A challenging scenario

The Chilean real estate sector has faced significant challenges in recent years, marked by macroeconomic and structural factors. Since the social outburst of 2019 and the pandemic in 2020, the industry has suffered from interest rate hikes, financing restrictions, an excess of stock housing stock and delays in building permits, aggravating the housing deficit, especially for those seeking their first home.

Recent panorama of the Chilean real estate market

The crisis began with the economic contraction and capital flight of 2019, followed by the pandemic - which crippled projects and raised costs - and, in 2021, a brief rebound due to pension fund withdrawals. However, Central Bank rate hikes in 2022 made lending more expensive (from 3% in 2019 to over 5% in 2023), reducing affordability and leading banks to demand stricter conditions, such as higher footing and better credit scores.

Between 2020 and 2022, construction costs rose 30% for materials such as steel and cement, and permitting delays increased the stock unsold stock, with vacancy rates close to 40% in densely populated communities, such as Estación Central and Independencia, in 2023.

Current challenges

1. High interest rates. In May 2025, mortgage rates hover between 4.5% and 5.5%, well above the 2%-3% prior to the pandemic, which has made dividends more expensive and excluded many families from the market. For example, a 30-year loan for a 2,000 UF home today implies almost 30% higher installments than in 2019. High rates also affect the profitability of new projects, discouraging investment.
2. High stock real estate. Greater Santiago faces an excess of unsold housing. In 2023, the Chilean Chamber of Construction (CChC) reported a 30% increase in apartments available for immediate delivery and a 25% drop in greenfield projects, as a result of lower financing and weak demand. This generated a "buyers' market", with discounts of up to 10% in areas with high vacancy. High rates and the cost of living have slowed sales, with abandonments reaching 25%.
3. Housing shortage. Despite the excess of homes for sale, Chile faces a housing deficit estimated at 641,000 units by 2024, according to the Ministry of Housing and Urban Development (Minvu). The deficit most strongly affects families earning less than 25 UF per month (approximately CLP 950,000), who have difficulty accessing subsidies or qualifying for mortgage loans.
4. Deterioration of household savings. Inflation and pension fund withdrawals have reduced savings capacity, excluding many first-time homebuyers, especially due to higher requirements to access subsidies, such as the increase in minimum savings in DS1 (from 40 UF to 80 UF in Tranche 2 and from 80 UF to 160 UF in Tranche 3). The rate of homeowners under 35 years of age has fallen by 15% since 2019.

Subsidies and demand support

In January 2025, the Minvu announced a mortgage rate subsidy program for homes up to 4,000 UF, which can reduce the effective rate to 3.42% and cover part of the monthly dividend. It applies to purchases as of January 1, 2025 with financing of up to 90%, and seeks to benefit 50,000 families per year, although its demanding requirements have been criticized for limiting its scope.

The Social and Territorial Integration Program DS19, which combines subsidized and market-rate housing in well-located areas, was also strengthened. The maximum value of subsidized housing was raised from 2,000 to 3,000 UF and additional subsidies were added (150 UF for DS1 and 100 UF for DS19).

Responses in financing and innovation

Faced with the crisis in the sector, the private sector has developed new strategies to sustain real estate activity:

• Investment Funds DS19. Private funds are financing DS19 projects, taking advantage of state subsidies to reduce risks and attract institutional investors. In 2024, they accounted for 15% of new construction in Santiago.
• Real estate debt funds. To address the lack of liquidity, private funds grant short-term loans to real estate companies, with competitive rates and the backing of high net worth investors. These investments grew 20% year-on-year in 2024.
• Flexible payment plans. Some real estate companies offer alternatives such as payment of the foot in installments or financing linked to rental income, which helps to reduce inventory.
• Crowdfunding crowdfunding. Since 2023, Chilean platforms allow small investors to finance residential projects, especially in areas with high demand, replicating international models.

An uncertain future

The real estate sector remains in a fragile situation, pressured by high financing costs, overstocked stock and the housing deficit. Although government measures are positive, they are limited in scope. Private solutions are still small and difficult to scale.

Recovery does not appear to be near, and public-private collaboration will be essential to free up the stock of stockincrease affordable supply and address the housing shortage. The road to recovery will be long and challenging.

DISCLAIMER

Raimundo Fuenzalida

Portfolio Manager Private Debt Fynsa AGF