In recent years, the real estate financing landscape has been marked by a “permissive” crisis and a rise in interest rates, resulting in the withdrawal of traditional banks from the sector. This decline has contributed to the worsening of a major problem: the housing shortage, which —according to the Ministry of Housing and Urban Development (Minvu)— was estimated at 600,000 homes in 2023.

Despite the government's attempts to offer solutions by correcting permits and procedures, the real answer to the real estate financing crisis could depend on less visible and, at the same time, much more structural factors.

Among these, the impact of reforms to international banking standards, and in particular the completion of the Basel III implementation process [i] , has the potential to reshape the game for the sector. This regulatory shift is certainly going unnoticed in many analyses, but its effects are profound and far-reaching.

The evolution of standards required for banking has been gradual, starting in 2020, with the forecast—according to the calendar—for their full implementation by the end of this year.

Traditional banks, now obliged to comply with these stricter standards, will have to recalculate the risks associated with their real estate assets, especially in terms of the valuation of collateral, consequently affecting the levels of reserve requirements and technical reserves.

According to the Central Bank of Chile, the required capital could increase by 15% to 20% due to the new Basel III standards, which will not only affect the availability of credit, but could also imply the need for capital increases and greater caution when financing projects. This could trigger movements such as those we are already seeing with strategic transactions between banking groups, such as those involving Bice and Security, which are completing acquisitions and consolidations to strengthen their position in the face of the new regulations.

The implementation of these new regulations means that banks will not only have to adapt to greater regulatory demands, but will also have to face higher costs and risks, being forced to review their exposure to the real estate sector in order to maintain their profitability, which could lead to greater segmentation of the credit market. As a result, the real estate sector will become more dependent on alternative sources of financing such as private debt, which has been taking on a key role in recent years as a driver of growth.

In this way, private debt – outside of traditional banking – will continue to play an important role for the real estate industry, especially in those segments that have been left off the banks' radar.

According to data from CBRE Chile, in 2023, real estate investments through private debt grew by 30% compared to the previous year, which underlines how this financing modality is gaining ground compared to traditional channels.

This trend is expected to become even more consolidated as the operational structures of the banking system are adjusted and the restriction on access to credit is prolonged, generating a boom in the use of fresh resources from private debt to finance attractive projects that would otherwise be outside the traditional system.

While the “permissive” crisis and the rise in interest rates are visible factors that explain the withdrawal of traditional banks from the real estate sector, the implementation of Basel III offers a new perspective on how the rules of the game are changing. Banks will have to adapt to a new reality, which leaves room for private debt to continue its expansion, playing a more relevant role in the revival of the real estate industry.

Rodrigo Herrera

Private Debt Manager Fynsa AGF

[i] Basel III is a set of internationally agreed measures developed by the Basel Committee on Banking Supervision in response to the 2007–09 financial crisis. The objective of these measures is to strengthen the regulation, supervision and risk management of banks.