The recent announcement of a temporary suspension of the VAT on new home sales for a limited period was presented as a measure aimed at reviving the real estate market. However, in the short term, the observed effect may differ from what was expected: the expectation of lower future prices is encouraging buyers to postpone their purchase decisions, potentially causing a lull in the market. 

This behavior is not unusual in economics. Faced with the prospect of future gains, buyers tend to wait for regulatory clarity before making a significant investment, such as purchasing a home. Various sector-specific analyses, including observations by the Chilean Chamber of Construction (CChC), have noted that tax announcements without clear implementation guidelines can alter the timing of purchases and temporarily affect sales volumes. 

Beyond the immediate impact on the market, one of the central points of the debate is how much prices could actually fall. The general perception tends to link the elimination of VAT with a 19% drop in home prices. However, technical evidence shows that this pass-through is significantly smaller. 

Studies conducted by the Chilean Chamber of Construction in its MACh (Macroeconomics and Construction) reports analyzed the effect of the introduction of VAT on housing in 2016. The results estimated that the actual impact on prices was approximately between 7.7% and 10.6%, depending on the model used. This evidence suggests that eliminating the tax is unlikely to result in reductions equivalent to the nominal VAT rate. 

Given the current context—characterized by high financing costs, tight margins, and slower sales—a conservative estimate suggests that actual price reductions could range from 3% to 7%, depending on the type of project, its stage of development, and specific commercial terms. 

The main reason for this partial transfer lies in the actual structure of real estate prices. In Chile, VAT is applied only to construction and not to the land, in accordance with Decree Law No. 825 and the instructions of the Internal Revenue Service (SII). Since the land can account for between 30% and 50% of a home’s total value, the effective impact of the tax on the final price is necessarily less than the nominal 19%. 

Added to this is a key factor: the elimination of VAT is not necessarily passed on in full to the buyer. In situations where financial costs have risen and operating margins have shrunk, part of the savings may be used to shore up balance sheets and maintain the financial viability of projects. 

From a strategic perspective, the main short-term risk is not the price level itself, but rather the expectations generated by the announcement. The possibility of a future price cut may lead buyers to wait for further developments, temporarily slowing down activity and affecting the pace at which new projects are absorbed. 

Ultimately, the elimination of VAT is a significant tool, but its impact will be gradual and limited. Lower taxes do not necessarily mean much lower prices, and the most immediate effect may not be economic recovery, but rather caution. In a market where decisions depend as much on certainty as on incentives, clarity in implementation will be just as important as the benefit itself. 

Sebastián Dourthé 
Real Estate Analyst, Fynsa AGF