High input costs, difficulties in finding financing, and deteriorating unemployment (8.5%) have recently afflicted Chile, lowering consumer and business confidence. This 2024, a below-average 90% occupancy rate and an influx of aggressive real estate deals that have reduced the placement price have continuously challenged the nationwide residential rental business.

According to data provided by the INE, while the Central Bank has succeeded in keeping inflation controlled at around 4%, that inflation has only been accompanied by a 2.6% growth in real wages in the last 12 months. Additionally, the financial market is currently contracted with low access to mortgage loans and has therefore resulted in a wave of withdrawals that have generated a greater preference for rentals. If this scenario persists, an improvement in occupancy levels and a real growth in rentals is likely to follow, as a greater willingness to pay is positively correlated with a better product.

Data provided by the Chilean Chamber of Construction suggests that although it is true that we have seen the entry of new units in recent quarters, there has been a drop in prices that could continue until the current supply is exhausted. This drop has grown by 15% compared to 2023 and has lasted around 35 months. However, this year we expect the opposite effect with a 50% reduction in surface area (m2) in approved building permits compared to 2022 and 10% less compared to 2023.

The set of factors behind this discouraging reality provide an excellent investment opportunity. At Alza, we have strategized the purchase of discount apartment packages that will be used for 2-year short-term rentals until market rates return to pre-pandemic levels and real estate recovers its value.

Lucas Landea – Analista Senior Inversiones

October -2024