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Chile’s strong economic growth and expanded IVA* credit encourage home buyers

Gateway to South America on 17/08/2019 - 22:20 in Uncategorized

Chile’s housing market is vibrant. Home sales and prices fell in 2016 after the 19 % IVA imposition, but the housing market rebounded in 2017 with house prices in Greater Santiago up 6.7 % y-o-y in 2017; nationwide, home sales surged by 11.3%, and housing starts were up 8.9 %. Home sales in Greater Santiago rose by 12.6 % to 8,979 units during the year to Q2 2018, according to Chilean Chamber of Construction (CChC).

In January 2016, IVA of 19 % had been imposed on sales of properties in Chile by “habitual sellers” such as real estate companies, or persons who sell their properties in less than a year. The IVA added around 4 % to 11 % to the price of new properties, making older homes more attractive. This, as well as the country’s weak economic growth, led to the housing market’s plunge in 2016. Greater Santiago’s house prices went down by 1.8 % y-o-y by the end of 2016. Nationwide home sales and housing starts plunged in 2016 by around 35 % and 31 %, respectively. 

Prior to the IVA imposition, Chile’s housing market had been thriving. Home prices rose 67 % from 2004 to 2016. Even the global financial crisis of 2009 only caused a small decline of 0.7 % (from May to September 2009). After the 2010 earthquake house prices bounced back, rising 9.5 % in 2011, followed by 5.5 % growth in 2012, 4.2 % in 2013, and 11.7 % in 2014, with strong demand in the northwest and southern areas of Greater Santiago from the beginning of 2014, mainly in the apartment market. In 2015, house prices in Greater Santiago rose 4.4 %.

Now the market has recovered from the IVA imposition. New apartments in Southern Santiago saw the highest price increase, rising by 7.1 % y-o-y in June 2018. In Central Santiago prices of new apartments also rose by 6.6 % y-o-y, while apartment prices in Western Santiago were up 2.8 % y-o-y. In Eastern Santiago new apartment prices actually fell by 1.1 % in real terms.

Chile house prices

In August 2018 an announced tax modernization project included 13 measures to boost the country’s growth and development. One measure will raise the property values that could benefit from a special IVA credit from 2,000 UF (US$ 80,106) to 4,000 UF (US$ 160,213), which will surely encourage middle-class housing purchases.

Any individual or corporate body can acquire and own real estate in Chile, whether or not they are residents, except near the country’s boundaries. Chile has strong legal protection of property rights.

Moderate rental yields in Santiago

It is obviously impossible to summarise the many different price-ranges and yields in Chile’s capital, Santiago.  Our research covered the richer districts of Barrio Lastarria – a popular tourist hub and a historic district; Barrio Brasil – with its strong artistic and cultural scene and many universities; Bellavista, known as Santiago’s bohemian quarter, with avant-garde galleries, bars and clubs, host to many of the city’s intellectuals and artists; La Dehesa; El Golf; Las Condes, with its upscale population; La Reina, which consistently ranks in the top 5 districts for quality of life; Metro Alcantara; Metro Escuela Militar; Nunuoa; Providencia; and Vitacura. 

We found great variations but the overall results were pretty clear, that a square metre of residential property in such upscale districts tends to go for around $3,200 to $3,700 and to command a rental yield of around 4%.

Chile’s rental income tax is very high

Rental Income: Nonresidents earning Chilean income are subject to AT, which is levied at 35 % on gross income.

Rental income is subject to FCT at a flat rate of 27 %. FCT and property taxes are credited against the taxpayers AT liability.

Leasing of real estate is subject to IVA at 19 %.

Capital Gains: Gains are taxed at the standard FCT, like any other profit, if immovable property is sold within the first year after acquisition, or if an apartment is sold within the first four years.

Inheritance: Inheritance, gifts and donations tax rates vary according to the degree of relationship and the value of the inheritance, from 1% to 35%.

Residents: Residents are taxed on their worldwide income.

Total transaction costs are still low in Chile

The total roundtrip transaction cost, i.e., the cost of buying and selling the property, is around 5.30% to 5.40% of the property value on low cost properties.

This includes the estate agent’s fee of 4 %, which is split evenly between buyer and seller. This is for high-value properties. For lower-cost ones it would be more like 8 %. ie up 500,000 USD


If the property is newly built by a developer, the transaction cost will be higher, due to the 19 % VAT imposed on such properties.

Chile’s law neutral between landlord and tenant

Chilean law is neutral between landlord and tenant, following fairly recent changes in the law.

Rents: The rent can be freely agreed upon. There is no legal maximum for deposits.

Tenant Eviction: Eviction of tenants may be difficult or easy depending upon the nature of the agreement. Monthly tenancies can be terminated by giving two months’ (notarized) notice of eviction.

However tenants in fixed term contracts and in contracts exceeding one year can only be evicted through long judicial proceedings.

Source: Global Property Guide

*IVA is equal to VAT or GST as it is called in some countries

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