Published on and written by Cyril Jarnias
Chile is an increasingly popular destination for foreign real estate investors, thanks to its political and economic stability, as well as its varied landscapes ranging from the northern deserts to the Patagonian fjords. However, before embarking on a real estate purchase project in Chile, it is crucial to thoroughly understand the local legal and regulatory framework. This article will guide you through the main real estate laws and regulations you need to know to invest with peace of mind in this South American country.
A Real Estate Market Open to Foreigners
Good news for international investors: Chile welcomes foreign buyers with open arms in its real estate market. Unlike some countries that impose restrictions on non-residents, Chile offers a favorable legal framework for foreign investment in the real estate sector.
Foreigners enjoy the same rights as Chilean citizens regarding real estate purchase and ownership. They can freely acquire residential, commercial, or land properties, whether for personal use or as a rental investment. This openness of the Chilean real estate market to foreign capital contributes to its dynamism and attractiveness.
However, there are a few restrictions to be aware of:
- Foreigners cannot purchase land located within 10 km of the country’s land borders, for national security reasons.
- Buying certain properties in coastal areas may require special government authorization.
Apart from these specific cases, foreign investors enjoy great freedom to acquire real estate in Chile. This market openness is part of the country’s desire to attract foreign investment and develop its economy.
Good to Know:
Foreigners can buy and own real estate in Chile with almost no restrictions, enjoying the same rights as Chilean citizens. Only a few border and coastal areas have limitations.
The Legal Framework of Chilean Real Estate: What You Need to Know
The Chilean real estate market is governed by a set of laws and regulations aimed at regulating transactions and protecting property owners’ rights. Here are the main texts and provisions to know before investing:
1. The Chilean Civil Code
This is the fundamental text governing property rights and real estate transactions in Chile. It defines the rights and obligations of owners, the procedures for property transfer, as well as easements and other real rights.
2. The General Law on Urban Planning and Construction (LGUC)
This general law on urban planning and construction governs urban development, land use planning, and construction standards. It defines zoning rules, building permits, and building safety standards.
3. The Law on Real Estate Co-ownership
This law on real estate co-ownership governs relationships between co-owners in multi-unit buildings. It defines the rights and obligations of co-owners, the functioning of general meetings, and the management of common areas.
4. The Consumer Protection Law
The consumer protection law also applies to real estate transactions. It imposes transparency obligations on sellers and real estate developers, particularly regarding pre-contractual information.
5. The Land Registry System
Chile has a land registry system (Conservador de Bienes Raíces) that guarantees the legal security of real estate transactions. Any sale or transfer of property must be registered with this registry to be enforceable against third parties.
It is highly recommended to hire a lawyer specialized in real estate law to ensure compliance with all these regulations during a real estate transaction in Chile. The lawyer can, among other things, perform the necessary checks with the land registry and ensure the validity of property titles.
Good to Know:
The Chilean legal framework offers good protection to property owners, with laws governing transactions, co-ownership, and urban planning. The land registry system guarantees the security of property rights.
Real Estate Taxation in Chile: What You Need to Anticipate
Taxation is a crucial aspect to consider when investing in real estate in Chile. The Chilean tax system includes several taxes related to the purchase, holding, and sale of real estate:
1. Value Added Tax (IVA)
Unlike many countries, Chile applies VAT (called IVA) on sales of new real estate. The standard rate is 19%. This tax is generally included in the listed sale price for new homes.
2. Capital Gains Tax on Real Estate
Capital gains realized from the sale of a property are subject to income tax. The rate varies depending on the amount of the gain and the holding period of the property. Exemptions exist for primary residences under certain conditions.
3. Property Tax (Contribuciones)
Owners of real estate in Chile must pay an annual property tax, called “Contribuciones.” The rate varies according to the tax value of the property and its location. Some low-value properties may be exempt.
4. Registration Fees
Registering a real estate transaction with the land registry is subject to fees, generally calculated as a percentage of the property’s value.
5. Rental Income Tax
Income from renting out a property is subject to income tax in Chile. Non-residents are taxed at a flat rate of 35% on their Chilean-source income.
It is important to note that Chile has signed tax treaties with many countries to avoid double taxation. Foreign investors should check for the existence of such a treaty with their country of tax residence.
To optimize the taxation of your real estate investment in Chile, it is highly recommended to consult a local accountant or tax attorney. They can help you structure your investment tax-efficiently and meet your reporting obligations.
Good to Know:
Real estate taxation in Chile includes several taxes, including VAT on new properties, capital gains tax, annual property tax, and taxation of rental income. Tax treaties exist to avoid double taxation.
Rights and Protections for Property Owners in Chile
The Chilean legal system offers solid protection for the rights of property owners. Here are the main rights and protections that owners enjoy in Chile:
1. Property Right Guaranteed by the Constitution
The Chilean Constitution guarantees the right to property as a fundamental right. It protects owners against arbitrary expropriation and ensures fair compensation in case of expropriation for public utility reasons.
2. Freedom of Use and Disposal
Owners have the right to use, enjoy, and freely dispose of their property, within the limits set by law and urban planning regulations.
3. Protection Against Illegal Occupation
Chilean law provides effective remedies for owners in case of illegal occupation of their property. Fast eviction procedures can be implemented through the courts.
4. Landlord Rights
Landlord-owners benefit from legal protection in case of non-payment of rent or damage to the property by the tenant. The law provides for eviction and recovery procedures for unpaid rent.
5. Right of First Refusal
In certain cases, particularly for co-owners, Chilean law provides for a right of first refusal in the event of a property sale.
6. Protection for Off-Plan Buyers
Chilean law strictly regulates the sale of off-plan properties, imposing financial guarantees on developers to protect buyers in case of default.
7. Recourse for Hidden Defects
Buyers are protected against hidden defects in the property. They have legal recourse against the seller if non-apparent defects are discovered at the time of sale.
8. Co-owner Rights
The law on real estate co-ownership clearly defines the rights and obligations of co-owners, ensuring fair management of common areas and a transparent decision-making process.
It is important to note that exercising these rights may require recourse to judicial or administrative procedures. In case of a dispute, it is recommended to hire a lawyer specialized in real estate law to defend your interests.
Good to Know:
Property owners in Chile benefit from strong legal protection, including the constitutional guarantee of property rights, effective remedies against illegal occupation, and strict regulation of landlord-tenant relationships.
Recent Developments and Outlook for the Chilean Real Estate Regulatory Framework
The Chilean real estate market is constantly evolving, and the regulatory framework is adapting to meet new challenges. Here are the main trends and recent changes to be aware of:
1. Strengthening Seismic Standards
Following the 2010 earthquake, Chile significantly strengthened its seismic construction standards. New regulations impose higher standards for building resistance to earthquakes, which can impact construction costs but ensures greater safety.
2. Sustainable Development and Energy Efficiency
New regulations encourage the construction of more environmentally friendly and energy-efficient buildings. Tax incentives are being implemented to promote the use of green technologies in construction.
3. Regulation of Short-Term Rentals
Faced with the rise of rental platforms like Airbnb, some Chilean municipalities have begun to more strictly regulate short-term rentals. Restrictions may apply in certain areas, particularly tourist zones.
4. Simplification of Administrative Procedures
The Chilean government is working on digitizing and simplifying procedures related to real estate, particularly for obtaining building permits and registering transactions.
5. Strengthening Consumer Protection
New legal provisions strengthen the information obligations of developers and real estate agents towards buyers, particularly regarding transparency on prices and property characteristics.
6. Tax Developments
Discussions are underway for a possible reform of real estate taxation, particularly concerning capital gains tax and property taxes. Investors should remain attentive to these potential developments.
7. Zoning and Urban Planning
Some major Chilean cities, such as Santiago, are revising their urban plans to promote urban densification and the development of mixed-use neighborhoods. These changes can create new investment opportunities.
8. Regulation of Real Estate Credit
The Central Bank of Chile is considering new measures to regulate real estate credit, particularly to prevent the formation of speculative bubbles. This could impact the conditions for granting real estate loans.
These regulatory developments demonstrate Chile’s desire to modernize its real estate market while strengthening the protection of investors and consumers. It is crucial for foreign investors to stay informed about these changes and their potential implications for their real estate projects.
Good to Know:
The Chilean real estate regulatory framework is evolving towards greater sustainability, safety, and consumer protection. Changes are expected in construction standards, taxation, and regulation of tourist rentals.
Conclusion: An Attractive Real Estate Market but One to Approach with Caution
The Chilean real estate market offers great opportunities for foreign investors, thanks to a stable legal framework and a dynamic economy. The market’s openness to international buyers, combined with the diversity of available properties—from urban apartments to rural estates—makes it an attractive destination for real estate investment.
However, as with any investment abroad, it is crucial to approach the Chilean market with caution and preparation. Understanding the legal and tax framework, as well as local specifics, is essential for a successful real estate project in Chile.
Key points to remember:
- The market is open to foreigners with few restrictions
- The legal framework offers good protection for owners
- Real estate taxation is complex and deserves special attention
- Construction standards are strict, especially regarding seismic safety
- The market is evolving towards greater sustainability and consumer protection
To navigate this environment effectively, it is highly recommended to surround yourself with local professionals: a lawyer specialized in real estate law, an accountant, and a licensed real estate agent. Their expertise will help you avoid pitfalls and optimize your investment.
Finally, stay attentive to the country’s regulatory and economic developments. Chile, although stable, undergoes changes that can impact the real estate market. Regular monitoring will allow you to anticipate these developments and adapt your investment strategy accordingly.
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Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.
On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.
Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.
