translated from Spanish: The myth of the price war

The pandemic has hit the real estate sector hard, both by the construction of the works and by the postponement of purchasing decisions by many people who were looking for housing and have had to concentrate on other priorities.
This unfavourable context for the industry expands if we add up the social crisis of October, which brought great uncertainty in economic and social matters, drawing a picture apparently conducive, according to some theories, to an inevitable decline in department values. There is even talk of “price war”, which you have to look at very cautiously so as not to generate false expectations.
If we concentrate the analysis in Santiago Centro, with accurate data from the prestigious GFK survey, we find that in the third quarter of 2019 there were 1121 units sold at 71.2 UF/m2, with an offer of 4931 units. In contrast, in the first quarter of 2020, we found a sale of 409 units, a decrease of 64%; and an offer of 6549 units, which equates to a 33% increase; and an average selling value of 73.9 UF/m2, an increase of 3.8%.
How can there be this incongruity of having more stock, less sales and the price going up? The answer is clear: no matter how much there is a momentary on stock, in normal situations it does not take more than 15 months to exhaust it, so there have not been large discounts of departments in the center. We carried out a study of the 75 existing projects in that commune and none of them found significant rebates, only support to improve foot conditions, help in possible vacations, unemployment insurance, etc.
The UN says that in 30 years we will have to build new urban space for around 2.5 billion people worldwide. Today, 55% of the world’s population lives in cities, and by 2050 that number will increase to 68%. With these projections, there is no doubt that demand for housing will continue to increase, which, in addition to regulations that have raised the price of land and the price of construction, implies that prices will continue to rise. Just as an example, the Public Space Contribution Act will take effect on November 17, which can increase the value of the land by up to 44%, which could increase current prices by more than 10%. This effect is considerably greater than the impact that VAT had at the time.
With all this in mind, I think it’s very important to stop giving false expectations with the myth of a price war. The projections of future demand and interest of many investors to buy apartments, in addition to the current rates and the upcoming regulations that are beginning to govern this year, have caused prices in Santiago central to rise even though sales have fallen.
This is why today, if the personal financial situation permits, the best investment remains in property, as real estate provides capital gain and safe profitability over time.

The content poured into this opinion column is the sole responsibility of its author, and does not necessarily reflect the editorial line or position of El Mostrador.

Original source in Spanish