Chile's government has established a special committee to track the real estate sector's risks.

 

The Chilean Financial Stability Council (Consejo de Estabilidad Financiero) has announced the formation of a new group to track residential real estate sector risk in response to concerns about rising prices. Representatives from the Ministry of Finance, the Central Bank, and the Superintendents of Pensions, Securities and Insurance, and Banks will form the committee, which will work to recognize and track structural risks to local financial stability. buy property in qatar

 

Chilean real estate prices have risen dramatically over the last nine years, with the last two years accounting for the majority of the increase. Between January 2004 and September 2012, the portion of the Chilean Construction Chamber's Housing Price Index that tracks the price of houses increased by about 45 percent. The dramatic increase in the index from around 115 in April 2010 to 145.3 in September 2012 is particularly noteworthy.

 

The rise in apartment prices has been notable as well. The Housing Price Index for apartments has risen nearly 25% in the last nine years. However, almost all of this growth has occurred in the last 30 months.

 

Home and apartment sales in the Greater Santiago area are at three-year highs. Apartment sales increased from 4,654 to 6,746 to 7,131 units in the first three quarters of 2012, according to El Mercurio. From the third quarter of 2011 to the third quarter of 2012, the number of apartments sold increased by 48 percent year over year. The number of houses sold rose from 2,600 in the first quarter of 2012 to 3,659 in the third. The rise was roughly 14% on a yearly basis.

 

Construction cost increases are adding to the sector's concerns. The Chilean Construction Chamber's Construction Cost Index increased by more than 10% between October 2011 and September 2012. Construction activity has been on the rise in general, with some areas of Chile, such as La Araucania, Antofagasta, Magallanes, and Los Rios, reporting increases of more than 20% in construction activity. This has put a lot of strain on labor costs.

 

In Chile, the question of whether the sharp price increases signal a rising real estate bubble is a hotly debated subject. Residential price rises, according to some market analysts, have been driven mainly by low unemployment and rising disposable income rather than speculation fueled by overly aggressive home lending practices. Another factor that could help to reduce the likelihood of a sudden and major price collapse, at least in the short term, is that there are a variety of housing price levels in different Santiago neighborhoods, giving home shoppers facing rising housing costs the option of looking for homes in less expensive areas rather than being forced to compete for homes in a single area with a relatively narrow price range.

 

Chile's economy, on the other hand, has remained strong and is expected to rise by more than 5% in 2013, but it remains heavily reliant on natural resource exports. A significant drop in export volumes will result in a sharp drop in housing affordability, particularly in areas of Chile where local economies are heavily reliant on a single industry, construction costs are high, and housing options are small.