Financing Property in South America, Chile

At the moment Chile seems to be bucking the trend of the global recession.  With GDP growth of 3.9% in 2008 and a forecast of 2.8% GDP expansion in 2009, Chile is riding out the turbulence of current times reasonably well.

If you put this economic data alongside the fact that you can get excellent rental returns in prime areas of the capital city of Santiago of around 8.1% per annum, and it can be seen that buying property in Chile is a worthwhile investment for those seeking an emerging market of opportunity.

There may also be help on the horizon for investors looking for real estate in Chile.  Financing property in South America has always been difficult for foreigners, and until recently Chile was the same as other countries in the region with loans almost impossible to obtain particularly for foreigners, but there may well be light at the end of the Chilean mortgage tunnel as banks are starting to become a little more foreigner friendly.

The mortgage sector in Chile is extremely well managed and run, and mortgage providers are very careful with lending criteria which has helped shelter Chile from the current depression in the likes of the UK and the US where there is massive exposure to so-called sub-prime debt. 

A little known fact is that Chile has one of the highest rates of owner – occupancy in Latin America at 72.69%, and mortgage repayment terms have now been increased to a maximum of 40 years to encourage and enable the local market to continue buying and investing.  Naturally this is also of benefit to international investors keen to buy in. 

Interest rates are currently around 5% - 7% on mortgage repayments – which is fairly steep, but nothing compared to countries like Argentina where it rates can reach upwards of 12%.  It is still difficult for foreigners to access the mortgage market in Chile though in reality, and in most cases a foreigner buying property in Chile with a mortgage will need to have been a long term-resident, have assets of over 50 million Chilean pesos (£57,000) within Chile, a checkable credit history in Chile and be able to put down a hefty deposit. 

If you’re seriously considering investing in a property in Chile and you do require financing, you may find you need to have a Chilean national sign your documents as a “mandatario judicial” or representative who is not financially responsible but who effectively vouches for you.  These hurdles are annoying, but at least it is possible to obtain property financing in South America in Chile – in a number of other nations it is simply not a viable possibility at all.

If you’re not a long-term resident, then buying property in Chile is much the same as the rest of the countries in the region.  You may be able to arrange financing with a seller in the form of a private mortgage, but repayment terms are usually over a very short period, not normally more than a year, and you will need to put down a large deposit.  Otherwise you can approach developers of new build and off plan projects and see if they will offer any form of financing.  They may require a credit check, but it may be easier to arrange than a bank mortgage for your property purchase in Chile.

Failing all of the above options it comes back to the usual method of financing property purchases in South America.  i.e., cash on the nose!