chile investment guide

ABSOLUTE gUIDE SERIESto Investment Property

Chile

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ABSOLUTE gUIDE SERIES - CHILE

Date of Publication: November 2008© Obelisk

5. Welcome to ChileDedicated 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’smilitary 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 MarketRental 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.

Contents

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La Serena

Valparaiso

TalcaConcepcion

Temuco

Puerto Montt

Coihaique

Copiapo

Antofagasta

Iquique

Punta Arenas

Santiago

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As the market leader for overseas investment property, we are committed to providing cutting edge information for property investors, one aspect that has earned us the award of International Property Specialist 2008 by Business Britain magazine.

We are therefore pleased to present our latest Property Investment guide to Chile, an essential tool for the investor planning to buy property in this country. This guide forms part of the Obelisk Absolute guide Series, dedicated to providing impartial information about numerous investment destinations worldwide.

At Obelisk, we are only too aware of the importance of extensive research into an investment destination and, as part of our policy to offer investors the definitive service, this guide has been rigorously researched to provide you

with in-depth, clear-cut knowledge on the most important factors influencing your property investment decision in Chile.

In this guide you will find recent economic performance and predicted growth, a profile of the current property market and its future potential, along with tourism trends and infrastructure improvements. The guide also includes information about Chile’s mortgage market, the buying process and buying costs.

Obelisk’s Absolute guide to Chile offers investors objective and authoritative information to facilitate an informed decision about investing in Chile. We trust that you, as an investor, will find this guide indispensable.

Here’s to Successful Investing!

Chile forms part of the Obelisk Absolute Guide Series, dedicated to providing impartial information to numerous property investment destinations worldwide.

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to ChileWelcome

Economic Growth

& StabilityFollowing the overthrow of Augusto Pinochet in 1990, sound economic policies have been consistently maintained, contributing to steady growth and reduced poverty rates. These policies have also helped secure the country’s commitment to democratic and representative government. To reflect rising standards of governance, a low and falling public debt burden and a strong policy framework, the risk rating agency Standard & Poor’s has awarded Chile A+, the highest rating for a country in Latin America.

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

continuing sound fiscal policy of the government will ensure that the 3% target rate for 2010 is reached.

Chile is considered to have the most competitive and least corrupt economy in Latin America. This is partly due to a friendly investment framework with reduced rates of corporate taxation and non-discriminatory treat-ment of foreign investors. The European Union has been the leading investor in Chile for some years, with Spain and the UK being the top two investors in the country.

GDP Growth (2008): 5%

GDP Per Capita (2008): US$9,949

Inflation (June 2008): 9.5%

Unemployment: 8%

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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.

Currency

& Banking

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Foreign Investment

Foreign Companies Investing in ChileABN Amro, Alcatel, AT&T, Carrefour, General Electric, Hydro-Québec,

JP Morgan, McDonald’s, Mitsubishi, Motorola, Telefonica de España,

Thames Water, Unilever.

According to Forbes, Chile’s capital, Santiago, is ranked 5th in their top 10 World’s Next great Cities 2008 and 1st for its economic and commercial environment. Chile has an open market policy and low level corruption with a secure business environment for both domestic and foreign interests.

Chile has achieved widespread recognition for its strong track record in attracting foreign direct investment (FDI). In 2007, Chile achieved FDI inflows of US$14.46 billion which almost doubled the US$7.35 billion revenue of 2006. Santiago in particular is highly regarded amongst the emerging markets for its economic and commercial environment which includes government bond ratings, ease of dealing with licences and costs of exporting and importing cargo. The city has become the hub for foreign investment in Chile because of its exceptional business environment.

Chile’s open economy means greater competitiveness, lower tariffs, increasing levels of foreign trade and rapid integration into world markets. Chile’s sound and responsible economic management together with consistent policies and strong institutions have provided solid foundations for a thriving business environment. The country’s modern telecommunications system, an internationally competitive and solid banking sector, high-standard public infrastructure, high quality of services and ample availability of qualified workers are key factors which impress foreign investors.

The Chilean government is encouraging domestic and foreign investment particularly in research and development. The recently formed Council on Innovation and Competition have a remit to identify new sectors and industries which they can promote to investors so that they can attract additional FDI to new parts of the economy.

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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.

Political Situation

& Stability

WTO Member: Since 1995

Political System: Presidential Representative Democratic Republic

Ruling Party: Socialist Party of Chile

Next General Elections: December 2009

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TourismChile 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 the best long-haul destination all year round”.

Visitor Numbers (Jan-Sept 2008): 1.95 million

Tourism Contribution to GDP (2008): 17.2%

Tourism Contribution to Employment (2007): 17.7%

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InfrastructureUS$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 Chile and is considered to have the highest standard in Latin America. However, the country faces an imminent energy shortage with demand forecast to start overtaking supply in 2008. This is a particular concern within the power-dependent mining sector and steps may be taken by mining companies to develop their own power facilities. Corporación Nacional del Cobre (Codelco), the Chilean state-owned copper company is securing the power supply to its mining operations with the US$1.7 billion construction of an electricity plant and it is forecast that other mining companies will follow this lead.

Airport expansion is expected to continue to increase to meet growing passenger demand. Among the projects launched for tender by the Chilean Public Works ministry in 2008 is the US$100 million construction of an airport in Araucania and US$150 million improvements to Punta Arena airport.

Housing construction is showing signs of growth with several major residential and commercial projects proposed. The largest project is in the Santiago area of Pudahuel where 15,000 new homes will be constructed over the next 15 years, at an estimated 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%


Property MarketChile has a large investor following as one of the most stable countries in South America. Compared with other emerging markets, Chile’s economy is strong and growth potential in the property market is particularly high. A spin-off from the growing economy is the emerging middle class in Chile, with increasing demand for second homes.

The property market is buoyant and the government has a number of projects in place for the construction of residential and commercial property throughout the country. House prices have increased annually at 4% for the last decade and growth is not predicted to slow in the coming years.

First-time property investors are being attracted to the Chilean property market where capital appreciation appears more attractive in the longer term than many pension funds or unit trusts. It is possible to buy a property outright in Chile for less than the price of a deposit on a property in the UK.

There are several investment hotspots in Chile including Chiloe Island, Patagonia, Puerto Varas, Pucon and Villarrica. These areas have not experienced the same degree of capital appreciation as property in and around Santiago and so investment prospects are good.

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Secondary

MarketThere is an emerging middle class in Chile with wages rising faster than the rate of inflation as a result of increased productivity. The cost of living in Chile is between 25% and 40% lower than in the US and Europe. Chileans are enjoying increased disposable income and housing is affordable for a growing number of the population. Mortgage rates are relatively low to encourage long-term borrowing for both domestic and foreign investors. House prices, although increasing year-on-year, are still low by regional standards and there is scope for impressive returns on property investments in the country.

Rental yields are high in Chile and property investment can attract good returns. Apartments in the Santiago

region can achieve yields of up to 10% on larger properties. Property located to the south of the city has slightly lower yields but still earn a healthy 4.09% to 7.5%.

There is a housing shortage in Chile and the government is investing substantial amounts in several residential and commercial building projects to meet domestic need. With increased employment opportunities, particularly in Santiago, there is a strong demand for resale and rental property throughout the country.

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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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Market RisksProperty investment into emerging markets may carry some degree of risk. However, the degree that market risk in a particular country affects a property investment depends largely on thorough due diligence conducted prior and during the purchase process.

Chile is dependent upon natural resources for much of its economic strength. The banking sector is one of the most secure in the world and has been shielded from the credit crunch. However, the inflationary pressures caused as a result of commodity prices surging upwards is testing Chile’s financial resilience. When energy and commodity prices come down from their all time highs, inflation pressures will recede. With the rest of the country’s economy relatively unscathed, the potential for a quick recovery is good.

Chile’s natural resources are threatened by widespread deforestation and mining. Air pollution from industrial and vehicle emissions compound this threat. Although Chile is party to various environmental agreements, Ozone Layer Protection being one of them, no agreements have been ratified.

Unemployment has hovered around the rate of 8% to 10% in recent years and is expected to remain so in the coming years, despite Chile’s strong economic growth. International observers believe that high unemployment is the result of Chile’s restrictive and complicated labour laws.

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.

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Purchase Process

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.

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.

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Investment Costs

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%.

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.

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SummaryThe risk rating agency Standard & Poor’s has awarded Chile an A+ rating which is the highest rating for a country in Latin America.

Strong consumer demand and solid public finances have insulated the country from the global financial crisis.

Chile has the least corrupt economy in South America.

According to Forbes, Chile’s capital, Santiago, is ranked 5th in their top 10 World’s Next great Cities 2008 and 1st for its economic and commercial environment.

Chile is the longest and narrowest country in the world with varying landscapes and climates making the country an excellent year-round holiday destination.

Chile has a large investor following as one of the most stable countries in South America.

Rental yields are high and up to 10% can be achieved for property in and around Santiago.

The mortgage market is well developed but is not open to foreigners, even those with a residence permit.

Chile has restrictive and complicated labour laws which have resulted in high unemployment.

The purchase process is straightforward and property rights secure.

Chile has a double taxation treaty with the UK and Ireland.

The following summary provides key highlights to consider when investing in Chile’s property market:

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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.

Verdict

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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.


Obelisk AdvantageVoted 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:

The client chooses and reserves the unit that best suits their investment requirements, and Obelisk takes the client through a compliance procedure.

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.

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.

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.

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For more information about Obelisk’s investment opportunities in Chile, contact us now on [email protected], visit

our website at www.obeliskinternational.com or call us FREE on 0808 160 0670 (UK) or 1800 932 514 (IRE).

Awards Obelisk ‘International Property Specialist 2008’

DisclaimerThe 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: [email protected] or visit: www.obeliskinternational.com

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