purposes only. Information contained herein is not to be relied upon as a basis of any contract or commitment. The information is not to be construed as an offer, invitation or solicitation to invest and opinions expressed are based on market conditions at the time of print and may be subject to change without prior notice. Information contained herein is believed to be correct, but cannot be guaranteed. In case of queries or doubt you should consult an independent investment adviser. No personal recommendation is being made to you and the past is not necessarily a guide to the future. The brochure in its entirety – text, images, marks, graphics, logos, buttons, combinations of colours, and the structure, selection, ordering and presentation of its content – is protected by the legislation on intellectual and industrial property, it being forbidden to reproduce, distribute, publicly disseminate or transform it, except for personal private use. It is also forbidden to reproduce, relay, copy, assign or broadcast, in whole or in part, the information contained in this brochure, for whatever purpose and by whatever means, without written consent.
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Call us free from UK: Tel. 0808 160 0670 Call us free from Eire: Tel. 1800 932 514 For general and international enquiries contact us at: Tel: (0034) 952 820 319 Fax: (0034) 952 825 790 Alternatively you can email: info@obeliskinternational.com or visit: www.obeliskinternational.com