Purchasing real estate in Chile has long been an attractive option for foreigners. Many are attracted to the style and quality of life in Chile, of course, but they also see Chilean real estate as a strong and safe investment vehicle. With the generally high rent-yields in Chile (usually between 7% and 10% for residential properties, and higher for commercial properties), it can be very profitable to purchase a property and then lease it out to tenants – a process we describe in the following chapter, on leases.
The majority of real estate purchases in Chile are done with financing from Chilean banks. However, as it is very difficult for non-residents to receive Chilean bank loans, it is best for non-residents to purchase properties in cash if possible.
Foreigners with residency status who decide to seek bank financing will need to undergo a due diligence process as well as a very thorough credit check and an evaluation of your current situation (income, other debts, etc.).
The process of seeking a loan from a bank for the purchase of real estate usually takes between 1 and 3 months, in some cases take longer. The length of the process will be determined not only by the complexity your own banking history and current situation, but also by the due diligence process on the property itself. After the due diligence process has been completed, the bank will offer you a financing rate. It is common practice for prospective loan recipients to take this rate and then go to other banks and see if they’ll offer a better one.
Whether or not you apply for a bank loan, performing thorough due diligence on the property you want to buy is extremely important. Indeed, the single biggest pitfall for real estate buyers in Chile is buying a property that has not been properly vetted, which can lead to serious problems down the road.
We highly recommend hiring a lawyer to help you perform a due diligence on your property and to assist you during the complete process of the purchase. The due diligence process should include:
Property background check: including a review of the property’s ownership history, as well as the current ownership registration and other documents verifying that there are no issues that could affect the purchase or future ownership rights. Importantly, many inherited properties are owned by more than one person. If the family of the deceased former owner did not do all the necessary paperwork duly, you may find yourself in trouble. LegalFácil knows of endless cases where people fell in love with a piece of property but were not able to buy it because one of the heirs would not sell his part or the paperwork was still pending. Your notario can help you with this aspect as well, with a certificado de dominio (ownership certificate) from the local Real Property Registry.
Background check of seller: This is especially important if the seller is a legal entity such as a company or organization, as opposed to a person.
Land use and zoning permits: Every property in Chile is designated a specific land use. When buying a property for a certain purpose (industrial use, for example), you must verify that the property in question has the corresponding zoning permits for that purpose. To do so, you or your lawyer must request from the municipality a certificado de antecedentes previos, which provides information regarding the zoning permits of the property. Importantly, you should not assume that the current owner is using the property legally; it’s always best to check with the municipality. You may request the municipality to alter the zoning permits of a property, and in some cases they will do so.
Joint ownership rules: Apartment buildings and gated communities are regulated by a reglamento de copropiedad (joint ownership rules), which establishes the rights and responsibilities of all owners and/or tenants of the given building/community, as well as defining the units that make up the community, the common areas and the community’s administrative regulations. All owners or tenants in the community must abide by the rules of the reglamento; indeed, it often establishes important limits on issues such as remodeling, pets and property use. As we’ll see below, the reglamento can frustrate the beautiful architectural remodel that you had planned, so keep the reglamento in mind before buying the property. Many buildings state in the reglamento that no pets are allowed.
Review of outstanding debts: Property debts may include property taxes, utility bills and, in the case of apartment buildings and gated communities, community fees. Verify that the property is debt-free by requesting a certificado de libre deuda (debt-free certificate) from one of three sources: (1) the national treasury in the case of property taxes, (2) the building’s administrator for community fees, and (3) the appropriate utility company for outstanding gas, water, and electricity bills. If there are debts, request a lower sale price.
In terms of immigration status, you do not need to have any kind of residency, temporary or permanent, in order to purchase real estate in Chile; indeed, you don’t even need to be in the country, as long as you grant power of attorney (poder) to a third party (such as a lawyer or accountant) who completes all the necessary procedures and paperwork.
In terms of documentation, you need a passport or (if you have residency status in Chile) a cedula de identidad. Additionally, all buyers need a Chilean tax identification code called a RUT. The LegalFácil books on Chilean immigration law and tax law explain how to obtain a cedula and a RUT, respectively.
Sellers likewise need a passport or cedula and a RUT. As with buyers, it is possible for sellers to grant power of attorney to a third party.
Finding a Property
To locate properties for sale, you can use a real estate agent, which is the most common way to find, buy, and sell a property in Chile, or search online. Some websites have direct listings from sellers (HYPERLINK “http://www.portalinmobiliario.com“www.portalinmobiliario.com). In Chile, it is also very common for buyers to directly contact real estate developers selling new properties.
How to Purchase
Once you’ve found a property to purchase, performed all the necessary due diligence, and determined how you will pay for it (including, if applicable, receiving a loan offer from a bank), you must complete a two-step process including a contract between you and the current owner and the new ownership registration in the Real Estate Registry (Conservador de Bienes Raíces). The steps, in chronological order, are the following:
Purchase Contract: you will sign a purchase contract (contrato de compraventa) with the owner(s). In Chile, a real estate purchase contract can only be granted by means of public deed, executed before a notary public.
Purchase registration and issue of ownership title (Título de propiedad)
With a copy of the purchase contract public deed, you must go to the Real Estate Registry (Conservador de Bienes Raíces) . This office will officially transfer ownership from the former owner to the buyer by the registration of the purchase contract. The Real Estate Registry is the only institution authorized to issue an ownership certificate (certificado de dominio vigente), with which you can prove your ownership of the property.
A Note on Pre-Purchase Agreements
There are cases where the buyer and seller will agree on the terms of purchase but, for some reason, must postpone the transaction. For example, the buyer may be waiting for a loan. If the happens, the parties can sign a preliminary contract, called a purchase promise agreement (promesa de compraventa), where the owner declares that the transference of ownership will occur on a certain date if certain conditions are met. The promesa de compraventa may be done as a public deed (escritura publica), executed before a notary public, though it’s not mandatory. It must specify the parties’ names, the property, the price, the closing date, and the conditions that must be met to execute the purchase. Usually 10% of the down payment is paid at this point as a guarantee.
There are two fees associated with purchasing a property: one to the notary public (prices vary from notary to notary, so we recommend asking before selecting one) and to the Real Estate Registry (Conservador de Bienes Raíces).
Owners of real estate must pay property taxes (contribuciónes de bienes raices) to the local municipality. These taxes are regulated by Law 17.235. The property taxes are paid in 4 installments every year. Real estate is taxed at a progressive tax rate, which varies between 1.0% and 1.2% of the government appraisal of the property. It is not necessary to register your property with the tax agency (Servicio de Impuestos Internos), but it is recommended to advise the agency that you are the new owner.
Under Chilean Law, owning a property gives you unlimited, unrestricted, perpetual rights over that property.
If you plan to buy the property with someone else, you may wish to form a corporation. Even though this option might be more expensive, it is safer: co-ownership under Chilean law is unstable, mainly because the law sets forth that any of the co-owners can ask for the sale of the property, at any moment. Co-owners cannot waive this right. By having a corporation as the property-holder, you would have a more well-defined framework to operate and sell the property. See the LegalFácil Guide to Corporate Law in Chile regarding the constitution of corporations.
Buying Rural Land
There is no specific legal regulation for the purchase of rural land. Nevertheless, the due diligence reports regarding this type of land must address certain issues regarding possible debts related to labor and obsolete regulations.