An attractive table has been set up for real estate purchases, whether for a first or second home. Still low interest rates for loans, an increase in available cash thanks to the withdrawal of 10% from the AFPs and the start of the reopening of the activity.
For some people, the withdrawal of 10% of pension funds translated into an attractive investment opportunity in times of pandemic. And in the midst of the uncertain dynamism of the local economy, together with the volatility of financial assets, the real estate market took a strong momentum, which has accelerated with the beginning of the lack of refinement, and which was reinforced with resources from 10% the AFPs that were made available.
“Three weeks ago, this exploded. We lack the hands to serve all the people who contact us”, says the CEO of Capitalizarme, Gabriel Cid.
The CEO of Sotheby’s International Realty (SIR) Chile, Luis Novoa, indicates that the main inquiries correspond to departments around 3,000 UF as an investment.
The appetite for investing in real estate is explained by its quality of haven assets, since properties do not suffer major devaluations, in addition to having the benefit of capital gains. The market becomes even more attractive due to low mortgage rates, despite the rebound from lows, and the injection of capital following the withdrawal of 10% of pensions.
“This is a very good time to buy, not to sell. When a property has a sale value lower than the usual levels, in a short time it can achieve returns higher than those of other financial assets.
Urban capital gains are added, which on average are over 6% per year at the national level, taking a time window of 5 years or more”, explains the president of the Association of Appraisal Architects of Chile, Teodosio Cayo.
Homes with 10%
The increase in people looking for properties to invest is due to the fact that the maximum amount that an affiliate can withdraw corresponds to $ 4,300,000, which is an attractive amount to deliver a foot.
“Indeed, we have seen an increase in the number of inquiries from people who are looking for properties to invest. The majority of those who take advantage of this additional income for the purchase of houses have been people older than 50 years.
You have to consider that between two people they can be around $ 9 million for the 10% withdrawal, which is an interesting footing”, explains the general manager of ProUrbe Real Estate Management, Víctor Danús.
At the same time, the same real estate companies put their chips in the 10% withdrawal in order to reduce stock levels and increase liquidity levels. This involves discounted sales that were not considered prior to the pandemic.
“Real estate has always been classified as a refuge from the crisis, a refuge so that money does not devalue and increase. For this reason, the number of quotes and people interested in real estate grew significantly, which is in addition to the strong communication campaigns developed by real estate companies to lower the available stock levels and attract, through attractive promotions, the use of that available money”, adds the co-founder of Capitalizarme.com, Francisco Ackermann.
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“Of course, it is important to clarify that the 10% product has also activated a segment that, more than investment, seeks properties to live in. There are many young professionals who are thinking of buying their first home, and with this contribution of 10% they have been able to access a more expensive property or gain access to a better foot”, Luis Novoa details.
House or apartment?
Once the decision to take the acquisition step has been made, the alternative of apartment or house must be chosen or analysed. Teodosio Cayo highlights the benefits of each option. In the case of an apartment, the investor obtains higher returns with better maintenance costs compared to what a house implies. However, the point in favour of buying a house is the increase in equity.
Explain that the values of the houses -including those in condominiums- have a greater capital gain, because they are associated with a single plot of land, while the apartments, although they have higher profitability for having less expenses, deteriorate more and the land is divided among more people.
At Colliers International, they lean towards departments and focus on location and low-rise buildings. In addition, they advise opting for homes under 50 square meters in communes with good connectivity and implementation of services.
“The apartments are rented more quickly, and you get a higher relative rental fee compared to the purchase price. In addition, the maintenance and administration costs that the owner must incur are higher when it comes to a house”, explains Reinaldo Gleisner, consultant for the brokerage area of Colliers International.
Central Coast and other cities
In addition to the Metropolitan Region, Colliers highlights the growing interest of investors in larger cities and regions.
Rodrigo Makuc, director of corporate finance at Colliers International, explains that the attraction is focused on Antofagasta, La Serena, Viña del Mar, Concepción, Temuco, and Puerto Montt.
“The above, because in these cities there is a greater relative demand of tenants for the different types of properties, which increases the probability of placing these spaces for those who buy a second home with the intention of enjoying it in the summer and renting it during the year”, indicates Makuc.
Teodosio Cayo estimates that for apartments on the central coast several interesting factors can be combined, “on the one hand there is the possibility of renting for people who live in the area and also for people passing through or during the summer season, ensuring that the rent”.
To keep in mind
You have to be attentive to opportunities. Realtors are with offers to complement the foot or other facilities. But factors such as the cost of financing must be considered, and not only interest rates, but also insurance and operational costs.
Connectivity Everyone agrees that it is the key variable when choosing a department for investment. This is because the location and proximity to services and transportation determine how easy it is for the property to be rented, the experts agree.
Low interest rates but could be somewhat lower by the end of the year, says Sergio Tricio of Ruvix. For this reason, it is attractive to set foot in these moments or reserve to finalize the financing towards the end of the year, once the conditions are better.
The more complex rents of houses reach close to 3% to 3.5%, although historically there have been values close to 5.5% or more. On average, in the Metropolitan Region the return on investment fluctuates between 3.5% and 4.5%.
More expensive homes
Although, in general, house prices have not had great falls so far since the crisis, there are investors who are waiting for relevant discounts, around 25%, of higher value homes, over 25 thousand UF.
The returns that could be achieved in real estate investments after the impact of the pandemic
The returns that could be achieved in real estate investments after the impact of the pandemic. Santiago Centro, Estación Central and parkview villas are the most attractive communes to invest in real estate. Profitability is relevant, but now capital gains are also relevant.
One of the first analyses that must be done when making the decision to invest corresponds to the profitability that could be achieved, and the risks to which those assets are subject. In this sense, the real estate industry makes calculations considering factors such as financing, the housing district and a property of around 3,000 UF.
The data from Arenas and Cayo show that currently the most complex rents of houses reach about 3% to 3.5%, however, historically there have been values close to 5.5% or more.
In the same vein, Juan Pablo Amenábar, manager of the Multifamily Area of Colliers International, indicates that the current average profitability for the purchase of an apartment for rent in the Metropolitan Region is in a range of 3.5% to 4.5% % per year.
As Amenábar explains, this calculation considers only the flows received monthly via leasing, leaving out factors such as capital gains and financing.
The CEO of Sotheby’s International Realty (SIR) Chile, Luis Novoa, affirms that the return of the properties moves between UF + 6 and UF + 8. “However, currently the investor is betting heavily on capital gains, because they want to buy at good prices.”
Analysed by communes, Amenábar adds that the central places of Santiago obtain the best returns, since the relationship between the purchase price of the apartment and the expected rent has a higher coefficient.
“The foregoing comes hand in hand with the existence of a regulation that allows the construction of tall buildings, with high densities. In this way, communes such as Santiago Centro, Estación Central and San Miguel, are where returns are observed around 5.5%”, explains Amenábar.
A “secondary ring” is located below, which corresponds to the pericentric communes, such as La Cisterna, La Florida and Independencia, where yields of around 5.0% are observed, according to Colliers.
Real estate funds
According to Colliers, there is a percentage of clients who do not have enough capital saved beyond their 10% withdrawn from the AFPs, or who are not interested in buying a home. In those cases, buying shares of real estate funds is an attractive opportunity to capture industry returns.
“Real estate fund shares are variable income instruments that represent a fraction of the equity of an investment fund, that is, the buyer of a share becomes the owner of a part of that fund, which in turn is the owner or it manages certain real estate assets, with which the holder of these quotas receives the income derived from the exploitation of the real estate business.
On the other hand, it offers attractive returns for the implicit level of security. If we analyse the behaviour of public funds during 2019, we observe that it was 7.6%, that is, a person who invested $ 4 million at the beginning of 2019, increased his equity around $ 300,000”, explains the director of Corporate Finance at Colliers International Rodrigo Makuc.