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Chile Property Development Tops $11 Billion in 2012

Chile Property Development Tops $11 Billion in 2012

Driven by Chile's strong economic growth and continuing reconstruction efforts after the 2010 earthquake, the Chilean real estate sector remains very strong.

According to a report by the newspaper Estrategia, there are currently over $11 billion of real estate projects under development in Chile, the majority of which are in the Santiago Metropolitan Region.  Approximately 72% of these projects are currently under construction.

Reflecting the strength of the market, it was reported that housing sales in Chile in the second quarter of 2012 increased 35% over the same period in 2011.  Based on information made available by the Chilean Construction Chamber, sales of apartments and houses in the Greater Santiago Region surpassed 3,500 units per month in May and June of this year, the highest since July of 2011.  Home sales country-wide last May reached approximately 7, 000 units.

Due to the large amount of construction activity underway, construction costs not surprisingly continue to rise.  The Construction Cost Index prepared by the Chilean Construction Chamber reached approximately 4,500 points in June, its highest level since July of 2011.

Given the combination of the large amount of projects planned or currently under construction and the fact that the unemployment rate in Chile is currently approximately 6.6% -- near the lowest level in two years - it is expected that upward cost pressure will not let up soon. 

General levels of inflation, however, are expected to remain within the ceiling established by the Central Bank of Chile for the remainder of the year.

Regarding new developments slated to come on line, the most important residential project is Parque Cousiño Macul, located in the Peñalolén sector of Santiago.  The project, which is being developed by Crillón Desarrollos Inmobiliarios, reportedly targets the construction of 10,000 homes and will require an investment of $1 billion. 

Another large-scale residential project in the Santiago Metropolitan Region is Lomas de Aguirre, which reportedly targets the construction of 5,000 homes and will involve an investment of $470 million.

With respect to mixed-use developments, the most important project is the Costanera Center project being developed by Chilean real estate company Cencosud.  The project, which contemplates 700,000 square meters of built space on an area of 47,000 square meters, will comprise when completed four towers, a mall, four and five star hotels and over 300 stores.   The mall opened in June of 2012.

The Costanera Center includes the new defining element of the Santiago skyline - the skyscraper Gran Torre Costanera.  The tower, which has 63 floors and stands nearly 1,000 feet tall, is the tallest building in South America.

While business sector confidence in Chile remains strong, concerns about mounting space coming on line and increasing costs have taken a toll on real estate company share prices. The Construction and Real Estate Index of the Santiago Stock Exchange closed on August 24 at 6,617.83, down 10.49% on the year and 21.45% over the last 12 months.  The Retail Index of the Santiago Stock Exchange closed on August 24 at 4,940.90, down .61% on the year and 1.21% over the last 12 months.

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