Even in the United States, the process of finding and buying property, as well as securing a mortgage, is not an easy one. In Latin America, where real estate agents are often not officially licensed, countries use notaries instead of escrows, and mortgage rates can be staggeringly high, buying a property in Latin America can be much more difficult. Most Latin American countries lack an MLS (multiple listing service) so there is no central place to search for properties, no exclusivity for brokers, and prices for the same property can differ from broker to broker. It can be hard to know whether you are getting a straight deal when the process for researching properties and brokers is anything but transparent.
Even in countries such as Chile, which is one of the more developed real estate markets in the region, renting an apartment as a foreigner can be daunting. Local landlords usually require significant paperwork before signing a lease, including a cosigner, local employment documents, proof of local taxes, and other documents most foreigners do not have. Landlords may also require your monthly income to be triple or quadruple the monthly rent, meaning that renting many properties is out of reach even for well-paid locals.
In 2013, Vijay Kailas, a fellow Start-Up Chile entrepreneur and I started Andes Property to help foreigners buy, rent or invest in properties in Latin America to help provide more clarity into this market. In 2014, my fund, Magma Partners, made Adrian Fisher’s PropiedadFacil our first investment. Adrian has been involved in the real estate tech sector since 2012 in Argentina, Chile and now the US with PropertySimple, so we had significant experience in the real estate tech sector.
Because of a lack of information, low levels of competition in the Latin American real estate market and corruption in certain markets, potential property owners can take on risks when buying a property that they wouldn’t otherwise take on in the US, where we take many of our existing systems and platforms for granted.
Imagine trying to buy a property that is being shown by multiple independent agents, all of whom are offering different prices. Once you finally nail down a price, the process for getting a mortgage or a loan can take up to a year, not to mention the mountain of paperwork you need to take to the bank to get the credit approved. In less developed markets, you may even struggle to register the property as your own once you have managed to finalize the purchase. Issues with squatters and stolen property are relatively common in countries like Brazil, Bolivia, and Argentina, but are not problems in places like Chile, Uruguay, Colombia, Costa Rica and more.
There are endless opportunities to make purchasing property less painstaking across Latin America, especially as real estate investment begins to expand beyond just the wealthy classes. One way to do it is to work with experienced professionals like our team at Andes Property. Another way is to use some of the new technology companies that are sprouting up in the region.
The State of the Latin American Real Estate Industry
The reality of buying real estate varies drastically across the region. In countries such as Colombia and Chile, there are national Real Estate Registers for property registration. However, the process of buying and selling ismore cumbersome than is the US.
Meanwhile, the main issues facing the real estate market in large countries with many rural areas, such as Bolivia, Brazil, and Argentina, revolve around fraud and a lack of regulation for land titles. Brazil is trying to modernize land title issues to avoid fraud by using blockchain technology, but state regulations on property sales, especially in Amazonian regions, are far from adequate.
In Peru and Mexico, extraordinarily high and predatory mortgage rates are deterring consumers from investing in property. In Peru, up to 60% of families do not qualify for a traditional mortgage, even though the mortgage interest rate is likely to drop from 7% to 6% this year due to high competition. In all likelihood, this statistic applies to most of Latin America. Brazil’s mortgage rate ranges from 6.5%-15%, while Chile’s averages around 5.5% plus inflation, and Colombia’s soars to 15-18%. Overall, the process for receiving mortgages across Latin America tends to be anything but transparent, though some startups recently began tackling this challenge by creating marketplaces for mortgages that allow customers to compare their options before settling on a bank. Because of Basel III, many Latin American banks prefer to loan money via shorter term, higher interest loans instead of focusing on mortgages.
interest rates are not the only issue that keep some property markets from flourishing. In countries like Chile, most banks require 20-30% down. In Colombia it can be 30-50%. Other countries vary, but down payments are much higher as a percentage in Latin America than in most places in the US where you might be able to get away with 5-10% down.
For another example, property purchases in the US, such as a home or apartment sale, can be backed by a neutral third party called an escrow which protects the deposit in case either party backs out of the deal. Escrow is a service many US homebuyers take for granted. In Chile, homebuyers use a notary as an escrow, but the process is time-consuming and costly. Notaries in Latin America tend to be inefficient, bureaucratic offices that charge large sums to organize and process the basic paperwork needed for an escrow. While notaries in Colombia and Chile act as an escrow, the frustrating process just adds one more step to the already complex procedure of purchasing property. It usually takes a full day sitting at the Notary in Chile to actually close a deal.
Similarly, systems such as credit ratings, accreditation for agents, home equity loans, and comprehensive portals like the MLS (Multiple Listing Service) in the US are underdeveloped or non-existent in most Latin American countries. Finding a loan or a mortgage is near impossible for anyone outside of the top 20% in income, especially for unbanked people who have little access to credit.
Foreigners, who often struggle to create proper bank accounts in Latin America under their visa status, getting a mortgage or a loan can be nearly impossible. It took me 6 years to finally find a Chilean bank that would approve me for a 30% down $50,000 mortgage. In other countries, it might take even longer. Only Latin America’s wealthiest people have easy access to banking in Latin America, as traditional banks are poorly adapted to Latin America’s financial environment.
These limitations hold back Latin America’s growing middle class from purchasing property, requiring many people to continue renting apartments and homes because they do not have the income or access to credit necessary to receive a mortgage.
Opportunities in the Latin American Real Estate Tech Industry
Magma Partners’ first investment was PropiedadFacil.cl, a “Zillow” for Chile, which morphed into a new company called PropertySimple in the US. PropertySimple used the unique lessons they learned from operating in the Latin American market to launch in the US and tackle the US market from their office in Chile. Before I started Magma Partners, I also founded Andes Property, a company that helps foreigners buy, rent or invest in property in Latin America. Started in 2012 as a way for foreigners to rent furnished apartments in Santiago, Chile, we’ve continued to expand in the region.
As a foreigner, finding and renting property in many countries in Latin America is a minefield requiring complicated legal paperwork and local guarantors who can cosign on leases. My cofounder Vijay Kailas and I realized that many of the entrepreneurs arriving in Santiago to participate in the global accelerator program, Start-Up Chile, struggle with this specific issue and need a furnished apartment for their 6 month stays.
Beyond our own investments in the Chilean market, real estate tech is taking off in Latin America as the younger generations begin to search for properties and demand more user-friendly services.
Here are a few of the startups that are bringing new technology to the real estate industry in Latin America:
VivaReal (Brazil): VivaReal is the biggest online real estate marketplace in Brazil. Founded by US-born Brian Requarth in 2009, VivaReal lists over 5 million properties that receive 15 million hits per month. Brian talked about tackling the challenges of the massive and fragmented Brazilian real estate market on my Crossing Borders podcast last year. VivaReal recently merged with ZAP to become Grupo ZAP Viva Real, although both portals will continue to operate independently.
Homie (Mexico): Homie is a Mexican real estate platform founded by Jordi Greenham and Rene Serrano that uses artificial intelligence to help property owners and apartment hunters find each other faster. The platform allows individuals to list their apartments without the help of a real estate agent, which makes the process of finding a tenant quicker, cheaper, and more user-friendly.
Destacame (Chile/Mexico): Destacame, founded by Augusto Ruiz-Tagle and Jorge Camus, offers behavior-based credit scores for Latin American customers, allowing them to receive lines of credit, such as a mortgage or a loan, to help them purchase a property.
Comunidad Feliz (Chile/Mexico): Comunidad Feliz is a finance management software that helps buildings gather and manage the communal expenses (gastos comunes) from apartment owners each month.
Bancompara (Mexico): Bancompara is a Mexican service that helps home buyers compare mortgage rates online without having to visit a bank. The platform identifies the most effective and economic mortgage available for a customer based on their socioeconomic status, protecting Mexicans from predatory loans. Many Mexican customers tend to take a credit from their regular bank without going through the tedious process of shopping around, so Bancompara helps ensure they receive a fair price.
Capitalizarme (Chile): Capitalizarme, founded by Diego Garcia and Gabriel Cid, is a startup that helps young people invest in real estate opportunities. They recently launched an office in Denver, CO after receiving investment from Aurus.
The Latin American real estate market is growing quickly, especially since returns on real estate investment tend to be higher in Latin America than in the US, although not everywhere across the region. In some big cities, like Santiago or Medellin, real estate prices are still relatively affordable and are rising quickly. While prices are still relatively volatile, the market is open for investment, and tech startups are racing to keep up. The View Accelerator, based in Guadalajara, Mexico, is a big player in investing in proptech, supporting companies such as Homie, Briq.mx, Sin Llave, and Wiggot in their 2018 program.
This year, Miami held its second annual Latin American Real Estate Tech conference, which discussed new tendencies in the industry, including how to apply big data, machine learning, blockchain, and artificial intelligence to improve the process of buying and selling property in Latin America.
There is still room in the market for Latin American copycats of well-established US platforms and products, including an MLS, a Redfin, a Rocket Mortgage, an Opendoor, a Compass, and home equity loans for the Latin American market. The significant challenges for tackling real estate in Latin America include differences in regulations between each country, low levels of financial inclusion and access to credit, and antiquated systems for registration and property sales. However, for those who are using technology to improve the local real estate market, there is a tremendous opportunity to serve over 600 million people as they begin to invest more heavily in property.
There is room for innovation across the whole Latin American region for the entire real estate stack. In some ways (and in some areas), the real estate industry is very consolidated, while in others, it can be extremely fragmented, making it hard to get anything done. Technology is breaking through the challenges, but there is still a lot of room for growth in Latin American proptech.