Construction practices in Chile can only be improved with innovation and technologies

Construction has been a key business sector for economic development in every country, including Chile.  Economy cycles in this sector generally coincide with those of the whole economy since construction mobilizes large amounts of direct and indirect jobs, as well as public and private investment.

During 2017, the construction sector contributed with 6,5% of  national GDP;  investment in the sector amounted to US$ 27 billion; and there were 82,381 companies in the area, employing 695,740 people. (1) 

Construction income in Chile comes mainly from productive infrastructure (41%); followed by private housing (27%); Public Infrastructure (25%); and, finally, public housing (7%).

In 2016, the Chilean Superintendence of Banks and Financial Institutions  (SBIF) modified the minimum financing requirement for mortgages, which went from 90% to 80%, which affected sales from the  27% in private homes. This fact has been added, then, to the other existing challenges in this subsector, such as: the increased price of the square meter, real estate prices guided by location and connectivity, and decreasing average income of Chilean population.

On the other side, the former government established a tax reform which imposed VAT payment to all new and used property sales made by "habitual sellers”, causing an increase in their prices and the consequent deceleration sales.

Indeed, this new scenario for the housing sector in the Metropolitan Region is revealed by the "Annual Report of the Used Housing Market", published by Portalinmobiliario.com 2016.  It indicates that, compared with 2015, there was a 47% increase in rental information requests, and a fell by 14% in information requests for home sales.

Finally, we should remind that the construction sector has shown a steady decline in labor productivity that reached US $ 26,200 million in 2016, in contrast to the US $ 35,500 million that would have been reached if its productivity had increased in the same way as the rest of the Chilean economy did.

So far, business model in the construction sector in Chile for private homes has placed emphasis on shortening construction and sale deadlines, as well as looking for desirable locations, mainly well connected. These two factors are critical to the profitability of almost any business in this sector.

Moreover, national regulations indicate that before the evidence of low quality construction or damages derived from it, it must be claimed by legal action before the Ordinary Courts of Justice. In addition, sustainable construction standards are voluntary: the General Urban Planning and Construction Law contains basic standards for thermal insulation, which are audited, through simple eye review, by municipalities, once the houses are finished. In any case, buyers do not have any mean to verify the quality of the properties when they buy.

Then, operational costs of properties must be assumed by buyers and users, which can become particularly critical for private housing in relation to commercial or governmental buildings. As it was previously stated, existing tools to make after sale claims are weak in the first case,  meanwhile, in the second case, the principal is the same who manages the property once it is finished, and therefore he can make his own decisions affecting operation costs of the property.

In this scenario, with higher costs and risks in real estate investment, where citizens have begun to suffer the consequences of the current business model, and where is a decline in people`s quality of life due to an inorganic growth of cities; It is necessary to design, develop and implement new business models and technological solutions that can improve the performance of the real estate sector, change paradigms and increase profits for all market players in an equitable, reliable, and transparent way.

In order to contribute to increase productivity and diminish risk in real estate investments, Somos New City SpA and Re-ImagineGroup have already launched a project that seeks to develop a new tool and technological solution based on blockchain and Building Intelligence Modelling (BIM). Both systems together have enough capabilities to guarantee quality, sustainability and profitability in real estate projects that use them.