2012 sees Chile break its residential sales record.

The residential real estate market in Chile appears ready to welcome the new year in style.

The Chilean Chamber of Construction predicts that more than 69,000 residential units will be sold in 2012, setting a record and outpacing 2011 sales by 18%. The robust economy, which is currently predicted to expand by 5.7% in 2012, the second-highest in Latin America behind Peru and the sixth-highest in the world, has been the main driver of residential demand. Additionally, Chile’s unemployment rate has decreased to 6.2%, the lowest level in four years.

The expansion of credit options has been another factor influencing demand. The Central Bank has stated that lending standards have loosened, and the Chilean Superintendence of Banks and Financial Institutions reports that real estate credit volumes continued to rise in November. Rates on short-term mortgages decreased by almost 1% to 4.9% from October to November.

The Cajas de Compensación, which offers loans to people who typically have difficulty accessing traditional bank finance, is a growing force in Chile’s residential real estate finance markets in addition to bank financing. According to reports, these institutions’ credit volumes rose by almost 78% between October 2011 and October 2012.

Flexible credit terms provided by real estate development companies, such as allowing buyers to make down payments in installments, have also facilitated purchases. There are more and more options for buyers of residential properties in tourist areas to rent out space when they are not using it. As investors try to beat the tepid local stock market returns and developers try to sell down product volumes in the face of rising competition, third-party management of residential properties to boost investment returns is likely to become more popular.

Due to government-sponsored housing subsidies, the demand from Chile’s emerging economic groups, which make up an expanding portion of the residential real estate market, has increased. The Chilean government gave out more than 73,000 housing subsidies between 2011 and 2012.

Residential prices have increased, which reflects a high demand and sales volume. According to information from the Chilean Construction Chamber, the housing price index increased from 130.7 in September to 125.8 in October 2011 to 132.2 in October. The overall Housing Price Index rose 5.1% on a quarterly basis, while the index portion for apartments rose 11.2%. The price increases for apartments with 2, 3, and 4 bedrooms were 9.2%, 15.5%, and 11.8%, respectively.

Despite the rise in sales and home prices, there has been a sharp decline in requests for residential sector building permits, which may indicate that developers are starting to take a more cautious medium-term approach in light of the massive amount of residential space that will soon be available and the Central Bank’s growing concern over the sector. According to the National Statistics Institute of Chile’s report for the month of November, the total authorized construction space decreased by 20.7% from November 2011 to November 2012.